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Cardano is a smart contract platform focusing on security through layered architecture. It is the first blockchain project created from scientific philosophy and built on peer-reviewed academic research.

Cardano is built with both the end-user and regulators in mind by attempting to balance the need for regulation with privacy and decentralization, two core principles of blockchain technology.

The platform is unique in that it uses Haskell programming language which has a high degree of fault tolerance. With the relatively unknown future and complexity of blockchain-based systems, flexibility like that of Haskell allows for a certain margin of error to adapt to the future of the blockchain system.

Cardano’s goal is not to revolutionize the financial system as is the case with other blockchain projects, but, rather, to bring banking systems to places where they’ve previously been too costly to implement, namely the developing world.

How Cardano works

Cardano contains two layers which separate the ledger of account values from the reason behind transactions. This separation enables greater flexibility for the smart contracts written on the platform. Businesses can take advantage of this feature to tailor the design, privacy, and execution of each contract to best serve their specific use-cases. The two layers are the Cardano Settlement Layer and Cardano Computation Layer.

Cardano Settlement Layer (CSL)

The first layer of the platform is the CSL which serves as the balance ledger and was created as an improvement upon Bitcoin. This layer was developed from the whitepaper “Ouroboros: A Provably Secure Proof of Stake Blockchain Protocol” by Aggelos Kiayias.

The CSL relies on a proof-of-stake consensus algorithm to generate new blocks and confirm transactions.

Per Coincentral, “the roadmap for the CSL is as follows:

  1. Two sets of scripting languages
    1. One set to move value
    2. One set to enhance overlay protection support
  2. Sidechains to link to other ledgers
  3. Multiple signature types including quantum resistant signatures
  4. Multiple user-issued assets
  5. Scalability in which the capabilities of the system increase as more users join”

Cardano Computation Layer (CCL)

The second layer of the Cardano platform is the CCL which contains data on why transactions occur. Because this computation layer is detached from the CSL, each user of the CCL can create different rules when evaluating transactions. For example, one can create a “permissioned” ledger omitting transactions lacking AML/KYC data. This type of concern will become more important as blockchain regulation increases.

Cardano’s programming team is developing a new language to create smart contracts on the CCL called Plutus.  Low assurance applications on the platform can also use Solidarity, the language behind Ethereum smart contracts.

Cardano will also include a reference library of Plutus code available for use by developers in dApp projects. Additionally, the team is creating a set of tools for verifying code and improving code assurance.

KMZ Sidechains

Cardano will support sidechains based on a new protocol by Kiayias, Miller, and Zindros (KMZ) which utilizes proofs of proofs of work. The KMZ sidechain protocol enables funds to move securely from the CSL to any CCL or even any blockchain using the protocol.

Additionally, by using KMZ sidechains, ledgers meeting certain regulatory compliances can interact with the CSL without disclosing private information.

Daedalus Wallet

Daedalus is an open-source wallet created by the Cardano team with the intention to greatly expand its functionality. Daedalus will ultimately become a multi-currency wallet allowing exchange between the supported currencies, starting with Bitcoin and Ethereum Classic. It will also include an app store containing projects by the Daedalus community. Although Daedalus is currently only available online, it will soon be available on iOS and Android.

Ouroboros Proof-of-Stake

Cardano uses the Ouroboros Proof-of-Stake (PoS) algorithm to reach consensus on the state of the ledger instead of using the Proof-of-Work (PoW) consensus algorithm more frequently used by other cryptocurrencies.

In this protocol, slot leaders generate new blocks and verify the transactions. Anyone holding a Cardano ADA coin can become a slot leader. Once the “Follow the Satoshi” algorithm selects a coin you hold, you can become a slot leader and publish new blocks to the network. Thankfully, your node does this automatically, so, you are not required manually verify each transaction.

There are currently about 26 billion ADA coins in circulation. The Cardano team has stated a maximum of 45 billion coins will ever be created.

Cardano fees

The fees to transfer ADA vary and are determined by this equation, per Coincentral:

transfer fee = a + b * size.

a = a constant currently equaling 0.155381 ADA

b = a constantly currently equaling 0.000043946 ADA/byte

size = size of the transaction in bytes”

This effectively means the minimum transaction fee is 0.155381 ADA which will increase by 0.000043946 ADA with each additional byte added to the transaction size.

Transaction fees of each epoch are collected in a pool and distributed amongst slot leaders.

Cardano history

Three organizations are working together to develop Cardano: the Cardano Foundation, Input Output Hong Kong (IOHK), and Emurgo Charles Hoskinson, CEO of IOHK, formerly the CEO of Ethereum and, now, actively involved with Cardano.

Cardano is competing with other smart contract platforms, of which Ethereum is best known, but, also several newer projects such as EOS, Lisk, NEO, and NEM.

The Cardano team is attempting to distinguish itself from these platforms by focusing on scalability through peer-reviewed research and highly-secure coding practices.

Cardano trading

Cardano had a lengthy ICO between September 2015 and January 2017. The Cardano ADA token finally began trading on the open market in October 2017.

The price remained relatively stable until the end of November when it increased in value over 360% from ~$0.03 (0.00000345 BTC) to ~$0.14 (0.0000142 BTC) in 3 days. Since then, ADA’s price has stabilized to consistently stay between $0.12 and $0.14.

ADA has only been trading for a short amount of time; predicting its price moving catalysts is challenging.

Where to buy ADA

You can purchase ADA on a few of the major exchange platforms like Bittrex and Binance which have the highest ADA trading volume and offer it as a trading pair with Bitcoin and Ethereum. You need to first purchase Bitcoin or Ethereum on another platform (like GDAX and Gemini) and transfer it over in order to buy ADA on one of these two platforms.

ADA will soon be available for purchase through a network of 25 ATMs in Japan. For a complete list of exchanges to purchase ADA, visit Cardano’s official website.

Where to store ADA

In order to receive the reward from staking, you should store your ADA in the official Daedalus wallet. The wallet is currently only available on Mac and Windows, with a mobile wallet on Android and iOS anticipated to be released soon. Ledger is also working with a third-party to integrate ADA support; there is no known release date at this time.

In Conclusion

Cardano is an ambitious project undertaking many issues in the cryptocurrency industry. The potential security flaws of Ethereum demonstrated in the DAO hack and the Parity wallet breach highlight the importance of Cardano’s focus on code scrutiny and peer-reviewed security measures.

Although the sheer scope of the project is a formidable task, Charles Hoskinson’s leadership seems up to the challenge.

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