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An Overview: The Cardano Ecosystem
Published on15 Oct, 2022
Cardano, the world’s first crypto project backed by community governance and academic peer reviews, was launched in September 2017 after over 2 years of development. Cardano is an open-source Proof of Stake (PoS) blockchain that touts more advanced features than any protocol developed before. Cardano classifies itself as a member of the third generation of blockchains. Today, Cardano’s research-driven approach has secured it a spot in the list of top 10 cryptocurrencies by market capitalization. Over the years, Cardano has built a strong community, and with the launch of DApps on its network, Cardano is here to stay. Whether you are a crypto expert or a newbie, this article is your one-stop centre for details on the Cardano ecosystem, its operations, consensus mechanism, and tokenomics. Additionally, this report also briefly discusses major developments on the network, its current trends, and what’s yet to come for Cardano.
Cardano is a permissionless, open-source blockchain network. It is an iconoclast among projects of similar nature owing to its inclination toward academically backed techniques and scientific philosophy. All the important protocols of the network are structured around the information and techniques attested by over 120 peer-reviewed papers. This means that, instead of drafting a whitepaper and implementing it straight to code, the Cardano team takes efforts to undergo the trials and tribulations of the unforgiving, yet prudent and meticulous research community powering the web3 space. Experts around the world read their papers, and improve them, and only if they agree with the outcome, the paper is approved for implementation. As a result, the development team boasts an expansive global collective of expert engineers and researchers.
The first generation of blockchain was spearheaded by Bitcoin. It is essentially digital gold. It was used to transfer and store virtual money but is plagued with scalability issues. The second generation took off with the launch of smart contracts by Ethereum, demonstrating a novel use case for blockchain technology. This generation brought some relief to the scalability concerns, but not enough to become a global currency. Cardano belongs to the third generation of blockchain technology. The design of this project is centered around providing its users with a smart contract platform while simultaneously achieving the goals of scalability, interoperability, and sustainability.
For achieving consensus, Cardano uses its version of the Proof of Stake mechanism which they call Ouroboros. While Ouroboros utilizes Nakamoto-style consensus, where nodes follow the “longest chain rule” to achieve consensus, it claims to provide a green and sustainable alternative to the energy-hungry proof of work. The Cardano team states that Ouroboros employs the use of cryptography, combinatorics, and mathematical game theory to ensure the protocol’s integrity, longevity, and performance, as of its dependent networks.
While anyone can become a node validator on the network, the Cardano network does not allow just anyone to mine new blocks. Instead, based on the amount staked, the network elects a few nodes to mine the next blocks. These nodes are called "slot leaders". To bring it all together, Cardano divides time into epochs. An epoch is split into slots, each a short period in which a single block can be created. The network then elects a slot leader for each slot, and this is the only node with the ability to mine a block for that particular slot. Slot leaders can listen for, and validate new transactions and register them inside a block. This technique makes Cardano highly scalable because as the number of slots per epoch increases, multiple epochs can run in parallel. It is important to note that unlike most PoS protocols like Polkadot, Cosmos, and Solana, Cardano does not turn toward slashing to disincentivize malicious nodes. The modular design of the Ouroboros protocol does not require the use of slashing. In the event a slot leader is unable to verify a given transaction in time or doesn’t show up, the slot leader loses the right to produce a block and has to wait until the network re-elects this validator. This may also incentivize delegator participation. And since the user rewards are distributed by the protocol, there’s no chance of them getting withheld by any stake pool. Cardano has a throughput of 250 TPS, considerably higher than 4.6 TPS of bitcoin and 30TPS of Ethereum (Pre-Merge). This goes to show the scalability of the network.
Currently there exist more than 2500 stake pools on the Cardano network for ADA holders to delegate their stake on and earn rewards. In exchange for contributing in the consensus process, the pools receive rewards in form of newly minted ADA, which is then commensurately distributed among the stakeholders, depending on the size of their stake.
The development of the Cardano network follows a 5 step process, each serving an essential milestone to implement upgrades and add new functionality to the network. These phases are named after famous figures of history including exceptional scholars, mathematicians, and scientists:
ADA is the native token of the Cardano network. ADA can be used for earning rewards through staking, paying transaction fees on the Cardano network, and making important developmental decisions through on-chain governance. Like Bitcoin, ADA abides by a fixed monetary policy that caps the total supply of ADA at 45 billion. As of October 2022, the token supply in circulation for ADA is ~34 billion. When it was first launched, the price of Cardano saw a quick surge which then gradually stabilized. Throughout its existence, Cardano has traded at a relatively low price primarily because it is a new entry in the blockchain space and has not gained as much traction as Bitcoin or Ethereum. The relative price per share (ADA) also depends on the supply of the tokens, and ADA’s ample supply contributes to its low trade price. But ultimately, ADA is limited in supply, and if Cardano delivers on its promises and persists through the treacherous perils of the ongoing crypto winter, a high demand (hence a higher price) of the token is likely to occur in the future.
Investors: 83% ; Founders & Project: 17%
The initial supply of ADA was distributed through a series of rounds of public token sales (initial coin offerings) conducted from September 2015 to January 2017. Cardano disseminated about 25.9 billion ADA vouchers through this sale for a total of $79.2 million. Following the mining of Cardano’s genesis block, about 5.2 billion ADA was distributed among the three founding institutions of Cardano; namely IOHK, Emurgo, and Cardano Foundation. With 31.1 billion ADA accounting for the initial supply of the token, 13.9 billion ADA are due to be distributed in the coming years as network incentives. Cardano’s move to make 83% of their initial circulating supply publicly available sets them apart from other popular projects such as Solana and Avalanche where at least 40% of their initial token supply is held by advisors, team members, network operations, founders, and venture capitalists.
Initial Distribution: 69% ; Ongoing Issuance: 31%
Apart from gathering considerable retail interest from investors, the Cardano network has also attracted attention from commercial and governmental institutions. The partnership of IOG and the Ethiopian Ministry of Education provided students and teachers with a decentralized grade verification system and performance tracker and gained many accolades for this initiative. The government of Zanzibar also joined hands with IOG and World Mobiles to promote the sustainable use of the nation’s water resources. Commercial projects like partnerships with Wolfram, Scantrust, DISH, and Acuant are a testament to the potential of the project and its massive surge in adoption for various purposes.
As of October 2022, Cardano also seems to be facing the deleterious effects of the tightening markets. With the rising uncertainty about the state of the global economy, the ADA has still managed to trade at a stable ~$0.48 (avg) through Q3 of 2022. Consequently, the daily transaction count also saw a fall from an average of 1,00,000 transactions per day in Q4 2021 to about 67,000 in Q3 2022. For perspective, this is only a 25% fall in the transaction count from Q2 2022, despite the depreciation of ADA. Most networks akin to Cardano can’t boast of such stability in such a hostile financial environment. When this financial winter subsides, Cardano will most likely prevail and bask in the glorious light of the day.
Recently Cardano announced the launch of the new Lace wallet. Lace is integrated with a self-sovereign identity (SSI) platform called Atala PRISM, which uses the Cardano blockchain to function. Using this wallet, users will be able to manage all their digital assets in one place. This step plays an important role in realizing the ambitious plans for ADA and following the Cardano roadmap. Steps such as being able to prove one’s age without sharing address and name is an extraordinary step in the field of user privacy and security.
This article takes a deep dive into the pioneering plans of the Cardano network and how it plans to achieve them. We have also seen the current status of the project and have briefly analyzed its on-chain metrics and projects. Cardano is attempting to tackle many challenging problems. It is undoubtedly very promising, but its ambitious nature may arouse hesitance. But one must not forget that the project is still in the nascent stages and has a long path to traverse. Perhaps their novel approach is what will solve some long-standing and fundamental issues plaguing the web3 space. We will have to wait and find out.
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Luganodes is a world-class, Swiss-operated, non-custodial blockchain infrastructure provider that has rapidly gained recognition in the industry for offering institutional-grade services. It was born out of the Lugano Plan B Program, an initiative driven by Tether and the City of Lugano. Luganodes maintains an exceptional 99.9% uptime with round-the-clock monitoring by SRE experts. With support for 36+ PoS networks, it ranks among the top validators on Polygon, Polkadot, Sui, and Tron. Luganodes prioritizes security and compliance, holding the distinction of being one of the first staking providers to adhere to all SOC 2 Type II, GDPR, and ISO 27001 standards as well as offering Chainproof insurance to institutional clients.
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