An Introduction to the Cardano Ecosystem

An open-source blockchain called Cardano was developed due to peer-reviewed academic research. The project was built from several scholarly articles rather than a single white paper that has been released.

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Compared to Ethereum and Bitcoin, which are considered the first and second generations, Cardano considers itself to be a "third-generation" protocol. Gerolamo Cardano, an Italian Renaissance mathematician, is the inspiration for the name Cardano, while Ada Lovelace, a 19th-century mathematician sometimes referred to be the first computer programmer, is the inspiration for the name of Cardano's native currency, the ADA.

Frequently, the Cardano community views their scholarly approach to development as a strategic advantage. The notion is that this method lowers the danger of outages and security issues, even though it does slow development, especially when compared to other projects that adopt a more tech startup style.

Five phases will make up Cardano's entire launch: Byron, Shelley, Goguen, Basho, and Voltaire. The project is currently in the Basho period, which went online in September 2022 and increased the network's scalability by introducing side chains to relieve the load on the main chain and lower transaction costs.

Voltaire is the network's last stage after the Cardano Basho era. As Cardano transitions from IOG's management, this governance phase will include a voting and treasury mechanism enabling holders to influence the decentralized network directly.

Additionally, by boosting the rate of transactions per second, the Cardano Hydra Layer-2 is planned to enhance the scalability and accuracy of the Cardano network.

A Brief History of Cardano

Charles Hoskinson founded Cardano after leaving Ethereum because he and Vitalik Buterin had different opinions on the best course of action. The former thought it was necessary to turn Ethereum into a commercial organization, while Buterin thought it would be more practical to stick with the non-profit path. Hoskinson, who had left Ethereum, established Input Output HK (now known as IOG) and rose to the position of CEO. In December 2016, he launched the ADA token offering to seek money to create a cutting-edge blockchain network, surpassing Ethereum and earlier platforms.

After the experiences with Bitcoin and Ethereum, Hoskinson believed the time had come to develop a new generation of blockchain technology. The idea was to blend the best elements of what had already been created. The new platform would overcome scalability, security, interoperability, and sustainability.

Therefore, Cardano was created to be a more efficient and environmentally friendly system than Bitcoin and Ethereum. This was made possible in part by Hoskinson's solid reputation, who, despite seeing numerous Initial Coin Offerings (ICO)-based projects and businesses fail, had already demonstrated his ability to create a successful project, namely Ethereum.

Team and Organization

IOG, The Cardano Foundation, and Emurgo back Cardano.

• IOG is a blockchain research and development company founded by Charles Hoskinson and Jeremy Wood that was contracted to work on Cardano from 2015 through 2020.
• The Cardano Foundation is a non-profit organization focused on core development and ecosystem growth for Cardano.
• Emergo is a Japanese venture capital firm.

Technology

Blocks, epochs, and slots are the temporal units used by the Cardano blockchain. Each epoch has 432,000 slots and lasts for five days. On average, there will be 21,600 nominations per period, or one nomination every 20 seconds. Each slot leader, picked at random, will be added to the chain if they create blocks. All more candidate blocks will be eliminated.

Thus, roughly 21,600 blocks are produced in each epoch, though the protocol's randomization allows for more or fewer blocks.

Cardano uses a variant of its Proof of Stake consensus algorithm called Ouroboros (PoS). To have the chance to build a new block, a leader of the interval (slot) is chosen at random, with a higher likelihood the more tokens he has (stake).

Since it takes one or more dishonest participants to hold 51% of the participants to hack the consensus and steal coins, the protocol offers mathematically verifiable security against attacks. This explains why leaders are chosen at random to create blocks.

Cardano's degree of decentralization enhances its security and makes it desirable to investors who appreciate this characteristic. To demonstrate this idea, consider that Cardano has a Minimum Assault Vector (MAV) of 22, which measures the number of people who would need to coordinate to carry out a malicious attack successfully. The MAV for Bitcoin, in contrast, is 5.

How are transaction fees calculated?

The network fee is determined each time someone wishes to transfer ADA. The transaction must include a minimum charge to be valid (although the sender is free to pay higher fees if they wish). The consensus participants then get distributions of all transaction fees accumulated in a virtual fund.

The minimum fees for a transaction are calculated according to the formula: a + b × size, where:

• a: is a constant
• b: is a constant
• size: is the size of the transaction in bytes.

Minimum fee. A transaction of 200 bytes in size (fairly typical) costs:

0.155381 ADA + 0.000043946 ADA/byte × 200 byte = 0.1641702 ADA.

Simple transactions with a low amount of UTxO usually have a weight between 0.03 and 0.10 KB. The weight increases with the increase in UTxOs, also with added metadata, or with NFT.

The Accounting Model: eUTXO

The accounting system used in Cardano (as in Bitcoin and other blockchains) is the Unspent Transaction Output. However, the accounting model most popular in the crypto industry is that of accounts in Ethereum and Blockchain.

Staking

With Cardano staking, you can delegate participation with your ADAs on a node and receive rewards for it. So the Proof of Stake consensus process allows individuals who do not host a validator node to participate in the network consensus. This contrasts with the Proof of Work (PoW) consensus protocol.

With this strategy, considerable amounts of the circulating supply of ADA have been staked to receive rewards that occasionally have provided run stake pools with an annual percentage yield (APY) of about 4%.

The Monetary Policy

Cardano has a solid monetary policy implemented without burning ADAs, unlike other blockchains manipulating their cryptocurrency. The supply set has a 45 billion ADA total.

Following the network's launch, IOG received about 2.5 billion ADA, EMERGE received another 2.1 billion, and the Cardano Foundation received 648 million.

Decentralized Governance

The Voltaire era is Cardano governance. The financing of the Treasury has the objective of providing funds to develop the activities of Cardano in the Catalyst through the community voting process, which has financed 939 projects for more than USD 25 million in its 8 financing Funds.

The Cardano treasury system is transparent and is financed from:

• 20% of the rewards of each epoch,
• 20% of the monetary expansion of each epoch, and
• donations

The Treasury began its financing with the Shelley era, in the epoch 208, on July 29, 2020, and to date, adds over ₳900 million (11).

In the future, the network will have its governance DAO (12) to further decentralize the ecosystem, changing KOHL’s dependency on central development for the choice of the community, to decide the path that Cardano will take.

Top Cardano Ecosystem Projects

Cardano has a thriving ecosystem with continued development in both the NFT and DEX space. Two versions of a Cardano Native token are in development with the algorithmic version Djed set to launch soon. The Fiat-backed Mehen token is earlier in its development.

Early on Charles and IOG put a keen focus on Africa and the potential of blockchain on the continent. The team have penned deals with local governments, most notably a deal to record the academic records of all student in Ethiopia (read more here)

In addition to their focus on Africa, the Cardano ecosystem also promotes RealFi projects. RealFi is a term coined by IOG Director of African Operations John O Connor. Refers to projects using blockchain technology to make real-world impact. Two stand out projects in the Cardano RealFi space are World Mobile, a project focused on bringing reliable and affordable internet connectivity to the continent and Empowa, a project looking to combat the affordable housing crisis in Africa through the sale of NFTs.

Flagship Perspective on the Cardano Ecosystem

At times Cardano feels like the project everyone loves to hate. Often referred to as a ghost chain, a reference to the fact that no one is building on the infrastructure, this is far from the truth.

The Cardano community is among some of the most loyal in the blockchain. As an ecosystem, many have brought into the slower, more methodical, academic approach to development. Time will tell if this approach will succeed against other projects' fast pace build, break and iterate approach.

For those interested in the long-term potential of blockchain and hoping to connect with a community focused on long-term sustainable growth over fast profits from flipping meme coins. Then Cardano and its ecosystem may be worth tracking.

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