Cardano and Proof of Stake

Cardano and Proof of Stake

Cardano ranks among the top cryptocurrencies in terms of market capitalization and share. It’s envisioned as a next-generation evolution of Ethereum being a flexible, sustainable, and scalable blockchain platform for running smart contracts, which will allow the development of a wide range of decentralized finance applications, new cryptocurrencies, games, and etc.  Smart contracts will be unlocked, helping Cardano to reach its goal of providing developers with a robust, secure, scalable, and highly energy-efficient blockchain platform. 

Cardano’s native cryptocurrency is ADA, which is similar to Ethereum’s native currency, ETH. Both currencies can be bought or sold by means of exchanges like Coinbase and On the Cardano network, you can use ADA to store value (perhaps as part of your investment portfolio), to send and receive payments, as well as to stake and pay transaction fees.

Cardano’s Function 

Founded in 2014, Cardano aims to be the most environmentally sustainable blockchain platform in the world. Instead of the energy-intensive proof-of-work system currently used by Bitcoin and Ethereum, Cardano uses a unique proof-of-stake consensus system called Ouroboros. Ethereum is also moving to a proof-of-stake system as part of the ETH2 upgrade thats been in the works for some time. To ensure that no user spends the same money twice, decentralized cryptocurrency networks need a central authority such as Visa or PayPal to act as a middleman. They do this through a “consensus mechanism.” The original crypto consensus mechanism was proof of work, popularized by Bitcoin mining. A proof of work requires a huge amount of processing power, which is provided by thousands of virtual “miners” around the world who compete to solve a time-consuming math puzzle. Upon winning, the blockchain will be updated with the latest verified transactions, and the winner will receive a predetermined amount of crypto.

How does proof of stake work? A network of validators, rather than a network of miners racing to solve a puzzle, is used in proof of stake. Rather than contributing processing power to secure the network and verify transactions like miners, validators stake their own ADA. Validators are rewarded according to the amount of ADA in their pools as well as the length of time they have owned it. Other validators can confirm the accuracy of the block after the winner validates the latest block of transactions. As pools reach a threshold, the blockchain is updated. Participants in the network will receive rewards in ADA, which will be distributed proportionally to their stakes. The responsibility of becoming a validator is immense, but interested parties can also earn rewards by delegating some of their crypto to a staking pool run by a third party. 

The Cardano blockchain also consists of two layers: The Cardano Settlement Layer (CSL) and Cardano Computing Layer (CCL). Accounts and balances are kept in the CSL and are validated by the Ouroboros consensus mechanism. Through smart contracts, all computations for apps running on the blockchain are performed at the CCL layer.

The idea behind dividing the blockchain into two layers is to ensure the Cardano network can process as many as a million transactions per second.

History of Cardano

As a third-generation blockchain (or blockchain 3.0) that builds on the technologies pioneered by Bitcoin (first generation) and Ethereum (second generation), Cadano was launched in September 2017 by Ethereum co-founder Charles Hoskinson. Known for its high scalability and energy efficiency, Cardano plans to become the leading smart contract platform. Research by computer scientists and cryptographers from the University of Edinburgh, Tokyo University, and other institutions led to the development of the Ouroboros consensus mechanism. The Cardano platform aims to be as energy-efficient as possible while serving as a decentralized network that provides scalable, secure transactions.

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