Cardano – The Third Generation Blockchain

The Cardano project aims to achieve great goals. It progresses on this path slowly, but surely. Their scientific approach to research and development is unmatched in the world of cryptocurrencies, and they are setting the standard for others to follow. The goal of Cardano is to be more than just a cryptocurrency for transactions, they want to create a platform on which entire businesses can operate, even whole countries. That includes transactions, public records, smart contracts, dapps, etc.

Now, a third-generation blockchain, what is that? Let’s start at the beginning.

Bitcoin is considered a first-generation blockchain. It was the first digital currency that successfully solved the double-spending problem. Bitcoin was the first to create a decentralized blockchain that can support transactions without the need for an intermediary or oversight.

It doesn’t support smart contracts, which doesn’t make it very suitable for doing business online. Specifying conditions of the payment is impossible, it is only possible to pay.

Bitcoin is just an asset, and it can’t be upgraded or changed.

Because of this people started thinking about new possibilities that blockchain technology can offer.

Ethereum is the most famous second-generation blockchain. On top of the ability to send tokens or pay, people can also specify conditions for payment i.e. create smart contracts. Charles Hoskinson was one of the original creators of Ethereum alongside Vitalik Buterin and others.

Scaling second-generation blockchains is not easy, and scaling for millions of users is proving impossible, especially when there is a need for tens of thousands of daily transactions.

Governance becomes an issue over time. When there is something that the community cannot agree on, we see hard-forks, for example, Ethereum and Ethereum Classic, etc. This is also true for first-generation blockchains.

These problems motivated people to keep looking for better solutions that can tackle these problems effectively.

Cardano is a third-generation blockchain that aims to overcome the problems we see with the previous two generations of blockchains like scaling, governance, etc. It constantly adds new ideas, programming languages, etc. to the world of crypto. The way they approach research is following; first, they conduct research, then they write a scientific paper, then those papers get reviewed by scholars around the world. This way of development takes a longer time, but it ensures that the research is sound and that there are no blind spots!

Cardano’s development focuses 3 major points:

In this article, we are going to focus on scalability and Cardano’s implemented and proposed solutions to scale for millions of users without compromising anything, especially not security.

When we talk about scalability the first thing that comes to mind is the number of transactions per second that a network supports. But there is more to it, especially on a platform that supports dapps and smart contracts which Cardano will have in its next era named Goguen. Every transaction carries data like amount, conditions, time, sender, receiver, etc. and that requires high network bandwidth. So, to solve the scalability problem successfully Cardano takes on all three: 

Increasing the number of TPS in PoW systems is very difficult and costly. Cardano’s solution is Ouroboros, the algorithm of the Cardano network. Ouroboros was accepted at 

, and other than Bitcoin, no other cryptocurrency has gone through so much scientific scrutiny. So, when you read that Ouroboros is a provably secure PoS system, it is more than just marketing, it’s a fact.

Ouroboros breaks down time into epochs which last 5 days. Every epoch is further divided into slots that last about 20 seconds. Ouroboros then looks at the stake pools and their total live stake, and from a set of numbers randomly chooses 

 (nodes to confirm the next block) which remain unknown until they confirm the block. This makes it impossible to attack a slot leader since no one knows who it is. Slot leaders do what miners do in a PoW network. This randomness and hidden identity provide Cardano similar safety guarantees that Bitcoin has, but with an immensely cheaper cost of running a secure network. Because confirming a block is very easy, slot leaders (nodes) can, at the same time, confirm blocks in other chains. That means that it is possible to have sidechains that will have the same level of security and scalability as the original Cardano blockchain. On top of that, to solve the throughput problem, Ouroboros can run multiple epochs in parallel at the same time. So, let’s say we have 3 epochs running, that instantly triples the number of possible transactions in a second that the Cardano network can support, and this is possible without increasing the overall cost of running a secure network.

Cardano’s approach to network bandwidth

To solve this issue Cardano uses a RINA or Recursive Inter-Network Architecture. RINA is a relatively new technology that aims to give privacy, scalability, and transparency that we have in networks like TCP/IP. It will allow for Cardano to be configured as it grows to millions of users and tens of thousands of TPS.

In PoW networks, every miner has a full copy of the blockchain that contains all the data of all the transactions that have ever occurred on the network. So as the number of users grows, new problems arise, and not all computers will be able to meet the criteria necessary to participate in creating the network consensus. In reality, not every node needs the information about all transactions that have happened, the majority of nodes need just enough to confirm that the transaction is not a double spend.

Pruning, compression, and subscription are some of the techniques that can reduce the amount of data that must be stored on a particular node. Another idea is called partitioning, which simply means that the nodes will only have a part of the blockchain, enough to be certain that the transactions are valid and not a double spend.

Some of these solutions have been implemented and others are in the works, but they all have in common is that they all underwent the same type of rigorous, peer-reviewed research before getting the green light. This is the biggest strength of the Cardano network, the work behind the project is science, not guessing in the dark.

(2610) IOHK | Cardano whiteboard; overview with Charles Hoskinson - YouTube

Proof-of-stake protocol, Ouroboros, at Crypto 17 - IOHK Blog

Cardano and Scalability

Ethereum physical coin. Ethereum for beginners. 

  The creator of Ethereum is Vitalik Buterin. He published the Ethereum whitepaper in 2013, and a year later Ethereum was officially announced. Ethereum was created with the idea to expand on what Bitcoin has started, to do more than Bitcoin can.

   So, Ethereum is not just a cryptocurrency running on a blockchain. It allows people to create smart contracts and decentralized apps (dapps), which can be programmed to operate on the Ethereum blockchain and perform various functions, and all this without further human interaction, without the need for an arbiter, controller, etc.

   Ethereum burst onto the scene with great support from the crypto community, and thanks to many other successful individuals joining Vitalik Buterin in the early stages. Ethereum gained world-wide recognition very fast, and now it is the second-largest cryptocurrency, right after Bitcoin.

Ethereum is the name of the network (blockchain) and Ether is its cryptocurrency, which helps with the execution of smart contracts and dapps. Ethereum can be mined or bought at an exchange, just like Bitcoin and other cryptocurrencies.

As we mentioned, Ethereum is more than just a blockchain that records all transactions that have happened. It a programmable platform that runs on a decentralized network or the Ethereum blockchain. Ether is a crucial part of this network as it helps with running the network.

Ethereum allows people from all over the world to create and run dapps and smart contracts, that cannot be censored, controlled, shut down, etc. The smart contracts and dapps will perform only as their programming dictates, and that’s it. After they are deployed onto the Ethereum blockchain, its cryptocurrency Ether allows for different kinds of transactions and operations of dapps and smart contracts.

Just like Bitcoin, Ethereum isn’t controlled by any bank, government, or any other authority. The Ethereum blockchain (like any other decentralized blockchain) cannot be altered, censored, shut down, nor controlled. There are thousands of miners, volunteers, and developers around the world that make sure that the network stays operative and safe.

   Ether is the digital currency that runs on the Ethereum blockchain. People that want to program dapps or smart contracts on the Ethereum blockchain have to pay people that run the network some amount of Ether tokens. The same goes for people that want to use those dapps later.

   On top of that, you can also use Ether to pay for some services or even as a payment method outside the network. And of course, you can sell your Ether for cash, just like Bitcoin.

   Everyone knows what apps are. So what are dapps? It’s simple, they are decentralized apps, and just like regular apps they can do various things with a key distinction: they run on a blockchain. Since no one controls the Ethereum network, no one can control dapps that run on it.

All of its records and data must be public.

Must operate without anyone controlling it.

   Now, the world is not perfect, and these are not mandatory rules, more like guidelines in spirit with the goal of blockchain technology (democratization, transparency, etc). So, there are dapps out there that follow all, that follow none and follow some.

   Smart contracts are code that is programmed onto the Ethereum network. The function of a smart contract is defined by its code, and when the conditions are met, it executes, without the need for someone to approve it. They can be used for doing business online, loaning cryptocurrency, writing a will, etc. Smart contracts on Ethereum simplify doing business online, remove the need for legal documents (because they are SMART contracts), and simplify human interaction online by reducing the number of disputes, and removing a need for a third party to monitor deals and transactions.

   Everyone has heard of Upwork. Let’s say you create something like that on the Ethereum blockchain. Now, professionals from all over the world can exchange services for Ether, with the help of smart contracts. This way there would be no need for any intermediary, you wouldn’t have to pay for fees (other than network fees). Whatever is written in the smart contract, must be done or there will be no payment. Also, a freelance wouldn’t have to worry about payment, because once the smart contract is deployed, all the freelancer needs to do is honor the contract, and the payment will be automatically released, regardless of the wishes of the employee, or anyone else for that matter. Pretty neat.

   This was just one example of the power of smart contracts, and the possibilities are endless. Just like with the internet, in the beginning, there was just email as a feature, and now, everything is online, even kitchen appliances. The same goes for Ethereum and its amazing ecosystem of smart contracts and dapps. We will see entire businesses, games, social networks, exchanges, and who knows what else, on the Ethereum blockchain

What is the Difference Between Ethereum and Bitcoin?

   They are the two biggest cryptocurrencies and oftentimes they are mentioned together, they do have similarities, but they are not the same. Bitcoin was the first cryptocurrency, and its goal was to create a completely decentralized, global, peer-to-peer network. For the first time, people were able to send and receive money without any monitoring by a central authority. Bitcoin was the beginning, a revolutionary idea put into practice.

   Now that Bitcoin was up and running, the word slowly started spreading, and people started thinking of ways to add to the blockchain technology, how to improve, innovate, etc.

   Ethereum also uses blockchain technology for its network, but unlike Bitcoin, Ethereum’s blockchain can be programmed with dapps and smart contracts, which gives it more applications than just a cryptocurrency or a store of value. So, they are similar, but not the same, and just like Bitcoin, Ethereum has its problems. The network has become too big, and (for now) it is not efficient, and transaction fees are extremely high because Ethereum is limited to 15 transactions per second. That is simply not enough for such an appealing ecosystem, when everyone wants to try building something on top of it, buying something with Ether, etc. But, just like with Bitcoin, the Ethereum community is actively working on solving this problem dubbed ETH 2.0.

   As we said Ethereum is more than just its cryptocurrency, Ether. It is a decentralized platform that allows people to create their own dapps and smart contracts without any approvals from a central authority. Its innovation into the crypto space was just as big as Bitcoin’s, and it furthers the goals for decentralization and democratization of money and the internet. It helped to accelerate the bright future of cryptocurrencies and blockchain technology.

   Dapps and smart contracts will inevitably change (for the better) industries like banking, social media, healthcare, real estate, entertainment, etc. Predicting exactly what will happen with Ethereum in the future is impossible, a lot depends on the developers, and maybe even more so, on the adopters. What is certain is that Ethereum is a sea of possibilities, and when they roll out the solution for more transactions per second and lower transaction fees, we can only expect for the Ethereum ecosystem to grow larger.

Ethereum for Beginners

                         What is Bitcoin?

. It was created in 2008 by a person or persons under the pseudonym Satoshi Nakamoto. There are many speculations as to who Satoshi Nakamoto is, but that is all they are, as there is no definitive proof.

   Bitcoin and blockchain are often mentioned together, but even though one without the other cannot exist, they are not the same. Blockchain is the underlying technology that makes Bitcoin work, and Bitcoin is the application of blockchain technology. You should also read our article about 

 It is a payment network that has its own digital currency or cryptocurrency. The network is the blockchain and the currency is called Bitcoin. The number of total Bitcoins is 21 million, and no more than that can ever be created. One Bitcoin can be divided into smaller units called Satoshis, where one Bitcoin has 100 million Satoshis. The network is run by miners that process and record the transactions on the blockchain, and for their work they get Bitcoin.

                         What is Cryptocurrency?

   As we said before, Bitcoin was the first cryptocurrency, so what is true for Bitcoin is true for all other cryptocurrencies, with slight changes their creators made.

   A cryptocurrency is a form of digital currency that runs on top of a decentralized network that we call blockchain. One can’t go without the other. Without blockchain technology there could be no cryptocurrencies. Nowadays, there are thousands of cryptocurrencies that run on different variations of blockchains. They bring innovation, different features, and applications, but they all aim to solve real problems and they are all run on blockchains that were inspired by Bitcoin.

                      What makes Bitcoin valuable?

Bitcoin’s supply is limited to 21 million, and that makes it scarce.

Bitcoin transactions cannot be stopped or censored.

Anyone can send any amount of value, at any time, from any place, to anywhere in the world, and to any other individuals, without limitations, and without a bank!

Its blockchain is an immutable record of all the transactions of value that have happened. That makes Bitcoin the truth, without any ifs and buts, just the truth.

It is more practical and it is safer than regular cash.

Bitcoin is secured by the miners around the world, so if anything happens to some of them, or if some machines break down, the blockchain keeps operating without any problems, and Bitcoin transactions will continue going through.

    Who are Bitcoin Miners? Why are Miners Important?

   We said before that Bitcoin operates on a network we call blockchain. Ok, but who runs that network? You got it, the miners. They have machines that all work together in creating a block consensus on the blockchain. Firstly, the mining rigs solve complex mathematical problems (cryptography) to validate transactions on the blockchain, and the first one that solves it validates the block, and the chain continues with a new block. Secondly, computers running the network all communicate with each other, and when a transaction is confirmed (validated), then it is included on the next block on the blockchain.

Miners are individuals or groups of people that pool their resources together to keep the network running smoothly. When I say resources I mean their machines. In the early days, mining Bitcoin was easy, and a regular laptop or desktop computer was enough. Over time, mining gets more and more difficult, the problems that computers have to solve have become increasingly more difficult. Because of this, miners buy specialized computers that were designed for mining Bitcoin. The ideal situation would be if billions of people around the world had their own mining rigs. That way, the blockchain would be impossible to compromise. But, because of the price of the mining equipment and the energy cost (which is very high now), that is not the case. Now we have very large mining pools that dominate the mining power on the network, and this is not what Bitcoin is about. The energy cost and large mining pools are the biggest threat to Bitcoin and its future, but it is still early to tell what will tomorrow bring.

                  How does a Bitcoin Wallet Work?

 that can be installed on your smartphone or your computer. This app then allows you to send and receive Bitcoin transactions, from anyone and anywhere in the world. This is what is called hot storage. 

 means that you are using an app to store your Bitcoin and that it can connect to the internet. Hot storage apps are very useful and pragmatic, but they can be hacked if you are not careful with your information online. The second kind of 

. That means that you are storing your Bitcoin in a way that can’t connect to the internet. For example, it can be a hardware wallet, that is similar to an external storage device that contains your private and public keys, and you can send your Bitcoin only by connecting your hardware wallet to your laptop or computer with an internet connection.

. This is very important! What makes Bitcoin unique is that no one can control, steal nor seize your Bitcoin, but only if you 

. So, the private key is like a password that allows you to send your Bitcoin to others, and the public key is like your bank account number where everyone can send you Bitcoin. Never, under any circumstances, share your PRIVATE KEY with anyone! Now, hot storage wallets allow you to have access to your Bitcoin at any time, but they also contain your private keys (majority), which can cause loss of Bitcoin for beginners. Cold storage wallets are safer, and the drawback is that you can’t access your Bitcoin at any time you want, namely you must have a laptop or a PC with an internet connection and your hardware wallet with you. This is a very important point, so if something was left unclear, you can contact us, and remember: “Not your (private) keys, not your wallet”.

                                            Where can I Buy Bitcoin?

   This largely depends on where you are from. Most Bitcoin trading is done on exchanges like Binance, Gemini, Coinbase, etc. Now, they all have restrictions for some countries. You can check a list of their supported countries, and restricted countries on their website. If your country is on the supported list, you can buy on the exchange of your choosing with your credit card or via PayPal. But, before you do so, make sure to do a bit of research on the exchange, especially if it is not a well-established one. Due diligence is your best friend in the world of cryptocurrencies, and this is especially true for beginners.

   If your country is on a restricted list, that means you can’t buy Bitcoin on that particular exchange via bank transfer nor PayPal. It might be possible for you to make a purchase through someone else (intermediary), and receive Bitcoin on the exchange, but that is a risk and we advise against that. The best course of action is to do more reading, find another exchange, or even better find a person that wants to sell their Bitcoin. You should always buy from others in person, and not over the internet. There is also another way, decentralized exchanges or DEX. DEX is just like a regular exchange where people buy and sell Bitcoin and other cryptocurrencies, with one big distinction. They are run on the blockchain, they are decentralized, and they cannot be censored nor controlled. Buying on a DEX is very similar to buying on a centralized exchange, but like always, before you buy anything anywhere, 

                   Bitcoin and Cryptocurrency Tips

   Here are some thoughts for the road, I wish someone had told me when I started my Bitcoin and crypto journey.

, and make sure that you are well informed before making a decision that can cost you your hard-earned money.

. Any kind of trading should not be taken lightly, and in the world of cryptocurrencies, it is even more so. It is very easy to lose your money, while making it requires a lot of knowledge, following the relevant news, time, energy, etc. It is not for the faint of heart.

. This will increase your interest because now you have a stake in this new world. You will start checking the price of your investment, you will read more, and most importantly you will learn more!

. I made a couple of mistakes along the way. Waiting for a drop in value, waiting to save up more money before I buy, etc. Over time the value of Bitcoin went only one way (despite short-term ups and downs), it went up, up, up.

” article, but we feel it is important, so here it is again. Bitcoin and blockchain technology are much more than just sending and receiving money simplified. Blockchain technology is giving birth to a new world right now, as you are reading this! It is a truly transformative and disruptive technology. Just like the internet was in the 90’ and early 2000’. And just like the internet did, it is growing fast, with more and more front-page stories, adoption, corporate interest, retail investors’ interest, etc. And Bitcoin is a great entry point to start getting familiar with the future!

Bitcoin for Dummies

Cardano is the first third-generation blockchain – its goal is to be able to understand other blockchains and what is happening on them. We already have thousands of cryptocurrencies today and in the future there will be more, all of them focusing on specific problems or bringing a different solution, beyond decentralized money. The banking system will also be present. Now imagine thousands of blockchains and different banks, and all of these systems have their own language but they cannot communicate with each other.

The goal of Cardano is to become a decentralized currency, a cryptocurrency, yes. But it is much more than that. The ultimate goal is to bring interoperability between thousands of cryptocurrencies and the banking system. Cardano aims to create a platform that can bridge the gap and allow different chains to understand each other, send and verify transactions, etc.

Nowadays, there is no possibility for Bitcoin and Ethereum to understand each other, and sending direct transactions is impossible. You need a middle man for that, a centralized exchange (DEXes are not there yet). If you need a middle man, that defeats the purpose of cryptocurrencies, which is decentralization. Centralized exchanges become too powerful and subject to regulation, hacks, etc. The same thing with banks happens all over again.

Side-chains were proposed years ago, it is not a new solution. The goal is to send transactions across different chains, in a way that is 100% verifiable, i.e. that the person sending coins actually has them, and that it is not a double-spend. This requires structuring information in a way that can be read and understood by 2 different chains that are doing the transactions.

Let’s say all blockchains can communicate with each other. We still have a banking system that is not going away any time soon. The communication between the banking system and the world of crypto is even more complicated than communication between different blockchains. The reasons for that are metadata, attribution, and compliance. All three are almost non-existent in crypto but extremely important in the traditional banking system.

Metadata represents information about transactions, other than the amount spent. It is not important how much money someone has spent but where, on what, how long has a company existed, etc. This type of information doesn’t really exist in the world of crypto but it is extremely important in the banking system, for example, risk assessment. Metadata can be implemented on Cardano fairly easily but the problem is that it stays on the blockchain forever, and it is available for everyone to see. This information is personal and it is a problem just putting it on Cardano where anyone can have access. So the goal of Cardano is to devise a way to input metadata on the blockchain that will protect the privacy of the participants. It can be optional for people that work with the banking system, encrypting the data, restricting visibility, etc.

Attribution is information that belongs to metadata but because of its importance, it is put in a separate category. It represents information about where the money comes from and where it is going, who was involved in the transaction. It can be done on the Cardano blockchain. The problem is establishing the identity of users. If everyone had a public key, like a crypto wallet, for their identity this process would be seamless. We have the same problem with privacy as with metadata. Eventually, every user will have the option to create their public key for their identity. So, revealing the public key can be optional, it can be revealed in a restricted way, etc. This is not the case yet but it can already be done!

Every bank has to follow certain rules and regulations. For example:

All businesses that provide some kind of money service have to follow these laws, including banks. Now, in the world of cryptocurrencies, the regulation is still behind the innovation, and because of that, it is difficult to do direct transactions from a blockchain to a bank. This can be solved by implementing solutions for the first 2 problems; metadata and attribution. After that regulatory organs will decide whether a transaction complies with the laws or not. Cardano’s solutions for interoperability are already there, it just takes time for the world to catch up!

Cardano – The Third-Generation Blockchain

We covered scalability, and in our next article, we will talk about sustainability. These three goals are very complex and require an academic approach – research, publish, review, implement – the Cardano way!

Cardano aims to be the glue, the bridge that connects different blockchains with each other, and with the banking system. It aims to bring interoperability between different technologies in a seamless and streamlined way, without any interruptions. One day we will all be able to participate in a global marketplace from every part of the globe, and all that will be necessary is a smartphone.

Cardano and Interoperability

 of the platform is Gerolamo Cardano, who was a 16th-century Italian polymath. All the names in the Cardano ecosystem are inspired by important historical and mythological figures.

Cardano is an open-source, decentralized, Proof of Stake network that has a big community with an academic approach to development. Cardano's community has many scientists, mathematicians, and developers working together to further improve and secure the network.

Cardano’s blockchain uses a PoS algorithm called 

. Ouroboros was written in Haskell. It is a recently developed programming language that focuses on 

 a mathematician by education. Charles Hoskinson was also one of the co-founders of Ethereum.

Cardano is the first-ever PoS cryptocurrency that is scientifically and provably secure. Cardano is probably the future of cryptocurrencies. Their scientific approach to research and development has given the world one of the most secure cryptocurrencies in the world.

Cardano’s development relies on peer-reviewed scientific papers. This makes its development slow when compared to other cryptocurrencies but steady, and supported by scientific evidence.

ADA can be stored in Daedalus or Yoroi wallets. ADA can be used on the Cardano network for transactions, just like any other cryptocurrency. The transaction fees are very low, and the network confirmations are quick. Cardano will soon support smart contracts and dapps, and ADA will be used for running the new ecosystem as well.

Cardano was created by Charles Hoskinson, who was one of the seven Ethereum co-founders, and Jeremy Wood who also worked on Ethereum, where they met.

The two of them started working together on a new PoS blockchain platform that will support dapps, smart contracts and that can expand real-world uses and applications of blockchain technology. So, they started a company called Input Output Hong Kong or IOHK. Nowadays IOHK and Cardano Foundation work on researching solutions and further developing the Cardano network, with thousands of researchers from all over the world that aid them with researching and reviewing the proposed solutions before they are implemented.

So, Cardano was created in 2015, but that first phase of development lasted for 2 years before it was finished. During that period the Cardano team raised over 60 million dollars for further development. Cardano is also the only blockchain platform that has passed an audit by the IACR or International Association for Cryptologic Research.

Cardano is a Proof of Stake decentralized network 

that is built on top of a blockchain that uses a PoS algorithm called 

, and its native cryptocurrency is called 

. It was created in 2015. The development of Cardano is meticulous, with an academic approach, which makes it slow but steady. The ultimate goal of Cardano is to become a global, decentralized network that can be used for transactions, dapps, and smart contracts.

Bitcoin is considered a first-generation cryptocurrency, Ethereum is considered as the second-generation, and Cardano is a third-generation cryptocurrency. Cardano and Ethereum are direct competitors since both are aiming for similar goals. The development of Cardano is slow but steady. Its edge over other competitors is the academic approach and peer-reviewed research that is conducted before any changes are implemented.

Cardano didn’t release the usual whitepaper, but instead, they have a set of peer-reviewed academic papers that explain in great detail the technology and the philosophy behind the project. Cardano's community of  contributors is filled with Ph.D.’s, researchers, developers, etc. This is why the development is slow. The scientific approach to research and development requires time to implement fully.

The full name of the cryptocurrency ADA is Ada Lovelace who was a 19th-century mathematician. She is considered the first computer programmer and she was the daughter of Lord Byron. ADA is the native coin of Cardano. It is a token that can be used for transactions between the users on the Cardano network, and smart contracts and dapps soon.

Cardano’s first layer is called the Cardano Settlement Layer of CSL. This layer is the ledger that records transactions on the blockchain and allows for quick transactions with low fees. It is fully functional. Cardano's second layer is called the Cardano computation layer or CCL. The second layer is still being developed and it is scheduled for 2021. Its goal is to support smart contracts and dapps. This separation makes scaling easier for Cardano. 

There are 3 main problems that all cryptocurrencies try to solve: 

Decentralization, Scalability, and Security

. The blockchain trilemma is hard to solve and something has to give. Currently, there are no cryptocurrencies that have all three completely figured out. Cardano has a plan, expressed in the Cardano roadmap, how to solve each of the three problems.

Cardano’s heart and soul is Ouroboros. It is a Proof of Stake algorithm with some extra features that make Cardano unique in a sea of PoS blockchains. Ouroboros eliminates the need for mining, completely. Instead of mining, a transaction is mathematically validated through a random node. Ouroboros allows fast transactions with low fees without sacrificing security. The nodes are chosen randomly. The more ADA a node stakes the bigger are the chances that will get chosen to validate a block. Ouroboros ensures security and randomness, and it is a first of its kind.

Epochs are time periods that last 5 days. If you are using Daedalus wallet you can see the countdown to the next epoch. Epochs are further divided into slots that last 20 seconds. Each slot has a slot leader. The slot leader (node) is randomly chosen to add the next block to the blockchain. This all happens within 20 seconds, the duration of a slot. With the addition of the new block, the slot ends, and a new slot begins. This whole process is facilitated by Ouroboros. 

Cardano Roadmap is their entire plan of development and goals they want to achieve. The names of the eras on the roadmap reflect Cardano’s philosophy and scientific approach.

There are 5 eras in Cardano Roadmap and they are all named after great historical figures.

Right now, we are in the second or Shelley era of Cardano development. Later this year the beginning of the Goguen era is scheduled. In the third era, Cardano will support dapps and smart contracts. All eras are being developed simultaneously, but they are being implemented one by one. Finishing the roadmap will take years of research and development, proposed papers then reviews, proposed solutions, etc. Every era has a countdown to the release.

Cardano has set some lofty goals, for sure, and since 2017, when the mainnet went online, they had some ups and downs. But the development never stopped and they are up again. Keep in mind that Cardano can be used for seamless transactions now, but it is still not a finished project and there is much more to come. Recently they implemented a new upgrade called Mary which will allow developers to create custom tokens on the Cardano network. Also, the Goguen era is set to begin this year. That means support for dapps and smart contracts as well.

We feel optimistic about Cardano, and so do many others as it recently became the third cryptocurrency in the world by market capitalization, just behind Bitcoin and Ethereum. Cardano already has an up and running PoS system that is secure, efficient, doesn’t waste power, and doesn’t require supercomputers to run the network. Those are already great achievements and there is more in the works!

Cardano (ADA) Introduction

Mining computer for mining cryptocurrencies.

Proof of Work (PoW) and Proof of Stake (PoS) are the most common consensus algorithms used for blockchain technology and cryptocurrencies. The purpose of both is the same, to validate transactions of people on the blockchain. But even though their purpose is the same, how they achieve it is not. Let’s dig a bit deeper.

for short, is a system of validating the blockchain by mining (computers solving complex problems). This requires different levels of computational power to finish and validate a block (depends on the blockchain). On PoW blockchains, mining difficulty increases over time. The more miners there are on the network, the complexity of the mathematical problems for the computers to solve also increases. Because of this, PoW blockchains require a lot of computational power and electricity.

So, if you want to become a miner you need a certain level of computational power to have a chance of validating the block and receiving a mining reward. If the mining difficulty for validating a block is too easy, then the risk of falsification increases. Because of this PoW blockchains increase the mining power over time, which in turn increases the computational power requirements, which leads to sky-high electric bills.

So, if a person or persons wanted to attack a blockchain and falsify the records, they would need to have computational power that is unimaginably big. This city of computers would then need a nuclear power plant to power the attack. This makes honest mining profitable and trying to falsify the blockchain records, extremely expensive and unprofitable. This makes Proof of Work blockchains very safe.

Proof of Stake was first introduced in 2012, and it was created to resolve the problem of energy and hardware dependency of PoW blockchains. 

 systems have the same purpose as PoW systems, validating the transactions and keeping the blockchain safe from any attacks. But they do so in very different ways.

Instead of computers racing to solve increasingly difficult mathematical problems (PoW systems), PoS blockchains work on a system of participation by the owners of the cryptocurrency on that specific blockchain. With PoS blockchains there is no mining, and there is no racing to validate the next block. A random participant (node – person or persons that own cryptocurrency on the blockchain) gets selected, and he (his computer/server) validates the next block.

 is of great importance for all PoS blockchains. The two most common rules of selecting nodes are:

The more coins (cryptocurrency) a node (participant) has, the more chances they have to be chosen to validate the next block and receive the award.

The second one is the number of coins on a node times the years of having the coins. The longer you have the cryptocurrency, and the more of it you have increases your chances of validating the block.

 for the rewards (computers solve mathematical problems and the first one that gets to the solution, validates the block and gets the mining reward). The miner that solves the problem the quickest gets the reward.

 (participants – computers always online and waiting to be chosen) 

 the cryptocurrency that they own, and get randomly selected to validate a block, and then they receive transaction fees instead of rewards.

 energy consumption, and the cost of mining (mining computers are not cheap as well). In terms of energy and cost efficiency, PoS blockchains use much much less electricity than PoW blockchains.

 of computational power because of the ever-increasing mining difficulty. This also requires extremely powerful machines. PoS blockchains have very reasonable electric bills, and they don’t require supercomputers to validate blocks like PoW blockchains.

1. Disadvantages of Proof of Work Systems

Miners with more powerful machines have an advantage. They can solve the problems faster, which allows them to validate more blocks, and get more rewards.

Computational power and energy consumption.

The mining difficulty is constantly increasing and the computational power that is required to validate a block as well. Cities of supercomputers eat electricity, this makes it difficult for average Joe to become a miner because of the cost. This also centralizes the mining power in large groups. So, those that can afford the most high-end computers and pay the electric bills can mine the most coins. This can monopolize mining on the specific blockchain, and that is the opposite of what blockchain technology aims to achieve.

Scaling a PoW system for thousands of transactions per second and millions of users is not easy, that why Bitcoin mining needs so much computational and electrical power.

Let’s say that the computational power on a blockchain network is equal to 100 computers. These computers are identical in their power. So the computational power is 100. Now, we have a company that owns 51 computers on this network. This means that the company will have a 51% chance of mining the next block and receiving the reward, if the company is an honest miner, and that is a big IF. With 51% of the computational power, they could also double-spend coins, stop transactions, reverse some transactions, etc. It is not likely that a 51% will occur with cryptocurrencies that have a lot of miners, but it is possible if large miners decided to combine resources.

2. Disadvantages of Proof of Stake Systems

Holding the coins instead of spending them.

People with overwhelming amounts of coins.

Holding coins has an incentive in PoS systems.

The more you have the more likely it is that you will be chosen to validate the next block. This can lead to a lack of liquidity in the market.

Whales – people that hold large amounts of coins.

Groups of people that have enough coins can impose the rules that they want, even if minor holders don’t agree. They can also influence the prices on the market by selling or buying large amounts of coins.

To start staking coins, they must exist. So they are created and distributed, sold, etc. Various PoS cryptocurrencies have different solutions for distributing initial coins.

It is theoretically possible in PoS systems, but for it to happen a group of people would have to own 51% or more coins to be effective. And that is unlikely.

The problems that PoW and PoS face are different. Scaling for millions of users in a PoS network is much easier than a PoW network. PoS blockchains are less centralized than PoW blockchains because it is much cheaper to participate in a PoS network than it is to mine in a PoW network. Theoretically, PoW is the safer system but practically, with the centralization of mining power, it is not so clear.

Both PoW and PoS have their advantages and disadvantages, and some cryptocurrencies even try to combine the best of the two worlds into some hybrid systems. Bitcoin uses PoW for example, and the energy Bitcoin miners consume each year is enormous, but the system is stable and the interest of people keeps rising. Ethereum started as a PoW system, and now they are trying to transition to a PoS system called ETH 2.0. Cardano has a running PoS network, that provides fast transactions with low fees, and it seems it is only growing.

PoS tried to solve the problem of hardware and energy dependency that we have with PoW systems, and we can say it managed to do so. But it also comes with some of its own problems. That is why different PoS cryptocurrencies use different governing rules for their PoS blockchains to minimize network risks.

Which system is better? Time will tell. Blockchain technology is still very young.

We hope we managed to paint a clear picture of PoW and PoS networks, and if you have any further questions feel free to contact us.

Proof of Work vs Proof of Stake

We all use money daily but we rarely stop and think about it, except when we think that we need more money. Currency or money is a medium of exchange. Its main purpose is facilitating transactions in society. So, units of a currency give us information; tell us how valuable something is, like work, commodities, food, etc.

At first, money was a commodity, something that was commonly wanted by others and it was likely to be used in a barter economy, for example, wool, wheat, etc. Overtime money evolved, and from commodities, people started using coins, iron, silver, gold, etc.

Then we got the first banks. People didn’t want to carry lots of coins around. It was heavy, and if you got robbed there was no safety net. The first bank IOU notes were issued as a receipt by the bank to the depositor. So, you would go to the bank, give them your coins and they would give you a bank IOU note that confirmed you left your coins for safe-keeping at the bank. That way you can pay for something just with a receipt from the bank. That was the start of the paper cash that we are familiar with.

Now we have different kinds of currencies, like 

digital money, legal tender, credit cards or debt

, etc. Ten years ago, Satoshi Nakamoto, threw his hat into the ring with the creation of Bitcoin, and now we have thousands of cryptocurrencies, a new financial world that keeps growing!

 In the early communal settlements, people all worked together with the common goal, which was mostly survival. There was no concept of money. As societies got more complex with the invention of farming, domestication of animals, crafts, etc, a need for exchange developed. Small communities didn’t require money still, as everyone knew everyone, and keeping tabs on who owes what was easy. But as farming, shepherding and crafts grew, the societies grew with them, and it was becoming increasingly difficult to adequately keep tabs on who owes what to whom.

Bank IOUs would have been very useful at this time. Instead, people started using commodities, common assets that would very likely be accepted in a transaction. Those were barter economies. People used common items like animal skins, tools, weapons, etc. So, for a transaction between two people to be successful double coincidence of needs was necessary. That means, if I don’t want what you offer, no deal, and vice versa. That proved not to be an efficient economic system, and a double coincidence of wants had to be solved. The solution was metal coins.

The evolution from barter gave the world currency. At first, those were coins made from different materials like iron, copper, silver, gold, etc. This greatly simplified exchanges and made the economy much more efficient. For the first coins to be accepted by all, they also had similar requirements as modern money. Kings had their faces stamped on coins, and everyone would accept those coins in exchange for goods and services. Coins of different materials had different values, which represented different denominations. Those were the first real currencies.

Some countries started using paper money earlier than others. China is the first country that used a paper currency, but all countries eventually transitioned to paper currencies, as they realized that paper is much more convenient than metal.

Banks started issuing IOU receipts to depositors. People no longer had to carry around lots of coins with them, instead, they had a note from the bank which guaranteed to anyone who held that note that the bank has the specified amount of coins and that they can retrieve them when they want. So, I buy a stove from someone and pay him with an IOU, he can then go to the bank and get the specified amount of gold or silver coins from the bank, or buy something else with the same banknote. This was the creation of paper money. In the beginning, paper money was used because of convenience and it was only issued by private banks, but its role was pretty similar to today, albeit smaller. 

Nowadays, paper money or FIAT money is regulated and issued by central banks that are established by laws or governments. Its value isn’t pegged to anything, and it doesn’t have any intrinsic value, other than being a medium of exchange. The gold standard is no longer in use, anywhere in the world.

Checks are a financial instrument that contains information like date, amount, etc. It must be signed by the payor and must contain his or her name. They can be deposited into a bank account or cashed at the bank. There are different kinds of checks; cashier’s check, money order, certified check, etc. Check, as a payment method, dates all the way back to the Roman Empire.

Credit cards are essentially debt. You pay for something with the banks' money and you enter a predetermined contract to pay it back later, with some extra charges.

The advancement of technologies brought us debit and credit cards, and then digital money. Instead of going to the bank, you can access your account from your phone and pay online. The bank never sends any paper money to the payee; it simply deducts the number from your account and digitally sends the same amount to the payee's account.

As the internet became a part of our daily lives digital currencies, online payment processors and online vendors became more and more popular. And now we are witnessing a new evolution of currencies, from centralized and government regulated FIAT currencies to decentralized and algorithm regulated currencies. This is the essence of cryptocurrencies and the reason for their appeal, giving control and power back to the people, decentralizing power, and finance.

In simplest terms, when you read FIAT, you can think of it as a currency like 

, or any other currency that is issued and regulated by a government. FIAT currencies are modern currencies that we use daily. 

 in Latin means “let it be done”, i.e. let this be our currency, let’s use this. FIAT money or currency is a medium of exchange that is regulated and issued by the government (central banks). Its value comes from the people that are willing to accept it as a form of payment, and from a country that aims to maintain the value and stability of a national currency.

Besides that, they have no intrinsic value. The value of FIAT currencies is not derived from the materials that it is made of, nor is it backed by gold or silver, like it was in the beginning. So, what gives FIAT money its value? Why is it valuable? It is valuable because people are willing to accept it for goods and services, to hold and use in the future. 

The belief in the system gives money value

. For example, the US dollar is generally accepted around the world, and because of that, it is stable and valuable, compared to other national currencies. 

For something to qualify as a currency it must meet these 5 requirements:

Units of a currency must be identical in quality and appearance so that they could be used in society. A currency must be divisible into smaller units in a way that doesn’t lose value.

Something we consider money must be made to last a long time. Coins are a great representation of durability, paper not so much. But if you have a damaged paper bill, a bank will replace it with a brand new one!

Imagine having to carry a million dollars in gold coins. Yeah, that won’t work. So now, we have paper money you can carry in your pocket and even digital money you can spend with a phone.

Everyone must know what the agreed-upon currency looks like, otherwise, it won’t work. I never heard of your money, why would I accept your funny bills?!

When accepting money, you want security. You want to later spend that money and purchase something of similar value, preferably higher. If the value of the currency fluctuates too much, it creates uncertainty on the market and fewer people are willing to accept it for goods and services.

Cryptocurrencies meet the first 4 criteria, and easily beat FIAT currencies in comparison. Price stability is not a staple of cryptocurrencies but with time as the clear winners emerge, and more and more people start using them, price stability will come. Bitcoin created a new world, and there is no stopping it now. 

The governments create money through their central banks. The central banks do so by buying government bonds or lending the created money to the commercial banks with interest. The governments use the money for military, social, healthcare, and other programs, while the commercial banks use that money to give out loans to those that want them.

Nowadays, only a percentage of new bills are printed during the creation of money. In most modern countries it is done digitally by releasing the digital currency to the commercial banks as loans or by buying government bonds.

Debt is a certain amount of money that someone borrows from a bank and must return with interest. It is a financial tool that, if used properly, can generate a profit for the borrower and the bank. Let's say someone borrows 10 million dollars, then they create a business that is sold for 100 million dollars. This is a win-win situation for the borrower and the bank. Even though debt is often perceived negatively, it has its place and purpose in a healthy economy, as long as it is not rampant and borrowers make payments on their loans. This is an oversimplification but you get the picture.

Inflation of a currency means that the purchasing power of that currency goes down over time. It is expressed as a percentage and it is often represented through an average shopping basket. Let’s say that last year you could buy 10 apples for 10 dollars, and this year, because of the inflation, you can buy 9 apples for 10 dollars – that is 10% inflation.

Inflation occurs when the supply of money outpaces economic growth. For example, if the economic growth was 5% last year then the money supply should be 5% bigger to have 0% inflation.

Inflation is controlled by central banks through money creation and interest rates. A certain level of inflation is desired because that promotes spending money instead of keeping it in a bank where it depreciates. That leads to future economic growth. The inflation of the US dollar has drastically increased since the seventies, and it keeps going up.

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