The race to end Ethereum’s dominance is truly on and Cardano may be one of the favourites. But what does the blockchain that takes a different development approach have to offer? In this blog post, we will dive into Cardano, the smart contract platform, and also explain the upcoming Vasil upgrade.
What is Cardano?
Cardano is a blockchain platform powered by its cryptocurrency ADA. Start by thinking of Bitcoin as a first-generation blockchain whose use case is purely transactional and Ethereum as a second-generation blockchain that introduced the concept of smart contracts and blockchains existing as an ecosystem.
Both first and second gen blockchains like Bitcoin and Ethereum suffer from the ‘blockchain trilemma’, a phrase coined by Ethereum’s founder Vitalik Buterin. It describes the trade-off developers face when building blockchains: One of the three main issues – decentralization, security and scalability – must be sacrificed to fulfil the other two.
Enter the self-anointed third generation blockchain, Cardano, which is trying to find ways to scale without compromising decentralization or security. The network was founded by Charles Hoskinson, who left Ethereum over disagreements about the direction of the smart contract blockchain platform in 2014. In 2017 he launched Cardano, intending to improve upon Bitcoin and Ethereum.
Cardano takes a unique peer review approach in its development. All changes to the network or future developments are reviewed and agreed upon by academics before being used; this includes its consensus algorithm, Ouroboros, which we’ll look at later.
That said, Cardano has put out its roadmap in phases as follows:
Phase 1: Byron
This phase kicked off in 2017 when Cardano went live with basic functionality, supporting ADA transactions.
Phase 2: Shelly
In the second phase, which started in July 2020, the preconditions for a fully decentralised network were created. and ADA staking was introduced to users.
Phase 3: Goguen
This is Cardano's current phase. In September 2021, Cardano deployed an upgrade to allow users to create and execute smart contracts (programs stored on a blockchain that run when predetermined conditions are met) on the network.
Phase 4: Basho
The 4th phase of the network focuses on optimising the network: improving scalability and interoperability.
Phase 5: Voltaire
In the final phase, Cardano will provide the missing pieces that will make the network a self-sustaining system. Participants in the Cardano network will be able to use their stake and voting rights to influence the future development of the network.
Cardano – the blockchain for smart contracts
With the network update “Alonzo” in September 2021, the creation and deployment of smart contracts in the Cardano main net was made possible. Within 24 hours of the upgrade, over 100 smart contracts were running in the network. The number grew to over 1000 in January, and just recently, it surpassed the 3000 mark.
Applications running on the Cardano blockchain include decentralised apps (DApps). These serve a variety of functions, such as DeFi (decentralised finance), identity management, voting and more. Cardano has over 1000 projects at different stages of development.
However, in a blog post after the 2021 upgrade, Cardano describes the sometimes unreasonably high expectations for this upgrade. And referring to the early stages of Ethereum, it says: "We should remember that another well-known blockchain project which launched in July 2015 had to wait over two years before its first DApp (something to do with cats?) gained real user traction."
Earlier this year, in a tweet, Charles Hoskinson said that many Cardano DApps are waiting for the “Vasil” hard fork to launch first. The hard fork, which was rescheduled from June, will happen just a week after Ethereum's Merge.
The Vasil upgrade
According to Cardano, Vasil is the most significant upgrade of the network to date. It is set to improve the blockchain's scalability and performance massively. The scalability issue, which basically concerns all cryptocurrencies, has always been on Cardano's agenda. In order to achieve mass adoption, it is important that the network is scalable and thus a real alternative to centralised systems.
Scheduled for 22 September, the Vasil upgrade is likely to be completed on 27 September. After this date, the developers will release the new functions. As a consequence, we will probably see numerous new projects in the DeFi sector. When announcing the date on Twitter, Charles Hoskinson described Vasil as a major turning point for Cardano and underlined the importance of this upgrade for the development of DApps. He pointed out Cardano's unique position in the crypto landscape and how the Cardano community is vital to the success of the project.
Vasil is an important part of the scaling era Basho, but not the only one. In addition, sidechains are being expanded to increase token transfer and thus Cardano's interoperability with other networks.
Another focus is on the Layer 2 scaling solution “Hydra.” It allows transactions to be executed in parallel without putting a strain on the mainnet. The idea is that transactions are not executed on the blockchain, but offchain, so to speak.
Cardano's consensus mechanism
While Bitcoin and, until recently, Ethereum were built on proof-of-work, Cardano has developed Ouroboros, a proof-of-stake consensus algorithm. With this process there is no more 'race' to produce a new block:
- The network randomly selects slot leaders (nodes) to have the chance to mine new blocks.
- The blockchain is split into slots, known as epochs.
- Slot leaders can mine epochs or partitions of epochs to receive rewards.
- Epochs can be partitioned infinitely; that is why Cardano claims to be infinitely scalable in theory.
The most significant benefit of Ouroboros is that it offers a provable way of randomly selecting validators to generate an extra share of security. In addition, the randomness potentially eliminates the possibility of forming patterns that make the network secure from attacks.
Cardano staking
As mentioned, Cardano works on a specially designed proof-of-stake system that allows ADA to be transacted securely at all times and ensures the safety of smart contracts on the platform. Therefore, ADA held on the Cardano network represents a stake in the network.
The system allows network participants to stake ADA for the chance to produce new blocks depending on the amount staked. Staked ADA is used as collateral to ensure honest validation. In return, users who have staked their assets earn rewards in the form of transaction fees after successfully verifying transactions. These rewards can be earned by either running a stake pool or delegating your stake to a stake pool run by someone else.
Staking gives you the opportunity to earn passive income on your assets. It offers investors solid annual returns that can exceed those earned through a traditional savings account. On the SMART VALOR platform right now our customers can stake Ethereum, Dash, Kyber Network and Valor. Very soon, also ADA staking will be available. So, stay tuned!
Wrapping up
It's hard to ignore platforms like Cardano, which are making an effort to develop robust blockchain ecosystems that look to push crypto adoption.
From an investor's perspective, it is of course exciting to see to what extent the ADA price can benefit from the Cardano hardfork. In the past, major cryptocurrency updates have often been accompanied by strong demand and thus a price increase. In the case of Cardano, the Alonzo upgrade last year even led to the all-time high of $3.10. How much the price of ADA will be affected this time remains to be seen.
What can be said with certainty is that Vasil is an important milestone for the Cardano ecosystem. Investors should keep an eye on how much utility this latest update unlocks, as well as community sentiment around scalability improvements to the network. The Cardano blockchain combines security, decentralisation and scalability, making it one of the most technically sophisticated blockchains on the market.
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