What Is Cardano (ADA)?

Cardano (ADA) is a decentralized proof of stake (PoS) blockchain designed to be a more efficient alternative to proof of work (PoW) networks. It is intended to evolve into a system with multiple use cases, governed by those who have staked their cryptocurrency. Cardano’s cryptocurrency is named Ada after Augusta Ada King, Countess of Lovelace (1815–1852), commonly regarded as the first computer programmer. Ada is used in the blockchain’s PoS consensus mechanism. It is given as a reward for work done for the blockchain or can be purchased on exchanges.

History of Cardano (ADA)

Charles Hoskinson, an Ethereum co-founder, began developing Cardano in 2015 and launched the platform in 2017. Cardano has positioned itself as an alternative to Ethereum. Both platforms are used for similar applications, such as smart contracts, and aim to build a connected and decentralized system.

Cardano considers itself an updated version of Ethereum and has anointed itself a “third-generation” platform compared with Ethereum’s “second-generation” credentials. The blockchain platform also has a goal of providing banking services to the world’s unbanked.

Cardano vs. Bitcoin

There are several key differences between Bitcoin and Cardano. Bitcoin was developed to be a peer-to-peer payment system. Cardano is an ecosystem that allows other developers to create tokens, decentralized applications (dApps), or any other uses a scalable blockchain network can host.

The Cardano platform runs on the Ouroboros consensus protocol. Ouroboros, created by Cardano in its foundation phase, was the first proof of stake (PoS) protocol designed to reduce the energy expenditure required by proof of work (PoW) mining. It does this by eliminating the massive computing resources that the proof of work algorithm uses.

Cardano doesn’t reward its cryptocurrency as an incentive in a competitive mining process like Bitcoin. This reduces the energy and waste footprints by not requiring large amounts of electricity to power computers specifically designed for mining. Cardano users can install compatible wallet software on their computers or devices, stake their Ada, and begin earning rewards for participating.

What Is Cardano Staking?

In Cardano’s PoS system, staking determines a node’s capability to open blocks on the blockchain. A node’s stake is equal to the amount of Ada it holds over the long term. A stake is an interest a pool participant holds, secured with Ada that is pledged. Pledged Ada cannot be used or spent by the holder because it is held as collateral for honest validation behavior. Users with pledged Ada are given rewards based on the amount of Ada they have staked. Users join or create staking pools—groups of Ada holders who have pledged their coins—and work together to update the ledger, open new blocks, and earn rewards.

How Do Cardano Staking Pools Work?

Cardano uses the PoS consensus mechanism, in which users “stake” a coin for the opportunity to become a validator. Users can participate in the staking and validation process in two ways: You can stake your Ada in a pool or create your own. Stake pools are trusted server nodes that conduct the work of validating transactions. These pools can be either public or private. Public pools distribute rewards to members based on how much Ada they have staked. Private pools, as the name suggests, give rewards to the owner(s).

A stake pool must be run by an operator with the knowledge and skills to maintain the stake pool by renting servers, monitoring the node, holding the pool key, and conducting other pool administration tasks.

Smart Contracts

Cardano implemented smart contract support in 2021 with its Alonzo update. This testnet update was the first iteration of bringing the promised scalability and use cases to users. This update allowed users to create smart contracts and non-fungible tokens (NFTs) and manage multiple assets. Future releases and forks will bring more capabilities to the mainnet.

What Is the Best Place to Stake Cardano?

There are several staking pools you can choose from to stake your Ada. It’s essential to thoroughly read through a pool’s website, user reviews, complaints, or issues to be sure that you’re joining a reputable pool.

You can also use the community-built tools ADApools.org, Cardanoscan.io, Pool.pm, Poolstats.org, or Pooltool.io to help you select a pool. You can also use the Yoroi, Exodus, or Binance wallets to stake your Ada. You can also use Daedalus, a full desktop application developed by IOHK that downloads a copy of the blockchain. Daedalus is a full node that acts as a wallet that verifies all transactions in its history and lets you choose a pool to join.

Future of Cardano

Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history: Byron, Shelley, Goguen, Basho, and Voltaire. Basho is the era of scaling and optimization, intended to bring more capabilities to Cardano. As of 2023, Cardano is anticipating the transition from Basho to Voltaire.

Voltaire is the final era for Cardano development, intended to bring voting and treasury management of the blockchain and network through previously introduced smart contract functionality and system improvements. When Voltaire is complete, IOHK’s goal is to release the blockchain and network to the community, as it will be fully decentralized and able to be developed, maintained, and kept secure.

The Bottom Line

Cardano is a decentralized PoS blockchain founded in 2015 and launched in 2017. It has positioned itself as an alternative to PoW blockchains like Bitcoin because it is more energy-efficient and scalable. The plans behind Cardano’s development are ambitious. Its developers see Cardano as eventually becoming fully decentralized when voting and treasury management of blockchain are added to its capabilities in the future.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.