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What is ADA cryptocurrency and hows does it work

The crypto industry is essentially a free for all market. Anyone can start their own company, create their own coin and develop a new blockchain. Whenever new systems are created, it is with the intention of improving the status quo and solving problems left unsolved by previous trailblazers.

ADA is one of the newest coins to join the industry and even with just a few years under its belt, it’s already showing a lot of promise. Discover the problems they are solving and the solutions they are introducing to the ever-changing world today.

What is ADA

ADA is the native utility coin of the Cardano ecosystem. Named after Ada Lovelace, the first computer programmer, ADA was first released in 2017 where it rode the tail end of the 2017 crypto boom.

Even though it is relatively younger compared to other coins in the industry, ADA continues to display impressive results and continuously competes with its older counterparts. Today, it finds itself as the tenth-largest cryptocurrency in terms of market capitalization with over US$3 billion worth of ADA circulating the system today.

Understanding Cardano

To better contextualize ADA, you need to understand Cardano first, the ecosystem it lives and thrives. Created by Charles Hoskinson, Cardano identifies as a third-generation blockchain system where decentralized applications and smart contracts can operate. Promising to fix problems left by its predecessors, Cardano introduces a lot of solutions to blockchain technology in terms of scalability, interoperability and sustainability.

Aside from being a smart contract platform, Cardano also settles payments. So not only does this system enable dApps, but it also allows users to transact with one another using ADA. In a sense, Cardano combines Bitcoin and Ethereum into one network, breaking down boundaries by making transactions and building applications possible in just one platform.

It was the first of its kind to publish a peer-reviewed whitepaper compared to a paper produced by a single entity. Made by a group of academics and industry professionals, the Cardano paper underwent a thorough research period of over two years where industry experts proofread and improved upon the contents of the paper until it was finalized and approved.

How does Cardano work

Cardano has a lot of promises to fulfil and so far, they have been showing great signs of achievement. Placing high on the market cap list and being listed on major exchange sites all over the world are telling signs of growth and development in action.

To solve scalability, the Cardano platform relies on its groundbreaking Ouroboros consensus algorithm to fulfil all its promises.

Solving scalability

Scalability has always been a long-time problem in the crypto industry. It’s the sacrifice we make in exchange for decentralisation and giving the power back to the people. But it doesn’t have to remain a bleak situation.

Cardano improves its scalability issue by utilizing a proof-of-stake consensus model called Ouroboros. Instead of the harrowing proof-of-work model used in the Bitcoin blockchain, it efficiently makes use of computing nodes by delegating their work to them.

Ouroboros: Proof-of-stake instead of proof-of-work

In the Bitcoin blockchain, miners compete with each other to verify a transaction and include it in a blockchain to receive the incentive. Those who aren’t fast enough in computing the hashing algorithm can only do better next time and hope they get to the finish line first or else their effort goes nowhere again.

Instead of wasting effort, time and energy, the Ouroboros consensus algorithm delegates a verifying node or slot leader for every block to make sure no one’s time is wasted. Cardano divides the time into epochs and further splits them into slots. For each slot, a slot leader is assigned to verify transactions and group them into a block.

Following the proof-of-stake consensus model, the number of coins you hold and the period of time you’re staking them determine your value as a validator. This means that to even be considered as a slot leader, you need a significant number of ADA in your possession. The longer you hold them and the more coins you hold, the bigger your stake is in the network and the higher your chances are of being appointed as a block producer.

Currently, Cardano can process up to 250 transactions per second.

Meet RINA: The Recursive InterNetwork Architecture

To further improve scalability, Cardano recognizes the problem of bandwidth and how it hinders faster validation. Peer-to-peer networks need sufficient bandwidth to function. With thousands of verifiers and limited bandwidth, handling an overwhelming number of transactions per second may seem erroneous and problematic.

Cardano solves this problem by creating subnetworks shared by a limited number of validators so they can enjoy bigger bandwidth and validate data at faster rates. Called Recursive InterNetwork Architecture or RINA, these small groups of subnetworks can communicate with each other when they need to.

Solving interoperability

Cardano aims to be the ‘Internet of blockchains’ in the future. Today, the thousands of blockchains and networks are not in communication with each other. To move your asset from one network to another, you need an intermediary to process it.

Cardano plans to solve interoperability by opening all channels between blockchains and enabling seamless transfer of assets across different networks. Not only will this improve transaction time and efficiency, but it will also create a more unified ecosystem.

Solving sustainability

Crypto initiatives are mostly funded by Initial Coin Offerings or ICOs. By offering their coin at a lower price and promising a bright future for it and the technology behind it, companies build the capital they need to continue developing their project. But eventually, this money pot will run low and they’ll need to find another source of income.

To solve this problem, Cardano created a treasury which serves as the network’s savings account. For every transaction that occurs on the network, a small percentage of the fee is added in the treasury and will serve as the future development fund.

Cardano: Leading the world to a brighter future

In their pursuit of knowledge, Cardano has drawn a roadmap that leads to a better world for all of us with its third-generation blockchain technology fueled by research. There’s a lot to look forward to in this ambitious yet reachable future. In the meantime, inform yourself with all things cryptocurrency here at CryptoShimbun.

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