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Cardano is a blockchain project primarily developed to run financial applications smoothly and securely. It is an open-source network that transacts digital money, ensuring secure quick and easy direct transfers. Cardano is used by governments, consumers, and businesses worldwide. ADA is the currency token of the Cardano blockchain. It was initially developed as a project to help solve the issues associated with Ethereum’s Proof-of-work model. Ironically, Cardano has been officially founded by Ethereum’s co-founder, Charles Hoskinson. 

Apart from sharing the co-founder with Ethereum, Cardano has multiple uses and is an upgrade for multiple processing layers for computations, ease of upgrade in the future, and proof of stake consensus. Currently, Cardano is used for settling peer-to-peer payments. However, developers are constantly working towards the launch of smart contracts on Cardano. 

How Does Cardano Work?

To begin with, Cardano follows a relatively different consensus than other blockchains. It has two layers of blockchain, a settlement layer and a computation layer. The first layer is already functional, which allows users to transact ADA tokens from one wallet to another. It is a proof-of-stake blockchain with a vision to address scalability issues associated with layer-one blockchains like Ethereum. While its second layer is still developing, it will enable initiating and signing up for smart contracts. Since Ethereum and Cardano share the founder, the methodology adopted is also very similar. However, Cardano has some advantages over Ethereum.

Cardano achieves security through a mechanism referred to as ‘slashing’. Slashing is a technique that permanently confiscates a portion of staked tokens as a punishment. This practice is conducted keeping in mind the best interest of the users, as it puts the validators engaging in spiteful practices at risk of losing their staked tokens. Validators are users participating in the network. They must also own a certain number of ADA to depict a “stake” on the network. Hence, it encourages  validators to work towards aligning their interest with the financial network. 

The second layer, or the computational layer of Cardano, enables the project team to make changes without disturbing the first layer or the ADA, using soft forks. This layer is more adaptable and can be modified per the user’s requirements.  

Cardano vs Ethereum

Both Cardano and Ethereum are built on a Proof-of-stake mechanism and are the leading Layer-one blockchains networks globally. PoS mechanism is more energy-efficient and aims to aid the development of decentralised applications and smart contracts. Despite the same aim, Ethereum and Cardano work differently. Layer-1 blockchains are the bedrock of a digital building. They are the underlying infrastructure for a blockchain system that houses various protocols and projects. 

Ethereum focuses on the three S’s, sustainability, scalability, and security. In contrast, Cardano prioritises interoperation and governance along with the above three S’s.

Ethereum uses a ‘shard’ structure to increase transaction capacity. On the contrary, Cardano uses a ‘layer framework. Shard infrastructure implies dividing a bigger job into small parts and allocating the smaller jobs to make everyone work simultaneously. Thus, processing the transactions faster rather than focusing on making the network run faster.
A layered framework is like an office building, where all different floors have different tasks. This enables Cardano to make the network faster by processing transactions simultaneously.

However, Ethereum has a more developed ecosystem than Cardano. Cardano’s smart contracts still need work, so there are no decentralised exchanges, NFTs, or lending platforms on its blockchain. 

Strengths of Cardano

Mentioned below are a few strengths of Cardano:

  • More Adaptable: Cardano blockchain is more adaptable in comparison to other blockchains. For example, if a single, smart contract has to be modified as per different users, it can ensure compliance with the protocol whilst catering to all end-users. 
  • Improved Financial Freedom: Cardano has been conceived with the aim of improving financial scalability and convenience. It is a one-stop solution for millions who do not have access to traditional financial services.
  • Layered Blockchain: We know that Cardano is a two-layer blockchain. Hence, updating the first layer does not cause any disruptions to the second layer of the blockchain. It is the layering of transactions that results in even lower transaction fees.  
  • Decentralised: Like all other cryptocurrencies, Cardono’s network is also decentralised. A decentralised network means beyond the control of a single entity or a central authority. 

Is it Safe?

Cardano is amongst the top fundamentally strong cryptocurrencies in the market. A team of experts has engineered it. The double-layer feature of ADA tokens and smart contracts acts as an excellent security cushion. All blockchains have been encrypted with cryptography, ensuring there is no compromise on the integrity and user data of the project. 

Cardano is a considerably safe investment. However, neither one of the cryptocurrencies can avoid volatility and the high risk associated with them. 

Is it Considered a Good Investment?

With great fundamentals, strong visions, and momentum behind the project, It is definitely one of the most promising applications in the blockchain sector. It is often addressed as an Ethereum killer. However, it is not valid. It can obviously be considered a better or revamped version of Ethereum since they share the co-founder too. However, both cryptos have different purposes to fulfil. 

If you are new to the crypto and blockchain space and looking forward to investing in the crypto market, then Cardano might be a good bet. You can also go check out our blog on Altcoins like Ethereum and BNB. It is currently trading at USD 0.40 or INR 32.81, which is roughly 60% lower than its all-time high. The decline in the price is in response to the market crash in 2022, where most of the cryptocurrencies lost 60-70% of their value. However, a rampant recovery is expected in the crypto market in 2023. Research and analysis suggest a positive movement in the financial markets this year, which is a good news for existing and new crypto investors. 

Please do not consider this as investment advice. Remember that crypto investments are highly volatile and risky. One must perform due diligence before investing. 

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