Cardano Beginner's Guide
What is Blockchain?
In simple terms blockchain is a type of database, where information is stored digitally in blocks that are connected by a chain. Hence, the name “block chain”. Each time a newly formed block is added, it will be added to the chain once filled with data. This system also creates an irreversible timeline of data, where the blocks become a part of this timeline and are given an exact timestamp when added to the chain.
What is decentralization?
Large databases are typically stored on servers made of powerful computers, sometimes in the range of hundreds to thousands of computers in order to have the computational power and storage capacity necessary for users to access a database. These types of databases and servers are usually managed by a business with specialized IT personelle in a centralized location.
In contrast, blockchain technology like Bitcoin, Ethereum and Cardano are decentralized. The data is spread amongst thousands of computers, but each computer or group of computers that holds it’s blockchain is in a different geographic location and are operated by separate individuals or entities. These computer servers make up the network and are called “nodes”, allowing decentralization of the network.
Each node has a full record of the data that has been stored on the blockchain since the beginning, including the entire history of all of the transactions. So, if 1 node has an error, it can correct itself by referencing the thousands of other nodes it is connected to in the network. This way, the history of transactions that make up the blockchain are irreversible, as no node within the network can alter the information. If one node tries to tamper with the records of transactions, all the other nodes would cross-reference each other and be able to pinpoint the node with incorrect information. Typically, a majority of the decentralized network’s computer power would need to agree on a change to affect the information stored within it.
How Secure is Blockchain?
Each block is added to the blockchain in a linear and chronological fashion. This means that blocks are added to the end of the chain. After a block has been added to the end of the chain, it is extremely difficult to go back and modify the data unless the majority of the nodes reach a consensus. This is because each block has a hash, a hash preceding it, as well as a timestamp. Let’s say for example, a hacker wanted to alter the blockchain to steal the cryptocurrency from everyone else. If they wanted to alter their own single copy, it would no longer match everyone else’s copy, since copies are cross-referenced against each other. This would result in the illegitimate copy being cast away. A hack would require control of at least 51% of the copies of a blockchain, so that the new copy becomes the majority, which would also require a vast amount of money and resources. Due to the growing networks of cryptocurrencies, the cost to pull off these hacks are almost impossible. Generally speaking, the protocol is built to favor one to contribute to it versus attacking it.
What is Cardano and how is it different?
Cardano is a third generation proof-of-stake blockchain platform founded in September 2017 by Charles Hoskinson , who was also the co-founder of Ethereum. Cardano was created to “provide a more balanced and sustainable ecosystem” for cryptocurrencies. Cardano is also the only coin with a scientific philosophy and research-driven approach. Their open-source blockchain is rigorously peer-reviewed by top scientists and programmers in academia across the world.
Cardano also has its own cryptocurrency called the ADA coin. Just like BTC and ETH, ADA can be used to transact from wallet-to-wallet.
As a third generation cryptocurrency, ADA aims to solve the infrastructure and scaling problems that affect BTC, a first-generatio cryptocurrency, and ETH, a second-generation cryptocurrency. Cardano aims to solve problems related to scalability, interoperability and sustainability.
In terms of scalability, recently the network has slowed down and fees have increased significantly for bitcoin and ethereum. Cardano’s Ouroboros algorithm uses Proof of Stake (PoS) approach to reduce energy costs and enable higher transaction processing throughputs. As opposed to nodes using computational power and resources to compete to mine blocks (e.g. Bitcoin and Ethereum), Cardano’s PoS system appoints slot leaders that are responsible for verifying and validating transactions, which then push the transactions to the main network.
Cardano aims to enable interoperability, which relates to the portability of cryptocurrency within the cryptocurrency eco-system, as well as interfacing with the global financial system. Currently, there is no way to perform a cross-chain transaction between cryptocurrencies or a seamless transaction involving cryptocurrencies and the global financial system. The only way is through cryptocurrency exchanges, which charge lots of fees. Cardano aims to use side chains to enable cross chain transfers.
Sustainability involves governance structures that provide incentives to stake pool operators and delegators and evolving a self-sustaining economic model for cryptocurrency. Governance also involves “giving everybody a voice, and control over the future developement of the platform and the applications and services that emerge from it”. Basically, Cardano is defined by the community and the governance model reflects true democracy, by providing incentives to play a role and vote on the future of the platform and how Cardano’s treasury funds are used.
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