Cardano explained for beginners

Posted on December 18 2020 – By Rob Kieboom
Last updated on December 10 2021

I became interested in Cardano 2,5 years ago. I’m a layman when it comes to computer programming or understanding all the ins and outs of the blockchain. I’m over 50 years old, trained as a veterinary doctor, and working as a Leadership trainer and consultant. The philosophy behind blockchain intrigued me, I bought some bitcoin in 2018 and started reading about alternative coins.

Why Cardano?

• Scientific background
• Proof of Stake
• Decentralized finance (no banks involved)
• Philosophy: bank the unbanked
• Transparent and frequent communication via Twitter and YouTube

History

The Cardano blockchain founded in 2015 by Charles Hoskinson, a brilliant mathematician who became interested in Bitcoin in the early days and later co-founded Ethereum. Hoskinson was always intrigued by the philosophy of Bitcoin: a decentralized financial system. Decentralized means that you are not reliant on governments or banks to be able to pay for something and you store your digital money simply on the blockchain, easily accessible via your computer, tablet, or phone.
Hoskinson’s big dream is to bank the unbanked. Millions of people in the world cannot take part in the economy simply because they cannot use formal banks. Most of these people live in Africa and India. Hoskinson wants to give these people the opportunity to be in control of their own finance and hence can enter the economical marketplace.

He also saw the downsides of BTC, because of the enormous energy consumption. The tendency of being dominated by just a few parties (and hence losing decentralization) and the fact that you cannot do anything else with it then use it as value storage or pay with it.

Hoskinson called BTC “deaf and dumb” and was looking for a way to have more utility in a crypto-currency. In Ethereum he found a way of adding information to the coin. Via smart contracts a coin could be more than just a means of finance, but could be used for many purposes, like creating contracts, safeguarding digital identity, and tracking logistical processes.

Creation of Cardano

Hoskinson is a genius, but perhaps not the easiest man to work with. He left Ethereum because of disagreements with the other Ethereum founder Vitalik Butyrin (another genius) and started Cardano.

Basically, Cardano is a Proof of Stake blockchain. The Cardano coin AKA “ADA”. The blocks are being made by stake pools. Anyone who knows a little bit about computer programming can start a stake pool. A stake pool allowed to make a block after winning a kind of lottery. The more ADA in the stake pool, the higher your chance that you win the lottery and can make a block. For every block made by a stake pool operator, he or she gets a reward. The more blocks created, the higher the reward. Owning a stake pool can thus be very profitable.

Staking

For people like me, who don’t know enough about computer programming and don’t feel comfortable starting their own stake pool, there is another way to earn rewards. You can delegate your ada’s to a stake pool. This is good for the stake pool because they now have more ADA’s and have a bigger chance of winning the lotteries and making blocks, but it is also good for you because the stake pool will offer you part of the reward in exchange for this delegation. The average award you get lies around 5-5,5% yearly.

The good thing about staking your ADA’s with a stake pool is that it will pay you your rewards every period of 5 days (called 1 epoch) and that you don’t put your ADA’s at risk. You cannot lose them. Your ADA’s stay in your wallet. When you stake, the system adds your ADA’s virtually to the stake pool, but in reality, they stay in your possession. So you get your reward, without any risk involved. You can also at any time use your ADA’s, take them from your wallet, and do anything you like with them. They are not locked or anything. Of course, the ADA’s you remove from your wallet and spend will not count anymore for the staking rewards.

What makes Cardano different

This Proof of Stake system is totally different than the Proof of Work protocol most other coins (like bitcoin) use. There you have to solve a mathematical problem before you can mint a block. The process of solving the problem takes a lot of computing power and that’s why the mining of bitcoins takes so much energy and the making of blocks in a Proof of Stake system almost doesn’t cost energy. This is one of the major advantages of Cardano over Bitcoin. The other big advantage as previously mentioned is the possibility to work with smart contracts on the Cardano blockchain.

Summary

Charles Hoskinson is a scientist. His goal is to have a totally reliable, stable system that can upscale so that billions of users can use it. He also wants the system to be interoperable, which means that it can work together with all the other blockchains in the world. It takes years to build such a system. He built it from scratch, using a process called “peer review” to check if everything is totally scientifically sound.

The Cardano scientists wrote dozens of papers, presented them to all the big shots in the crypto-world and to all the professors in the field. And only when there is overall agreement that all is well, the systems are being implemented. They also developed their own smart contract software and their own staking system. The staking system is live since the summer. It will probably take till the second quarter of next year before the smart contracts are live.

Building a thorough and innovative blockchain takes time. More time than many crypto-fans are willing to give. That’s is the main reason why the value of the Cardano coin still is ridiculously low. The market wants quick results and Cardano is not giving this. So when investing in Cardano, understand that you need patience. Personally, I have this patience and I expect that it might take another 3 years before Cardano will fly. But when it flies, my personal opinion is that it will fly very high!

What’s next?

If you would like to stay updated on the developments in the cryptocurrency world, please check out our website. The website currently only exists in Dutch, but if you are interested in a basic course in cryptocurrency in English, just contact us and we will offer this to you!

Written by:
Rob Kieboom
cryptocurrencycoaching.nl

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