ADA is the native cryptocurrency of the Cardano blockchain, which is a decentralized platform that aims to provide a more secure and scalable infrastructure for the development of smart contracts and decentralized applications (dApps). Cardano was founded by Charles Hoskinson, one of the co-founders of Ethereum, and it distinguishes itself from other blockchain platforms through its commitment to academic research and a scientific approach to development.
Here are some key aspects of ADA and the Cardano blockchain:
- Proof-of-Stake (PoS) Consensus Mechanism: Cardano uses a consensus mechanism called Ouroboros, which is a proof of stake (PoS) protocol. Unlike proof of work (PoW) systems like Bitcoin, where miners compete to solve complex puzzles to validate transactions, PoS allows validators (or stakers) to create new blocks based on the amount of ADA they hold and are willing to “stake” as collateral.
- Layered Architecture: Cardano’s blockchain is designed with a layered architecture, consisting of the Cardano Settlement Layer (CSL) for ADA transactions and the Cardano Computation Layer (CCL) for smart contracts. This separation allows for more flexibility and scalability in processing transactions and executing smart contracts.
- Focus on Research and Peer Review: Cardano is known for its rigorous research-driven approach. The platform’s development is guided by peer-reviewed academic research and formal methods, which aim to ensure that the system is secure, reliable, and scalable.
- Governance and Treasury System: Cardano has a built-in governance system that allows ADA holders to participate in decision-making processes, such as proposing and voting on changes to the protocol. Additionally, a portion of transaction fees goes into a treasury system, which funds the development and growth of the ecosystem.
- Sustainability and Interoperability: Cardano emphasizes sustainability through its PoS mechanism, which is less energy-intensive than PoW systems. The platform also aims to support interoperability with other blockchains, allowing for a more connected and cohesive decentralized ecosystem.
Explain Like I’m Five Years Old (ELI5)
Imagine you have a special kind of playground where kids can play games, trade toys, and make up new rules. This playground is called Cardano, and ADA is the special kind of money that the kids use to do all these things.
- Playground Rules: In this playground, instead of one kid being the boss, everyone gets a say. The more ADA you have, the more you can help decide what games to play or what new rules to add.
- Safe and Secure: The playground has a really smart system that makes sure no one cheats. Instead of making kids run a race to decide things (like in other playgrounds), here, everyone just needs to promise some of their ADA money to get a turn. This is called staking, and it keeps things fair and safe.
- Building Stuff: Cardano is also a place where you can build your own games or make up new ways to play. The smarter the game, the more fun everyone can have, and ADA helps power all of this.
- Sharing Decisions: If the kids want to change something in the playground, they can all vote. The votes are like saying, “I want to play this new game,” and ADA is how they show they really mean it.
- Always Getting Better: The playground isn’t finished yet. It keeps getting better because the kids who play there (and have ADA) help it grow by sharing ideas and making it more fun for everyone.
So, ADA is like the special coins you use to do cool things in the Cardano playground, where everyone gets to help make it the best place to play!
Example of an ADA Transaction
Here’s an example of how to make an ADA (Cardano) transaction using the Cardano serialization library in JavaScript:
// First, ensure you have the Cardano serialization library installed via npm:
// npm install @emurgo/cardano-serialization-lib-nodejs
const Cardano = require("@emurgo/cardano-serialization-lib-nodejs");
// Set up sender and receiver addresses
const senderAddress = "addr1q...";
const receiverAddress = "addr1q...";
// Example function to build and sign a transaction
async function createTransaction() {
const txBuilder = Cardano.TransactionBuilder.new(
Cardano.TransactionBuilderConfigBuilder.new()
.fee_algo(Cardano.LinearFee.new(Cardano.BigNum.from_str("44"), Cardano.BigNum.from_str("155381")))
.pool_deposit(Cardano.BigNum.from_str("500000000"))
.key_deposit(Cardano.BigNum.from_str("2000000"))
.max_value_size(5000)
.max_tx_size(16384)
.build()
);
// Example UTXO from the sender's wallet
const utxo = Cardano.TransactionUnspentOutput.new(
Cardano.TransactionInput.new(
Cardano.TransactionHash.from_bytes(Buffer.from("exampleTransactionHash", "hex")),
0 // Index of the UTXO in the transaction
),
Cardano.TransactionOutput.new(
Cardano.Address.from_bech32(senderAddress),
Cardano.Value.new(Cardano.BigNum.from_str("10000000")) // ADA amount (10 ADA)
)
);
// Add UTXO to the transaction
txBuilder.add_input(Cardano.Address.from_bech32(senderAddress), utxo.input(), utxo.output().amount());
// Add the receiver's output (amount to be sent)
txBuilder.add_output(
Cardano.TransactionOutput.new(
Cardano.Address.from_bech32(receiverAddress),
Cardano.Value.new(Cardano.BigNum.from_str("5000000")) // Sending 5 ADA
)
);
// Calculate the minimum fee and set change output
const minFee = txBuilder.min_fee();
txBuilder.add_change_if_needed(Cardano.Address.from_bech32(senderAddress));
// Build and sign the transaction
const txBody = txBuilder.build();
const txHash = Cardano.hash_transaction(txBody);
const privateKey = Cardano.PrivateKey.from_normal_bytes(Buffer.from("examplePrivateKey", "hex"));
const witnesses = Cardano.TransactionWitnessSet.new();
const vkeyWitness = Cardano.make_vkey_witness(txHash, privateKey);
witnesses.add_vkey(vkeyWitness);
const signedTx = Cardano.Transaction.new(txBody, witnesses);
// Convert the transaction to a hex string for submission to the blockchain
const txHex = Buffer.from(signedTx.to_bytes()).toString("hex");
console.log("Signed transaction hex:", txHex);
// You can submit the transaction to the blockchain using a Cardano node or a third-party API.
}
// Run the function to create and sign the transaction
createTransaction();
Steps of the transaction
- Transaction Builder Setup: Set up a transaction builder with network parameters like fees.
- UTxO: Add inputs from the sender’s wallet (unspent transaction outputs or UTxOs).
- Output: Specify the receiver’s address and the amount of ADA to send.
- Change: Calculate the minimum fee and set the change output.
- Sign: Sign the transaction using the sender’s private key.
- Submit: The hex-encoded signed transaction can be submitted to the Cardano blockchain.
This is just a simplified example; in a real-world application, you’d need to manage UTxOs, fee calculations, and private key storage securely.
Summary of ADA
Purpose:
ADA is the native cryptocurrency of the Cardano blockchain, used for transactions, staking, and governance.
Key Function:
ADA is used to pay transaction fees, secure the network through staking, and allows holders to vote on changes to the Cardano network.
Simplest Explanation:
ADA is like digital money for Cardano that helps keep the network running and rewards people for supporting it by staking their coins.
Conclusion
ADA can be used for transactions, staking, and participating in the governance of the Cardano network. As the ecosystem continues to develop, ADA is expected to play a crucial role in facilitating a wide range of decentralized financial services and applications.
💡 Helpful References
Layer 1 & Layer 2: all you need to know 🔴
https://iohk.io/en/blog/posts/2022/08/05/layer-1-layer-2-all-you-need-to-know/
Cardano Layer 1 vs. Layer 2 Explained! 🟡
https://www.youtube.com/watch?v=Gh-z9tnhDLs
Frequently Asked Questions (FAQs) about Cardano’s ADA
1. What is ADA?
ADA is the native cryptocurrency of the Cardano blockchain, used for value transfer (payments) and staking on the network. It’s named after Ada Lovelace, a 19th-century mathematician who is considered one of the first computer programmers.
2. What is the purpose of ADA?
ADA serves multiple purposes:
- It’s used to pay transaction fees on the Cardano network.
- It can be staked to secure the network in exchange for rewards.
- It enables governance by allowing holders to vote on protocol upgrades and changes.
3. How do I store ADA?
You can store ADA in a Cardano-supported wallet like Daedalus, Yoroi, or hardware wallets like Ledger and Trezor. These wallets allow you to store, send, and receive ADA securely.
4. What is staking ADA?
Staking is when you delegate your ADA to a stake pool, which helps secure the network. In return, you earn ADA rewards. This process does not lock up your ADA, so you can still move it at any time.
5. Can I earn rewards by holding ADA?
Yes, by staking your ADA, you can earn rewards as part of the proof-of-stake (PoS) mechanism. The amount of rewards depends on factors such as the amount staked and the performance of the stake pool.
6. How do transaction fees work with ADA?
When you send ADA or interact with the Cardano network (e.g., minting tokens), you need to pay a small transaction fee in ADA. This fee helps compensate stake pool operators who validate transactions.
7. Is ADA inflationary or deflationary?
ADA has a fixed supply of 45 billion tokens, making it deflationary. Over time, as more tokens are staked and circulated, fewer will be left to distribute. There will be no new ADA created once the total supply is fully distributed.
8. How do I buy ADA?
You can buy ADA on most major, centralized cryptocurrency exchanges, such as Binance, Coinbase, Kraken, or KuCoin, using fiat currency (USD, EUR, etc.) or other cryptocurrencies like Bitcoin or Ethereum. That being said, the preference should be to purchase ADA from decentralized exchanges (DEXs).
Here’s a beginners guide on how to buy ADA: Beginners Guide to Buying ADA from a Decentralized Exchange (DEX)
9. What is ADA’s role in Cardano’s governance?
ADA holders can participate in the governance of the Cardano network by voting on proposals that determine how the network evolves, such as funding decisions, improvements, and upgrades.
10. What can ADA be used for besides staking?
Besides staking, ADA can be used to pay transaction fees, vote on governance proposals, and transfer value between users. ADA also plays a role in smart contracts and decentralized applications (dApps) on Cardano.
11. How secure is ADA?
ADA is secured by Cardano’s proof-of-stake consensus mechanism, known as Ouroboros, which uses staked ADA to validate transactions. This process is energy-efficient compared to proof-of-work (PoW) and ensures the network’s integrity.
12. What is the total supply of ADA?
The maximum supply of ADA is capped at 45 billion coins. A significant portion of this has already been distributed, with the remaining ADA released as staking rewards.
13. Can ADA be used for smart contracts?
Yes, ADA can be used within smart contracts on the Cardano network. It plays a key role in decentralized finance (DeFi) applications and other dApps, enabling complex interactions like token swaps and automated processes.
14. Is ADA environmentally friendly?
Yes, Cardano’s proof-of-stake model makes ADA transactions more energy-efficient compared to proof-of-work cryptocurrencies like Bitcoin. This reduces its environmental impact.
15. Can ADA be used to transfer other assets?
Yes, ADA can be used in multi-asset transactions on Cardano, which supports the creation and transfer of native tokens in addition to ADA itself.
16. How can I participate in ADA staking without technical knowledge?
By using wallets like Daedalus or Yoroi, you can easily delegate your ADA to a stake pool without needing to run your own validator. The process is user-friendly, and rewards are automatically distributed.
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