Most recent update: [July 22nd , 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Cardano, made available on the VirgoCX Platform, including an opinion that Cardano is not itself a security and/or derivative.
What Is Cardano?
Cardano utilizes a layered architecture to facilitate smart contracts while also offering better scalability. Users on the Cardano blockchain can use the platform’s native cryptocurrency, ADA, to carry out transactions.
Cardano has often been described as a third-generation protocol that improves upon the scalability and energy consumption problems of first and second-generation protocols such as Bitcoin and Ethereum. Cardano is the only blockchain with all its peer-reviewed protocols, helping the blockchain tackle any potential issues. Cardano is backed by several organizations that are working together on the development of the platform. The three main organizations are Input Output Hong Kong (IOHK), Cardano Foundation, and Emurgo.
Key Highlights in The History of Cardano
- 2015 - Cardano started as a small research project that focused on exploring how cryptocurrencies could be improved.
- September 2017 - The first iteration of Cardano was launched, with the Byron phase. The Byron phase supported ADA transactions.
- July 2020 - Cardano launches its Shelley phase, allowing token holders to stake ADA and improve Cardano’s decentralization.
- The Goguen era, due in August, will add smart contract support on Cardano.
- Cardano’s final two stages are Basho and Voltaire. Basho will focus on scaling while Voltaire will deal with on-chain governance.
How Does Cardano Work?
Cardano uses a specialized Proof-of-Stake consensus mechanism called Ouroboros to mine blocks. This helps the protocol to reduce energy consumption during block production. Cardano achieves this by eliminating the need for computing resources or hash power that Proof-of-Work blockchains like Bitcoin require. Cardano’s Proof-of-Stake consensus mechanism, the node’s capability to create blocks, depends on staking, with a node’s stake being equal to the amount of ADA it has held over a period of time.
Ouroboros divides time into epochs; these epochs are made up of slots. Slots are essentially fixed periods. On Cardano, an epoch lasts for five days, while a slot on Cardano lasts for one second. However, these can be configured after update proposals. Epochs on Cardano utilize a circular style of functioning, and when one epoch ends, another begins.
A slot leader is selected using a lottery system. To ensure a fair selection of slot leaders, Cardano utilizes the following method.
- A user must have at least a 2% stake in Cardano.
- The higher the stake, the better the chance of a user being selected as a slot leader.
- If slot leaders cannot create a block during the slot they are elected for; they will be replaced and have to wait until they get re-elected.
Slot leaders are responsible for creating transaction blocks, validating transactions, and adding newly created blocks on the blockchain. A small number of ADA token holders are also required to be online and maintain a consistent network. Cardano also utilizes stake pools to cut down the energy consumption even further.
History of Cardano
Ethereum co-founder Charles Hoskinson founded Cardano. Hoskinson saw that the crypto market needed a more scalable blockchain solution. Hoskinson got in touch with Jeremy Wood, a co-worker from Ethereum. Wood was also looking to create a scalable blockchain and smart contract platform. The two decided to develop Cardano as we see it in its present iteration.
Cardano started in 2015 as a project focused on finding ways to improve blockchain and cryptocurrencies, with its public release occurring in 2017. The first phase of Cardano was the Byron phase, which was followed by the Shelley phase that introduced staking and better decentralization. With Goguen, the platform will also see the addition of smart contract functionality.
Features of Cardano
Cardano is built using a practical approach and provides a sustainable blockchain that helps for a more scalable blockchain solution. Some features of Cardano are:
- Cardano is the first blockchain to utilize Ouroboros, a Proof-of-Stake blockchain that defines how the nodes reach consensus on the ledger’s state. Ouroboros is a protocol that is scientifically proven to be secure.
- Cardano can perform several advanced functions thanks to its multi-layer protocol.
- Cardano is easy to upgrade as it is a cryptocurrency that is constantly evolving. The protocol can easily be upgraded through soft forks.
Cardano takes a lot of inspiration from science and takes a peer-reviewed approach. Academics have reviewed every new feature that is introduced on Cardano. This also applies to Ouroboros, Cardano’s consensus algorithm.
Technology Behind Cardano
All of Cardano’s protocols are peer-reviewed by academics before being used on the platform. Cardano uses two programming languages, Haskell and Plutus. Haskell is used by several companies such as AT&T and Bank of America. Unlike Ethereum that uses a Proof-of-Work consensus mechanism to verify transactions on the blockchain,Proof-of-Work requires a significant amount of electricity and also needs powerful machines to process transactions, which can be a disadvantage. Cardano, on the other hand, uses the Proof-of-Stake consensus mechanism that consumes significantly less power.
Cardano also uses Ouroboros, which is the first blockchain protocol based on peer-reviewed research. Ouroboros validates transactions, secures the network, and allows users on the platform to earn ADA. Cardano’s roadmap consists of five eras, which will add new functionalities and improvements to the protocol. The five eras are
- Byron era - The Byron era was the first version of Cardano and began with the launch of Cardano in 2017. During this stage, users could buy and sell ADA on the network which Ouroboros powered.
- Shelley era - Shelley introduced better decentralization on Cardano and was launched on the 29th of July 2020. Shelley introduced Proof-of-Stake on the Cardano protocol and introduced staking and staking rewards for participants.
- Goguen era - The Goguen era promises to bring the ability to allow developers to develop decentralized applications (dApps) and the introduction of smart contracts.
- Basho and Voltaire - The Basho era will focus more on the scaling of the Cardano platform, while Voltaire will focus on governance.
Cardano Token Supply
Cardano has a maximum token supply of 45 billion ADA, with a circulating supply of 32 billion tokens. Cardano held five rounds of token sales between 2015 and 2017. When the network was launched, 2.5 billion ADA were allotted to IOHK, with an additional 2.1 billion given to Emurgo. A further 648 million ADA was given to the Cardano Foundation.
How Is Cardano Secured
Cardano is secured through its Proof-of-Stake protocol Ouroboros. It improves upon the security given by Proof-of-Work consensus mechanisms while consuming lesser energy than a Proof-of-Work protocol.
Risks Involved with Cardano
- Cardano has a much smaller developmental team when compared to its competitors, namely Ethereum and Polkadot. Cardano faces a significantly uphill battle in the smart contract market.
- Cardano is also still a “work in progress,” with even Charles Hoskinson admitting that the protocol is still under development. While smart contracts are expected on Cardano with the Goguen update, Ethereum is already established in the smart contract market, and Ethereum 2.0 will make programming smart contracts on the protocol even easier.
Prior to listing Cardano on the VirgoCX Platform, VirgoCX performed due diligence on Cardano and determined that Cardano is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Cardano and/or its primary development team;
- The supply, demand, maturity and liquidity of Cardano; and
- Legal and regulatory risks associated with Cardano.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.