Cardano DeFi World
  • Home
  • Cardano 101
  • Ada 101
  • ADA LIVE PRICE
  • Cardano News
  • Official Resources
  • Scams to Avoid
  • List of Ada Scams
  • About
  • Disclaimer / Legal
  • Home
  • Cardano 101
  • Ada 101
  • ADA LIVE PRICE
  • Cardano News
  • Official Resources
  • Scams to Avoid
  • List of Ada Scams
  • About
  • Disclaimer / Legal
Cardano DeFi World

Cardano 101

Cardano is a decentralized Blockchain network that runs on Proof of Stake (PoS) protocol. 

If you are new to crypto and DeFi than that previous sentence is going to make no sense to you. Don't you worry! This is why CardanoDeFi.World is here! 
In just a few minutes that sentence will be as clear as sunshine.

If you can imagine for a moment that all the money in the world is running trough pipes, like water. You go to work with a bucket and your employer opens money tap and you fill a bucket a bit (Paycheck). Before you can leave work, government puts a pipe in your bucket and sucks out a bit of your money (Taxes). On your way home you stop by the bank and dump out your bucket in banks well (Bank Account). Bank has a pipe in that well that is sucking out money all the time (Bank Fees). They also use that well to fill the buckets of business ABC Inc. and ZX Corp. (Loans, Mortgages, Investments) while they suck out more then they lend back (Interest Charges). You get home, check your mail and see a bill from ABC Inc. You go online and give permission to ABC Inc. to connect their pipes to your share of money in your bank (Bills). ABC Inc. suck out some of the money you owe and some extra (Fees and Interest). Money from your bucket is almost gone already! You then ask ZX Corp. to top up your bucket a bit so you have enough, they agree but you need to let them attach their pipe to your pipe so they can automatically suck out more every 30 days (Loans, Leases, Credit Cards). This represents Centralized Finance (CeFi) world that you are living in right now. 

If you paid attention to this example you will see that your money made money for the bank and same money made even more money for ZX Corp. by being lent back to you for a fee and an interest charge. 

Now, imagine if you just cut off all the pipes going to banks, ABC Inc, ZX Corp and just kept the pipes going to other individuals. You would have no bank fees, no interest charges, then something strange happens. If you have some money left in your pipes other individuals pay you to borrow it (You Earn Interest and Fees). If you just keep money in the pipes, the pipe network adds more money to your bucket just for being a part of the network (You Earn Staking Fee). If you decide to keep pipes safe and secure on your end they give you even more money to keep your own money safe (Earn to Run a "Stake Pool")! This is Decentralized Finance (DeFi) of Cardano. 

So, you may be asking... if no one is in charge what's stopping someone from just attaching pipes everywhere and sucking out all the money? Or, why would anyone just pay you interest when you don't own collection agency to enforce the payments or hire lawyers? How would you even know who to lend money to? How would the network make sure you get your equal share of fees? You are asking some good questions. 

You might have guessed that the answer is "Decentralized Blockchain" technology. AHA! Now that you understand what DeFi is and how it differs from the centralized system, lets see how it works.

You can think of a Blockchain technology as series of cameras along the pipeline taking pictures. When ever you or anyone on the pipeline makes a transaction, all bunch of cameras take pictures of all account changes at the same time. Single picture can fit more then just your transaction, so each picture shows a group of transactions. This group of transaction on one picture is called a Block. Each picture also has a time stamp and is attached to previous time-stamped picture, forming a chain. Thus you get Blockchain! So if anyone tried to pass a fake picture that is not the same as already taken picture or is not in a chain with other pictures, then that picture will be refused. Once those pictures are taken they can never change and you, as well as anyone else can look at them at any time. You can think of a Blockchain as base technology of almost all crypto currencies. 

You may ask then: Who owns or controls all the cameras? If someone takes control of all the cameras can they just make fake pictures and print money or make you suddenly have zero money? Now you are getting to that final bit of information that will connect all the pieces. 

​Control of the cameras is determined by your networks protocol. Cardano network runs on Proof of Stake (PoS) protocol. You and anyone else holding ADA (name of Cardano crypto currency) on the network can be involved in securing this protocol. You can be in one of two groups of people. First (smaller) group that you can be part of are individuals that run, pay for and maintain Cardano servers. These servers are called Stake Pools. You can think of Stake Pools as those cameras from previous examples. Second group would be you and everyone else. Second group would delegate ADA to Stake Pools. When you delegate that just means that you vote for a Stake Pool with your money(ADA). Delegating ADA on Cardano will not cost you anything and your ADA will not be frozen or locked like many other crypto currencies.  More ADA you delegate to one Stake Pool higher the chance that Stake Pool gets to become a camera and take a picture. If the Stake Pool (camera) you delegate to takes a picture, then you, other people that delegated and individual that runs a Stake Pool all get paid! To make sure that no one can take over all the cameras Cardano designers built in a program into a Cardano network that works randomly and adjust size and number of Stake Pools. As of writing this there are over 2000 Stake Pools around the world and over 70% of all ADA (including my own ADA) is delegated to those Stake Pools. At a current price of ADA (May 2021) you would need to spend over $44 billion US dollars, start over 1000 servers and hope everyone else gets unlucky or stops delegating all at once in order to steal money (ADA) from your account. You can get that level of security only from decentralization. No need to spend your tax money to bail out "Too big to fail" banks or loose all your money when they go bankrupt from selling subprime mortgages. 

You made it! You now know what is Blockchain, DeFi, Proof of Stake (PoS) protocol and how it's decentralized. Lets read that first sentence again:

Cardano is a decentralized Blockchain network that runs on Proof of Stake (PoS) protocol. 

You completed Cardano 101! Congrats!

-Neo
Copyright CardanoDeFi.World 2021. Cardano™ and the Cardano Logo™ are trademarks of Cardano Foundation, CHE-184.477.354