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What is Cardano and why is it relevant nowadays?

The emergence of cryptocurrencies has changed the fintech industry due to the advanced usage of technology. Ever since Bitcoin skyrocketed to popularity, more altcoins are joining the crypto scene with the hopes of becoming relevant in the market. One of these is Cardano, which claims to be a third-generation cryptocurrency that has combined features of Bitcoin and Ethereum. If you’re interested in this cryptocurrency, continue reading the rest of the article to learn more.

What is Cardano?

Charles Hoskinson is the man behind the creation of Cardano who is also known for being the co-founder of Ethereum. Chaotic trajectories of some cryptocurrencies involved scandals and hackings, which made some people ponder on the idea of cryptocurrency. As a result, Hoskinson implemented Cardano as a blockchain system that will ‘provide a more balanced and sustainable ecosystem’.

Consequently, Cardano also professes that its coin, ADA, is the only one that has an open blockchain undergoing meticulous peer reviews by scientists and programmers. This means that before the cryptocurrency can use new features, academics have to review and approve them first. Needless to say, this cryptocurrency has a fool-proof system since it uses peer-reviewed research, evidence-based models and stages of development. 

Striving for decentralisation

Cardano aims to become a decentralised application with a multi-asset ledger and verifiable smart contracts. To achieve this goal, the development of Cardano must undergo five different stages:

  • Foundation (Byron era)
  • Decentralisation (Shelley era)
  • Smart Contracts (Goguen era)
  • Scaling (Basho era)
  • Governance (Voltaire era)

Cardano recently entered the Basho era where the goal is to give optimisation as well as improve the scalability and interoperability of Cardano’s system.

How does Cardano work?

To better understand Cardano, it is important to know how it works. As a starting point, you should learn the difference between Proof of Stake and Proof of Work as well as about Cardano’s blockchain.

Cardano blockchain

Since Cardano is considered the third generation of cryptocurrency, it runs on its own blockchain. This presents as the first of its kind decentralised network, and the best part is that everything about it is supported by scientific and mathematical principles. To further understand the Cardano blockchain, you need to learn its structure.

Dual-layer blockchain

The Cardano blockchain consists of two core components known as the Cardano Settlement Layer (CSL) and the Cardano Computational Layer (CCL). The CSL acts as a unit of account that’s responsible for the sending and receiving of tokens of the users in the network in an instant. On the other hand, the CCL is the backbone of the blockchain since it is a set of protocols that help run the smart contracts, ensure security and allow features such as blacklisting and identity recognition.

With that said, you should also know that Cardano works on a Proof of Stake system, which serves as the security of the network. To better understand this concept, find out how it differs from Proof of Work below!

Proof of Stake vs Proof of Work

Proof of work is a consensus mechanism where miners have to solve a set of complex mathematical problems using high-powered computers. Whoever manages to finish first receives cryptocurrencies as incentives. This concept requires a lot of computing power to make one transaction.

While the Proof of Work system is a great security system, it is also unsustainable for the environment since it takes up a lot of energy. As an alternative to this, the Proof of Stake has emerged into the scene. In this mechanism, the participants are required to stake their own coins to solve the hash and verify transactions that will be added to the blockchain.

Now that you know their differences, it is time for you to learn Ouroboros, which is a Proof of Stake consensus protocol for Cardano.


The creators of Cardano have implemented Ouroboros into their network so it can allow token users to send and receive ADA easily and securely. Aside from transactions, Ouroboros also ensures the safety of the smart contracts in the Cardano blockchain. Additionally, its Proof of Stake mechanism incentivises users who stake their ADA into the network.

Moreover, here is an overview of how Ouroboros works:

  1. The network randomly selects nodes or slot leaders to have the opportunity to mine new blocks.
  2. After that, the nodes splits into slots or epochs, and they can begin mining their assigned epoch or its subpartition. Anyone who participates in mining the epoch will receive cryptocurrency for their efforts.
  3. One epoch can be partitioned infinitely in the Cardano blockchain. This gives the blockchain the ability to run a lot of transactions without encountering a bottleneck.

Ouroboros lessens excessive computational power and energy, making it an innovative creation. Additionally, Ouroboros ensures that every randomly selected slot leader has an equal chance of participating in mining and receiving rewards.

How does Cardano differ from Bitcoin and Ethereum?

One of the goals of Cardano is to provide what the previous cryptocurrencies lack and create something safe and secure for everyone to use. That is why Cardano aims to tackle the problems of interoperability, scalability and sustainability. Learn how Cardano solves these below:


Cardano strives to be the connecting house of all other blockchains in the industry. Its main concern is to create a community for all digital assets instead of competing with other crypto coins or tokens. 


One of Bitcoin’s problems is scalability since it cannot handle large amounts of transactions in its platform. This is because its Proof of Work system allows a lot of people to solve a mathematical problem in one go which can take up a lot of energy.

With Ouroboros, the scalability problem is solved since it only chooses a couple of slot leaders to mine new tokens. 


Cardano eliminates the problem of sustainability by creating a treasury that will fund the network. To fund this account, a small percentage of every transaction is added here. As a result, this account will serve as the funding for the research and improvement of Cardano.

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