What is Cardano (ADA) and How Does It Work?

Roland Säde
| Editor:
August 24, 2023
12 min read

Imagine a decentralized financial system that is more secure, efficient, environmentally friendly, and inclusive. Sounds too good to be true? Meet Cardano (ADA), a third-generation blockchain platform that aims to revolutionize the world of cryptocurrencies and address the limitations of its predecessors. In this journey, we will explore the unique features, vision, and potential applications of Cardano, a platform that is gaining traction and making waves in the crypto space.

Short Summary

  • Cardano is a decentralized blockchain platform with its native cryptocurrency, ADA, designed to address scalability and energy consumption issues
  • It utilizes a peer-reviewed development process and Ouroboros consensus algorithm for improved security, efficiency & decentralization
  • Cardano has partnerships & collaborations to provide an efficient alternative to traditional financial systems through faster transactions & lower fees

Understanding Cardano (ADA)

Cardano is a decentralized blockchain platform that uses its native cryptocurrency, ADA, to enable a more efficient and scalable alternative to traditional proof-of-work networks. With a focus on sustainability and energy conservation, Cardano aims to address scalability, energy consumption, and interoperability with traditional currency by implementing the Cardano protocol.

From its inception, Cardano has been on a mission to redefine the blockchain landscape, positioning itself as a "third-generation" platform that seeks to address the limitations of earlier platforms like Bitcoin and Ethereum. Cardano employs a Proof-of-Stake consensus mechanism to achieve this, making it more secure and efficient than traditional Proof-of-Work networks.

As we delve deeper into the world of Cardano, we'll discover the origins and development of this ambitious project, as well as its vision for the future.

Origins and Development

Cardano was founded by Charles Hoskinson, a computer programmer and co-founder of Ethereum, along with Jeremy Wood in 2015. The platform was officially launched in 2017 to provide banking services to the unbanked and improve Ethereum's limitations. Cardano is designed to be a more advanced version of Ethereum, classifying itself as a "third-generation" platform, while Ethereum is considered a "second-generation" platform. The Cardano Foundation plays a crucial role in developing and promoting this innovative platform.

The development of Cardano is planned in "eras," named after famous people from related fields. These include Byron and Shelley from the field of poetry, Goguen, Basho, and Voltaire from computer science. Each era focuses on specific aspects of the Cardano network's growth and improvement. This structured approach to Cardano development allows Cardano to tackle various challenges and continuously evolve as a blockchain platform.

Cardano's Vision

Cardano's vision is to build a global financial system that can compete with established ones, offering developers and users a more energy-efficient and secure platform. The platform is developed in a series of "eras," each with its focus and objectives. For example, the Basho era aims to improve scaling and optimization, providing additional capabilities to Cardano.

At the Cardano Summit in September 2021, Charles Hoskinson revealed a dApp store for Cardano, a light mobile wallet, and an integration with Chainlink. These announcements showcase the platform's commitment to continuous innovation and development, solidifying its position as a key player in the blockchain space.

The Unique Features of Cardano

What sets Cardano apart from other blockchain platforms? Two main aspects make Cardano unique: its peer-reviewed approach to development and its Ouroboros consensus algorithm. These features make the platform highly secure and efficient, addressing some of the most pressing challenges earlier blockchain networks face.

Cardano's research-driven approach ensures that academics develop, review, and agree upon all changes and new features before implementation. This rigorous process helps maintain the platform's security and robustness. Additionally, the Ouroboros consensus algorithm allows Cardano to conserve energy and provide unparalleled security, making it a more sustainable and eco-friendly solution than PoW.

Peer-Reviewed Approach

Cardano's peer-reviewed approach is a key factor differentiating it from other blockchain platforms. Before being implemented, all changes and new features are developed, reviewed, and agreed upon by academics and experts in computing domains at conferences. This ensures that the platform is built on a solid research and expert knowledge foundation, ultimately contributing to a more robust and secure platform.

The Haskell programming language, used by companies such as Bank of America and AT&T to create code for their networks, is also employed in Cardano's development process. This peer-reviewed approach to development ensures that the platform remains secure, efficient, and reliable, providing a strong foundation for growth and innovation.

Ouroboros Consensus Algorithm

Ouroboros is Cardano's unique proof-of-stake consensus algorithm, designed to reduce energy consumption and allow decentralized validation and rewards. Transactions in this consensus algorithm are divided into epochs. These epochs are further subdivided into time slots. For each time slot, a slot leader is elected to add a block to the chain, taking into account the last few blocks of the received chain as transient, known as the "settlement delay".

The Ouroboros consensus algorithm offers several advantages over traditional proof-of-work mechanisms. It is more energy-efficient, reduces the environmental impact of blockchain networks, and provides greater security and decentralization compared to proof-of-work networks. Cardano is an attractive choice for users and developers looking for a more sustainable and secure blockchain platform.

Inside the Cardano Ecosystem

The Cardano ecosystem is a rich and diverse landscape consisting of three layers supporting various applications, such as smart contracts, decentralized finance, and digital identity management. This unique architecture offers Cardano unparalleled security, scalability, and flexibility, making it an ideal platform for developers and users to build and interact with decentralized applications (dApps).

As we dive deeper into the Cardano ecosystem, we'll explore the three layers of the platform and how they work together to support smart contracts and dApps. We'll also discuss the various use cases and applications that Cardano enables, showcasing its potential to disrupt traditional financial systems and pave the way for a more inclusive and efficient global economic infrastructure.

Three Layers of Cardano

The Cardano platform is composed of three layers:

  1. The Cardano Settlement Layer (CSL): This layer facilitates the transfer of ADA tokens between accounts and records transactions, providing a secure and efficient way to manage digital assets.
  2. The Cardano Computation Layer (CCL): This layer executes smart contracts and runs decentralized applications (dApps) on the Cardano platform.
  3. The Cardano Control Layer (CCL): This layer consists of the governance mechanisms that allow stakeholders to participate in the decision-making process for the Cardano platform.

These three layers work together to create the first blockchain platform that is robust and scalable, utilizing an efficient blockchain protocol on a decentralized public blockchain.

The CCL executes smart contracts and dApps, allowing developers to build and deploy complex applications on the Cardano network. The Cardano Control Layer (CCL) oversees governance and consensus, ensuring the platform remains decentralized, secure, and transparent.

These three layers work together to provide a robust and scalable infrastructure for the Cardano ecosystem, enabling a wide range of use cases and applications.

Smart Contracts and dApps

With the Alonzo update, Cardano now supports smart contracts, enabling the creation of non-fungible tokens (NFTs), multiple assets, and various applications. These smart contracts are built using Cardano's languages, Marlowe and Plutus, which developers can use to create smart contracts for various applications, including decentralized finance, gaming, and supply chain management.

This support for smart contracts and dApps not only expands the capabilities of the Cardano platform but also demonstrates its potential to disrupt traditional financial systems and provide innovative solutions for various industries. As the Cardano ecosystem grows, we can expect even more groundbreaking applications and use cases to emerge.

Staking and Earning ADA

Cardano's proof-of-stake mechanism allows users to:

  • Stake and earn ADA by participating in the network's validation process
  • Contribute to the network's security and decentralization
  • Receive rewards and incentives for their contributions
  • Ensure a robust and reliable platform

This section explores how users can stake ADA, the rewards available, and the benefits of participating in Cardano's staking system. Whether you're new to the world of cryptocurrencies or an experienced investor, staking ADA offers an opportunity to earn passive income while contributing to the growth and security of the Cardano network.

Let's dive into how to stake ADA and the expected rewards.

How to Stake Cardano

Users can stake ADA by joining staking pools or becoming validators, contributing to the network's security and earning rewards. Staking pools are groups of ADA holders who pool their resources to update the ledger, open new blocks, and receive rewards. Users can earn rewards without becoming a validator by delegating their ADA to a staking pool. As a stake pool operator, you can help facilitate this process and ensure a smooth participant experience.

Users wishing to stake ADA must first install compatible wallet software on their computers or devices. Popular wallets for this purpose include Daedalus and Yoroi. Once the wallet is set up, users can delegate their ADA to a staking pool or become a validator, depending on their preferences. With stakes, users can contribute to the Cardano network's security and earn rewards in return.

Rewards and Incentives

Cardano's staking system incentivizes users to participate in the network's validation process, ensuring a decentralized and secure platform. All participating validators and delegators are rewarded in ADA, which is allocated by the network based on the validator's stake.

The rewards for staking ADA can be attractive, with current estimates suggesting an annual return of approximately 5%*. As the Cardano network continues to grow and evolve, staking ADA offers passive income and presents an opportunity to be a part of an innovative and groundbreaking blockchain platform.

Investing in Cardano: Price and Market Cap

Cardano has attracted significant investment since its inception, with a market capitalization of around $10 billion in early August 2023. This places Cardano among the top cryptocurrencies regarding market value, demonstrating its potential as a major player in the blockchain space.

The Ada price has experienced fluctuations over time, with its highest recorded price being $3.10 in September 2021. As with any investment, it's essential to carefully consider the risks and potential rewards before diving in. However, Cardano's unique features, strong development team, and ambitious vision make it an intriguing option for investing in cryptocurrencies.

Practical Use Cases for Cardano

Cardano has various practical use cases, showcasing its potential for real-world applications and its ability to provide innovative solutions. From partnerships with major brands like New Balance to collaborations with governments like the Ethiopian government, Cardano is proving its worth in diverse industries and sectors.

As Cardano continues to evolve and expand its ecosystem, it aims to compete with traditional financial systems by offering a more secure, efficient, and cost-effective alternative. With its eco-friendly and secure platform, Cardano positions itself as a strong contender against established financial systems, offering a more inclusive and efficient alternative.

Partnerships and Collaborations

Cardano's partnerships and collaborations are a testament to its potential for positive global change. For instance, Cardano has partnered with New Balance, a major athletic footwear brand, to create a blockchain-based solution for verifying the authenticity of its products. This collaboration showcases Cardano's potential for real-world applications and its ability to provide innovative solutions in various industries.

Another notable collaboration is Cardano's partnership with the Ethiopian government, aiming to implement blockchain-based solutions in the country's education sector. These collaborations highlight Cardano's versatility and demonstrate its commitment to making a real-world impact through innovative blockchain solutions.

Competing with Traditional Financial Systems

Cardano's eco-friendly and secure platform positions it as a strong contender against established financial systems, offering a more inclusive and efficient alternative. By addressing issues such as unaccountable structures, data security, and high transaction fees, Cardano aims to create a more equitable and sustainable financial system that requires users to have only an internet connection and an account.

The Cardano blockchain platform has the potential to disrupt traditional financial systems by providing the following:

  • Faster transaction times
  • Lower fees
  • Increased transparency
  • Automated financial processes through smart contracts

As Cardano continues to grow and expand its ecosystem, we expect to see even more groundbreaking applications and use cases emerge, challenging the status quo and driving innovation in the financial sector.

How to Buy and Store Cardano (ADA)

Acquiring and storing Cardano (ADA) tokens can be done through various methods, including purchasing on exchanges, using decentralized exchanges, or buying Cardano with Atomic Wallet. Once acquired, it is essential to store your ADA tokens securely. To find an ideal Cardano wallet, one should consider the following pivotal features:

1.) Support for Cardano Coins: The wallet must be able to hold Cardano coins.
2.) Ease of Use: A user-friendly interface with all crucial features is critical.
3.) Privacy Measures: The wallet's advanced privacy capabilities should keep your identity confidential.
4.) Security: The wallet should have up-to-date security features, such as a backup function for wallet recovery in the event of a loss.
5.) Reliable Customer Service: Quick and effective customer service is vital.
6.) Competent Development Team: The wallet should be backed by a proficient team for further improvements.
7.) Client Feedback: Pay attention to the recent customer reviews for the wallet.

Atomic Wallet is one of the standout options for storing Cardano, meeting all these requirements. It's a non-custodial, multi-asset wallet with a growing community of users, positioning it as a top choice for Cardano storage. The Atomic Wallet supports over 300 coins and tokens, provides a user-friendly interface, and works on all major operating systems - Windows, Mac, and Linux, with mobile applications for Android and iOS.

Atomic Wallet has an intuitive interface and offers multiple features, such as decentralized storage of private keys, an integrated option for purchasing crypto with a bank card, and support for Atomic Swaps. The wallet's unique selling point is its support for Atomic Swaps, a revolutionary decentralized exchange technology built on hash timelock contracts.

Using Atomic Wallet to store Cardano is a simple process. Here are the steps:

1.) Go to the Atomic Wallet website and hit "Download" for Android or iOS devices. Continue with the account setup.
2.) Check the safety details of your login credentials.
3.) Record your private login key and input it again in the specified area to successfully establish a wallet.
4.) To deposit your ADA into the wallet, copy the address at the top of the account page.
5.) Proceed to the withdrawal section of the exchange or wallet from which you are dispatching the ADA.
6.) Insert the copied address into the withdrawal area.
7.) Define the volume of ADA you want to send and complete the required confirmations.
8.) Well done! You have started an ADA transfer that will be securely delivered to your Atomic Wallet.


In conclusion, Cardano is a groundbreaking third-generation blockchain platform that addresses the limitations of earlier platforms like Bitcoin and Ethereum. With its unique features, such as the peer-reviewed approach to development and the Ouroboros consensus algorithm, Cardano offers a more secure, efficient, and eco-friendly alternative to traditional financial systems.

As Cardano continues to grow and expand its ecosystem, the platform's potential for real-world applications and its ability to disrupt traditional financial systems become increasingly evident. By investing in Cardano, you're supporting a promising cryptocurrency and contributing to developing a more inclusive, equitable, and sustainable global financial infrastructure.

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