What Is Cardano (ADA)? How does it Work? A Comprehensive Overview

What Is Cardano?

Cardano (ADA) is a high-performance blockchain platform founded in 2015 by Charles Hoskinson, who strongly believed that the proof of work (PoW) mechanism employed by Ethereum was too slow and couldn’t scale up to meet demand.

The Cardano blockchain went live in 2017, and its native Cardano (ADA) crypto has since grown into a top ten cryptocurrency by market capitalization. The platform aims to compete with other smart contract-compatible platforms, offering developers a blockchain for deploying and running decentralized applications (dApps). 

Key Takeaways

  • Cardano went live in 2017 with the aim of replacing Ethereum as the leading smart contract platform. 
  • The Cardano blockchain’s native utility token is ADA, which is used to pay for transactions, reward validators, offer staking rewards, and more. 
  • Cardano’s development is overseen by the Cardano Foundation, IOHK, and EMURGO.
  • Cardano runs on the proof-of-stake Ouroboros consensus protocol.

What is the History of Cardano Blockchain (ADA)?

Cardano was developed by Charles Hoskinson, co-founder of Ethereum, in 2015 and launched in 2017. The platform is positioned as an alternative to Ethereum, with similar applications, such as smart contracts, with the primary goal of building the leading decentralized ecosystem. 

Cardano considers itself a “third-generation” platform compared to Ethereum’s “second-generation” credentials. The network provides faster, cheaper, and more scalable transactions than Ethereum. The team argues that these enhanced features make the Cardano blockchain a more effective blockchain solution than Ethereum and other smart contract platforms.  

Since the network and the Cardano (ADA) crypto went live, it has enjoyed considerable success despite failing to ‘dislodge ‘kill’ Ethereum.

What is the Difference Between Cardano’s Proof of Stake (PoS) system and Proof of Work (PoW)?

Cryptocurrencies use consensus mechanisms to verify transactions. The two most common mechanisms are proof of work (Pow) and proof of stake (PoS). 

Proof of work requires miners to solve complex cryptographic puzzles before a transaction is added to the blockchain. On the other hand, proof of stake relies on multiple random validators to agree that a transaction is accurate before it is added to the blockchain. 

Bitcoin uses the PoW system, and many proponents of PoW argue that it is the safest consensus mechanism, as corrupting the network would require such a vast amount of computing power that it would be financially unviable. 

Interestingly, when Cardano was conceived, Ethereum also used a PoW system, and this was one of the primary reasons Hoskinson left Ethereum to create Cardano. However, at block 15537393 on September 15 at 1:42:42 a.m. EST, Ethereum completed the ‘merge,’ which saw it switch to a PoS system. 

The Cardano platform runs on the Ouroboros consensus protocol, which is a proof of stake (PoS) protocol designed to reduce energy expenditure and enhance efficiency. It eliminates the massive computing resources that the proof of work algorithm uses. According to NerdWallet, Cardano can compete with the fastest blockchains on the market in terms of Transaction Per Second (TPS) thanks to its novel PoS system.

What is the Cardano Blockchains Ouroboros protocol? 

Ouroboros is based on several core principles that distinguish it from other PoS protocols:

  • Leader Selection: Unlike other PoS protocols that rely on random selection, Ouroboros uses a provably fair and secure leader selection process that prevents collusion and ensures that only well-behaved nodes can propose blocks.
  • Chain-Based PoS: Ouroboros uses a unique chain-based approach to PoS, where each node maintains a separate chain of blocks. This allows for efficient validation and propagation of new blocks, even in the presence of network delays.
  • Adaptive Block Size: Ouroboros dynamically adjusts block size based on network conditions, ensuring that transaction throughput remains high while maintaining network stability.

What Is Cardano Staking? How does it work?

Cardano (ADA) Staking Explained: A Deeper Look at Cardano (ADA) Staking Pools

In Cardano’s PoS system, staking determines a node’s capability to add blocks to the blockchain. Users join staking pools, which are groups of Cardano (ADA) holders who have pledged their coins and work together to update the ledger and earn rewards.

A Cardano (ADA) holder can earn rewards in two ways: delegating their stake to a stake pool run by someone else or running their own stake pool. 

A stake pool operator is a trusted person tasked with maintaining the stake pool by renting servers, monitoring the node, holding the pool key, and performing other pool administration tasks.

Most individual users choose to delegate their stakes, as running an entire node requires considerable amounts of hardware and technical knowledge. 

Users join staking pools, which are groups of Cardano (ADA) holders who have pledged their coins and work together to update the ledger and earn rewards. 

The rewards are distributed according to the amount of Cardano (ADA) that a user has staked. For individual users, staking rewards fluctuate but are generally around 5% APY. 

What are the Best Cardano (ADA) Staking Solutions?

There are several options available for staking Cardano (ADA), including using the Daedalus wallet, community-built tools, and other wallets such as Yoroi, Exodus, and Binance. IOHK supports the Daedalus wallet, which allows users to choose a pool to join and earn rewards through staking. 

Community-built tools such as Cardano Scan also help users select a reputable pool. However, it is important to thoroughly research a pool’s website, user reviews, complaints, or issues before joining. 

Cardano Smart Contracts: The Future of the Decentralized Economy?

The 2021 Alonzo upgrade integrated smart contracts with the Cardano blockchain. Cardano smart contracts are created in exchange for Cardano (ADA) and are used to deploy dApps, including decentralized exchanges, NFT collections, and DeFi protocols. According to the official developer documents1, Cardano’s smart contracts are among the most reliable and secure on the market.

Cardano’s smart contract allows developers to build projects on-chain and has seen considerable adoption. According to DeFi Lama, just under $300 million is locked in Cardano (ADA) on the blockchain as of December 2023. In addition, dApps like Minswap and Indigo have over $50 million locked in their smart contracts2

Cardano's Total Value Locked is just under $300 million.
Cardano’s Total Value Locked is just under $300 million. Source: DeFiLama

What Is The Future Of Cardano (ADA)?

Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history. The official Cardano roadmap is broken down into five stages. The next major upgrade is Voltaire and is expected to focus primarily on improvements to the project’s governance structure.

Voltaire is the final era for Cardano development, intended to bring voting and treasury management of the blockchain and network through previously introduced smart contract functionality.

When Voltaire is complete, IOHK’s goal is to release the blockchain and network to the community, as it will be fully decentralized and able to be developed, maintained, and kept secure by the community.

Cardano is known for taking its time instead of rushing out upgrades. The Voltaire milestone is believed to be slated for either the end of 2023 or 2024.

Cardano Vs. Bitcoin: What are The Key Differences?

Cardano and Bitcoin have fundamental differences in their design and purpose. Bitcoin is primarily designed as a peer-to-peer payment system, whereas Cardano is an ecosystem that allows developers to create tokens, decentralized applications (dApps), and other use cases for a smart contract-compatible blockchain network.

One of the most significant differences between Cardano and Bitcoin is their consensus algorithms. While Bitcoin uses a proof-of-work (PoW) algorithm, Cardano uses a proof-of-stake (PoS) algorithm.

Overall, the Cardano project represents a fundamentally different approach to blockchain technology. While Bitcoin was designed as an alternative to the traditional financial system by offering a P2P medium of exchange, Cardano aims to play a role in building a decentralized Internet of Things where information is stored, transferred, and paid for without third-party intermediaries. 

FounderCharles HoskinsonSatoshi Nakamoto (Alias)
Consensus AlgorithmOuroboros PoSProof-of-Work (SHA-256)
TPSUp to 1000>15
Smart ContractsYes Limited scripting language
Governance ModelDecentralized on-chain governanceDecentralized, community-driven
Supply Limit45 Billion21 Million
Market Position by Capitalization9th1st
A comparison of Bitcoin and Cardano.

Final Thoughts on Cardano (ADA)

Cardano is a decentralized proof-of-stake (PoS) blockchain that launched in 2017 as an energy-efficient alternative to proof-of-work (PoW) blockchains like Bitcoin and Ethereum. Its developers aim to make it fully decentralized by adding voting and treasury management capabilities in the future. 

Cardano’s layered architecture ensures scalability and sustainability, and its smart contract functionality enables the creation of decentralized applications (dApps). With a focus on research-driven development, Cardano has gained significant attention in the blockchain community, putting it among the top 10 cryptos by market capitalization. 

Frequently Asked Questions

How do validators work on the Cardano network? 

To become a Cardano validator, one must hold a certain amount of Cardano (ADA), the native cryptocurrency of Cardano. Stakers are then randomly selected to validate transactions and create new blocks. Staking pool operators receive rewards but must adhere to high standards, as only the best validators are trusted by individual contributors.

Can You Mine Cardano (ADA) Like BTC?

No. Cardano (ADA) cannot be mined like BTC and other PoW cryptocurrencies. Cardano (ADA) can be obtained through staking or by purchasing it from DEXs and CEXs. 

What is the Cardano (ADA) market capitalization? 

Like all cryptocurrencies, Cardano’s valuation is volatile, meaning its market cap is always changing. As of writing, its market capitalization is at $14 billion, according to data from CoinGecko

What are the future prospects for Cardano?

Cardano has a strong development team and community, and it is constantly improving its technology. Cardano has partnerships with various organizations, including governments, which could lead to more adoption. Currently, the team is working on implementing the ‘Voltaire’ upgrade, which is the final of the five phases in the project’s development. 

What are expert price predictions for Cardano by 2025?

Price predictions for cryptocurrencies are highly speculative and should be taken with a grain of salt. However, some experts predict that Cardano’s price could reach anywhere from $10 to $100 by 2030. These predictions are based on factors such as adoption, development progress, and market trends.

How does Cardano’s Total Value Locked (TVL) compare to other cryptocurrencies?

Cardano’s TVL is relatively low compared to other cryptocurrencies, such as Ethereum and Binance Smart Chain, but still stands at over $250 million. 

What are the key differences between Cardano and Ethereum?

Cardano and Ethereum are both blockchain platforms that allow developers to build decentralized applications (dApps) and smart contracts. However, there are some key differences between the two. 

Cardano aims to provide a more scalable smart contract service, which means that transactions are cheaper and faster. In addition, Cardano’s Ouroboros PoS differs from Ethereum’s PoS and claims to be more efficient and reliable. 

What are the potential downsides to investing in Cardano?

As with any investment, there are risks involved in investing in Cardano. One potential downside is regulatory risk, as governments could crack down on cryptocurrencies in the future.

Additionally, Cardano is still a relatively new project and is not as widely adopted as other cryptocurrencies such as Bitcoin and Ethereum. This could make it more volatile and subject to market fluctuations. Finally, there is always the risk of technical issues or security vulnerabilities with any blockchain project.

Peter Barker


Peter Barker

Peter is an experienced crypto content writer and a DeFi enthusiast with more than 3+ years of experience in the space. Previously a journalist and news editor at a leading European news sourcing agency.

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