What is Cardano and how does ADA work?

Can a blockchain be both secure and sustainable? Cardano believes so. Developed through academic research and peer review, this third-generation blockchain seeks to solve the key challenges faced by earlier platforms such as Bitcoin and Ethereum: scalability, interoperability and environmental impact.

This article explores what makes Cardano unique, how its proof-of-stake consensus mechanism works, the role of its native digital asset ADA, and how staking allows investors and developers alike to participate in the network’s evolution.

Cardano is an open-source blockchain platform that enables peer-to-peer transactions and supports decentralised applications (dApps) through programmable smart contracts. It was founded by Charles Hoskinson, one of Ethereum’s original co-founders, and launched in 2017 by IOHK (Input Output Hong Kong).

Unlike most blockchain projects, which tend to prioritise fast deployment, Cardano follows a scientific approach. Each stage of its development is based on academic research and undergoes formal peer review before implementation. This deliberate process aims to create one of the most secure, flexible and sustainable blockchain platforms available.

The project’s ambition is to provide a long-term foundation for decentralised systems that can support everything from financial services to digital identity management, without compromising scalability or energy efficiency.

One of Cardano’s defining technical features is its two-layer architecture, designed to separate the platform’s core transaction layer from its computation layer:

• The Cardano Settlement Layer (CSL): Handles ADA transactions, ensuring secure and fast value transfers.
• The Cardano Computation Layer (CCL): Enables smart contracts and dApps to run independently from the settlement system.

This separation allows for greater flexibility and easier upgrades. Developers can modify or enhance one layer — for example, to improve smart contract functionality — without disrupting the core network.

Cardano’s development roadmap is divided into five major eras, each named after an influential thinker:

• Byron (Foundation): Establishing the network and ADA currency.
• Shelley (Decentralisation): Transitioning block production to the community.
• Goguen (Smart Contracts): Introducing programmable applications.
• Basho (Scalability): Enhancing speed and interoperability.
• Voltaire (Governance): Empowering community voting and treasury systems.

Each era builds upon the last, reflecting Cardano’s methodical, long-term vision for creating a self-sustaining blockchain ecosystem.

At the heart of Cardano’s innovation lies its consensus mechanism, Ouroboros, a proof-of-stake (PoS) protocol that replaces the energy-intensive mining process used in proof-of-work (PoW) systems like Bitcoin.

In a PoS network, participants who hold ADA can “stake” their tokens — locking them temporarily to support transaction validation and block creation. The higher the amount staked, the greater the chance of being selected to validate a new block.

Cardano’s Ouroboros protocol was the first PoS algorithm developed through peer-reviewed academic research. It mathematically guarantees the same level of security as PoW systems while being far more energy-efficient. This makes Cardano one of the more environmentally sustainable blockchains on the market.

Participants can either operate their own stake pool (a node that processes transactions) or delegate their ADA to an existing pool to earn rewards. This process not only strengthens the network’s security but also distributes participation across thousands of independent nodes, reinforcing decentralisation.

👉 Learn more about how staking works on Swissquote.

Cardano’s Goguen era introduced the ability to build and deploy smart contracts — self-executing agreements coded directly onto the blockchain. This upgrade, enabled by the Alonzo hard fork in 2021, opened the door to a wide range of decentralised applications (dApps).

Developers use Plutus, Cardano’s dedicated smart-contract programming language, to create dApps that can power services such as:

• Decentralised Finance (DeFi): Lending platforms, exchanges and yield protocols.
• Non-Fungible Tokens (NFTs): Digital marketplaces for unique assets.
• Supply Chain Tracking: Ensuring transparency and authenticity of goods.
• Identity Verification: Secure digital identity systems.
• Education & Healthcare: Certification and patient-record validation.

These use cases demonstrate how Cardano aims to provide real-world utility beyond speculation — building an infrastructure for transparent and trust-based digital ecosystems.

A core principle of blockchain technology is decentralisation, and Cardano applies this concept to governance itself.

Through Project Catalyst, Cardano has introduced a voting and treasury system allowing ADA holders to propose and fund new projects. Participants can use their staked ADA to vote on development proposals — deciding how the network evolves and where community funds are allocated.

This system, which will mature during the Voltaire era, is designed to make Cardano a self-governing blockchain, where decision-making is distributed among the community rather than controlled by a central authority.

ADA is more than just a digital currency. It plays several vital roles within the Cardano ecosystem:

• Transaction Fees: Users pay small amounts of ADA to execute transactions or deploy smart contracts.
• Staking Rewards: By staking ADA, holders help secure the network and earn periodic rewards.
• Governance Rights: Stakers can participate in on-chain voting through Project Catalyst.

The total supply of ADA is capped at 45 billion coins, with new tokens entering circulation gradually through staking rewards — providing predictable and transparent distribution.

One of the most accessible ways for ADA holders to participate in the Cardano network is through staking.

When you stake ADA, you temporarily delegate your tokens to a stake pool. You retain full ownership of your assets — they are never locked or transferred — but they contribute to the network’s validation process. In return, you receive staking rewards, typically distributed every few days or weeks, depending on the pool’s performance.

For investors, staking offers a way to earn passive income while supporting the security and decentralisation of the Cardano blockchain. It’s comparable to earning interest in traditional finance, though rewards and risks differ since returns depend on network conditions and pool reliability.

Swissquote offers a secure and convenient way to stake selected digital assets — including ADA — directly from your account. This allows clients to participate in network governance and earn potential rewards without managing their own staking nodes.

👉 Explore ADA staking with Swissquote.

The growth of the Cardano ecosystem is driven by a vibrant global community of developers, validators and investors. Organisations like IOHK, Emurgo and the Cardano Foundation coordinate research, business adoption and community engagement, ensuring that development progresses in a structured and transparent way.

Cardano’s steady evolution — from foundational research to decentralised governance — has positioned it as one of the most academically rigorous blockchain projects. However, like any digital asset, ADA’s market price remains subject to volatility and broader economic forces.

Factors that can influence ADA’s market value include:

• Network Upgrades: Major releases like smart-contract rollouts or scalability solutions.
• Adoption Levels: Growth in dApps, users and transaction volumes.
• Market Sentiment: Global confidence in cryptocurrencies.
• Regulation: Legal clarity can attract or deter participation.
• Macroeconomic Trends: Inflation, interest rates and investor risk appetite.

These factors make it essential for investors to distinguish between technological progress (which can be measured) and market performance (which remains speculative).

Blockchain technology evolves quickly, and staying up to date is key to understanding projects like Cardano. Reliable information can be found on the official Cardano website (cardano.org), in the Cardano Foundation’s reports and through Swissquote’s educational resources, where you’ll find insights on blockchain trends, staking strategies and the future of decentralised finance.

👉 Visit the Swissquote Education Inspire section to explore more about blockchain and digital asset investing.

The content in this article is provided for educational purposes only. It does not constitute investment advice, financial recommendations, or promotional material.
Investing in digital assets carries a high degree of risk.