Cardano works by trying to solve three of the major problems cryptocurrencies battle with as they vie for mainstream acceptance: scalability, interoperability, and sustainability.
In order to subdue scalability issues, Cardano utilizes a proof of stake mechanism, which is far more cost effective than a proof of work system. Cardano’s proof of stake mechanism, called Ouroboros, is both modular and flexible in design, and has been peer-reviewed and proven reliable and secure. Ouroboros’ modularity allows for features like delegation, sidechains, subscribe checkpoints, better data structures for light clients, different forms of random number generation and even different synchronization assumptions. This flexibility ensures that as the number of users rises from thousands, to millions, and beyond, the requirements of the consensus algorithm can be regulated as needed.
The next obstacle Cardano hopes to overcome is interoperability. Charles Hoskins does not believe that one token will rule them all, and as a result Cardano is designed to function with other blockchains, such as Bitcoin’s, but also with external systems already in place like the local financial system. Cardano hopes to create an “internet of blockchains” where there are seamless transactions between various ecosystems with no middlemen like the exchanges you currently have to use to swap your tokens. They will do this by using sidechains. Sidechains essentially run within the main chain (Cardano) and keep a 1:1 peg of a different asset like Bitcoin as it enters/exits the Cardano blockchain.
Furthermore, Cardano hopes to tackle interoperability problems with the existing systems our society uses like financial institutions. The are looking to create a way in which the private data needed by those institutions about the transactions taking place, from whom, to who, how much, etc., is only attached when required to help ensure privacy, while also allowing for compliance in order to help prevent money laundering or other dishonest behavior using cryptocurrency.
Finally, Cardano tries to ensure its longevity in the world by providing a sustainable system for future development and growth. They do this by implementing a treasury, which collects a part of all block reward, and is used to fund grants for future project development, voted upon by stakeholders. As the network develops, it proportionally gains more resources and creates more voters, making it more decentralized over time.
