About Cardano SL

Cardano SL (SL stands for "Settlement Layer") is a cryptographic currency designed and developed by IOHK. You can think of this product as of Bitcoin reimagined with a freedom to fix design flaws of Bitcoin. For those who don't know what Bitcoin is, in the next section we'll talk a little bit about what a cryptocurrency is and why do cryptocurrencies matter. If you have basic understanding of Bitcoin, you may skip the next section. If you're eager to start working with Cardano SL, refer to Installation Guide and Wallet Operation Guide to get started.

Cryptocurrency Basics

Before giving a definition of a cryptocurrency, let's first talk about why do we care about digital currencies in general and cryptographic currencies in particular.

Why Do We Care?


As opposed to conventional (also called fiat), centrally banked currencies such as Yen or American Dollar, digital currencies don't require banking system to move value. Lack of this requirement means that work with digital currencies is way faster than work with banking, especially on the global scale. If we want to send ten Dollars from Osaka to Denver using a digital currency, we won't have to wait for days for the value to get transferred. In fact, there is no distinction between sending value to your neighbour or to a friend on the other side of the globe, the transfer will follow the same understandable rules within a predictable amount of time.

You Own Your Money

With banking system, all that an owner of a bank account has is a promise of a commercial bank to pay the person a certain amount of money within a reasonable amount of time after receiving a payout request. Of course, banks also have limits to such transactions, so nobody can "cash out" quickly. In case of cryptocurrencies, the person who holds a special kind of information, called a secret key can spend the money at will. No other entity has a power to manipulate value that a user has.


One can have as many cryptocurrency addresses as they like, receiving and spending money from different addresses in different ways. A merchant running an E-Commerce shop can have a set of addresses to receive money and issue refunds and a personal "wallet" for their own needs. All of this is controlled from one interface and there is no need to log in to several payment platforms, suffering an overhead.


Your money are as secure as the secret key that allows spending those. That means that storing your secret key in a safe on a laptop disconnected from the Internet is equivalent of having banknotes in a password-protected lock-box in a safe. Absolutely nobody can steal this money even by carrying out a successful cyber-attack.


Using an approach known as side chains, general-purpose cryptocurrencies (such as Cardano SL or Bitcoin) can "fuel" domain-specific cryptocurrencies, such as Ethereum Classic. This way, whatever innovative thing is developed via a domain-specific cryptocurrency, anyone who holds value in a general-purpose cryptocurrency can participate in. Examples of such applications are identity management, gaming and gambling, verifiable computations.

What is a Cryptocurrency?

Cryptocurrency is a form of digital currency that uses cryptography to manipulate value. Cryptography provides us with a way to generate a proof that it was us who issued any kind of information. This is called digital signing. In cryptocurrencies we generate a ledger (a database which answers a question "which address has how much money") by signing and sending transactions into the network and receiving blocks of confirmed transactions. Cryptocurrencies are normally decentralized, which means that many people from all over the globe participate in ledger generation by running cryptocurrency nodes. Obviously, a consensus about the state of the ledger has to be achieved. Two most significant approaches for achieving such consensus are discussed in the next section.

What Makes Cardano SL Special?

There are a lot of similarities between Bitcoin and Cardano SL, but also there are quite some differences between those two cryptocurrencies. Most significant difference between Bitcoin and Cardano SL is that Bitcoin is a Proof of Work type cryptocurrency, while Cardano SL makes use of a Proof of Stake approach to consensus.

Purpose of a Consensus Algorithm

Consensus algorithms are used to produce new blocks of transactions, updating the state of the ledger as a result. Whenever someone publishes a block of transactions, they (or rather, their node that runs a cryptocurrency protocol) have to attach a proof that they had the right to do it. Below we discuss two types of such proofs.

Proof of Work and Mining

Proof of Work is the most common consensus algorithm type for cryptocurrencies. It originated in Bitcoin and is the reason why this currency works well. To generate a proof of work, a computer has to solve a challenge. The challenge is a computationally-heavy problem which is hard to solve, but simple to verify a solution to. When a computer on a Proof of Work-based network finds a solution, it publishes it, along with the transactions that given computer observed while cracking the problem. The owner of this computer collects transaction fees and reward for generating a block. This whole process is called mining. Mining is very energy-consuming and the more competitive mining gets, the more energy-consuming it is.

Proof of Stake and Minting

Proof of Stake is a novel approach to block generation. IOHK scientists, lead by Prof. Aggelos Kiayias have designed the first provably secure proof of stake algorithm called Ouroboros. Ouroboros lies at the heart of Cardano SL. Research team has published a whitepaper which is a worthy read for anyone with background in cryptocurrency theory. The core idea of proof of stake is that instead of wasting electricity on cracking computationally-heavy problem, a node gets selected to mint a new block, proportionally to the amount of the value a particular node has. A node that attempts to generate a block is called "a stakeholder". You can read more about this process in Proof of Stake in Cardano SL.

Beyond Settlement Layer

Cardano SL is a "Layer" for a reason. It's the first component of Cardano Platform. Eventually it will be expanded with Control Layer, which will serve as trusted computation framework to evaluate special kind of proofs that a certain computation was carried out correctly. In gaming and gambling, such system can be useful for verifying honesty of random number generation and game outcomes. Accompanied with side chains it will allow to accomplish such things as provably fair distribution of winnings in games. The application of Control Layer lies well beyond gaming and gambling applications. Identity management, credit system and more will be a part of Cardano Platform. We are also aiming to grow Cardano SL wallet program called Daedalus into a universal cryptocurrency wallet with automated cryptocurrency trading and even cryptocurrency-to-fiat transactions.