Cardano uses a consensus mechanism known as “Ouroboros.” Ouroboros is a proof-of-stake (PoS) protocol designed to secure the network and validate transactions. It divides time into epochs and slots and relies on a set of stakeholders (participants who hold ADA, the native cryptocurrency) to create blocks and confirm transactions. Here’s a simplified overview of how it works:
- Slot Leaders: In each slot, a slot leader is chosen to create a new block. Slot leaders are selected based on the amount of ADA they hold and other factors, making it a probabilistic process.
- Epochs: Slots are organized into epochs, which are larger time periods. Epochs serve to reorganize the slot leader selection process, ensuring fairness and security.
- Security Through Stake: Ouroboros leverages the stake of ADA holders to maintain network security. Those with more ADA have a higher probability of being chosen as slot leaders and validating transactions.
- Incentives: Validators (slot leaders) are incentivized to act honestly because they have a stake in the network. If they misbehave, they risk losing their ADA.
- Consensus: Transactions are confirmed when a block is successfully created by the slot leader and added to the blockchain. This consensus process is energy-efficient, as it doesn’t require the extensive computational power associated with proof-of-work (PoW) mechanisms like Bitcoin.