Talking about how Cardano works is talking about innovations in the world of blockchain technology, some of which are unique in their style.
Ouroboros, a PoS protocol for Cardano
When we talk about the operation of a cryptocurrency, the first thing that springs to mind is the consensus protocol used, and in this case, Cardano pleasantly surprises us: Its algorithm is unique and was specially developed for its blockchain. This algorithm is called Ouroboros, a name that refers to the mythical creature of the same name, which symbolizes “the eternal cycle of things”.. In the case of Cardano, this name fits perfectly because Ouroboros is the building block of its blockchain, which “the eternal cycle in which your blockchain works“.
Ouroboros is a consensus protocol of the PoS type (Proof of Stake or Proof of Participation), but the comparison with this protocol ends there. The reason for this is that Ouroboros implements a completely different formula in their operations to make Ouroboros the most secure PoS protocol on the market. In order to participate in the block generation system, Ouroboros first asks you to have a certain number of coins (your participation) in a special node (validation node). The more economic participation you have in the system, the greater the chance of generating a block and earning the reward for it.
A timeframe to improve security
In addition, Ouroboros creates a temporary and random assignment mechanism so that the validation nodes can safely participate in the system. This temporal system is divided into two parts: the epoch (cycles) and the slots (intervals). Epochs are a time system that is set to 5 days while slots only last 1 second. So we have that; There is actually a total of 432,000 slots in each era, and all of these slots are spread over a total of 21,600 blocks (the overall historical average is 21,400 blocks). This is possible because the creation of blocks in Cardano occurs every 20 seconds.
Now you are wondering Why this time division within the Ouroboros Protocol? The answer is that this way it is more difficult for an attacking group to change the outcome of participating in the network. For example, a large amount of ADA could be reserved for a stake pool that can be used as a bridge to get the assignment, to generate a block, and to earn a reward.
However, with the division of epochs and slots, Ouroboros can implement voting rules that avoid this type of harmful attitude to the network, as it is a form of centralization. In this way, Ouroboros avoids one of the main problems of PoS, the centralization of power generation, as there are big money stake pools within the network giving them the highest chance of being selected as validators.
Another additional point of this epoch and slot system in Ouroboros is that the validation nodes that have done their correct generation work will not receive their rewards until the end of each epoch. This rule prevents a group from being able to manipulate the entire stake of the network in a short period of time to get the chance to generate blocks and at the slightest opportunity disappears if by that point they have made the profits. Similar to PoW in Bitcoin, where miners can only withdraw their earnings from their respective coin base after 100 confirmations.