ELI5 - What does settlement layer means? (Cardano SL)


Unlike bitcoin which promotes itself to be a peer to peer money/currency, cardano project uses ADA on cardano SL - settlement layer.

From my understanding it means ADA is not like bitcoin (currency) nor like ether (gas).

I’ve read articles about arguing bitcoin as a currency vs settlement layer (as says bitcoin didn’t follow satoshi’s vision as p2p money hence bitcoin cash).

but i’m not sure what settlement layer actually is in this case ADA use case other than to prevent spam to the network (that’s why the fees)


Hi Nurazhar,
My understanding - Ada functions as both currency for the settlement layer, and as the gas equivalent for smart contracts or computational layer.

Cardano has modularized itself to have the CSL (settlement or accounting layer) which functions just like a currency, except for using Proof of Stake vs Proof of Work like most crypto currencies.

The layer above that, the Computation layer, is the layer for implementing smart contracts.

Thus Cardano/Ada is really a combination of both - like Bitcoin in terms of a currency/store of value, and like Ethereum by offering smart contracts.

Cardano has the advantage of seeing the good and the bad for both previous cryptos, or Generation 1 (Bitcoin, litecoin) as well as Generation 2 (Ethereum) and by ideally offering the best of both is a true Generation 3 crypto currency.

Not sure if I answered your question exactly but hope this helps!