Cardano is a third generation decentralized blockchain system that utilizes smart contracts. It differs from most other projects in that its development is grounded in scientific and peer review. The overall aim of the project is to build a scalable, interoperable, and sustainable blockchain system.
- Third generation blockchains aim to overcome problems related to scalability, interoperability, and sustainability
- Cardano does not follow a rigid set of objectives, instead preferring to investigate possible solutions and implement ideas based on scientific analysis and peer review
- The consensus is achieved through their variation on Proof of Stake, which is claimed to be the first immune to all known attacks
- Scaling is achieved through modular design, network adjustments, and data partitioning
Cardano is an exciting project due to its focus on solving major issues within the blockchain space. Similar to Ethereum, Cardano offers smart contracts. However, its architecture will allow for scalability from the outset.
Three organizations perform the upkeep of Cardano:
- The Cardano Foundation – a non-profit entity whose purpose is to standardize, protect, and promote the technology.
- IOHK – provide research and development to assist the build, design, and maintenance of the system.
- Emurgo – are responsible for onboarding commercial ventures into the Cardano ecosystem.
Third Generation Blockchain
The creation of Bitcoin was driven by the need for decentralization, through it, people can transfer value without the need for a middleman. But first-generation blockchains are limited, in that, conditions cannot be added onto transactions.
Ethereum solved this problem through smart contracts. Generation two blockchains allow for value exchange in a transparent and objective manner, while at the same time retaining the concept of decentralization. However, they are not without their issues, most notably in relation to scaling and governance.
The Cardano founder, Charles Hoskinson, realized that to gain broader market appeal, further development of blockchain technology is necessary. His vision for Cardano seeks to improve on previous generations by tackling functionality issues from the ground up, including scalability, interoperability, and sustainability.
The Cardano Way
Cardano is based on the values of open-source software. The roadmap and whitepaper do not promote rigidly fixed objectives. Instead, the team focuses on the implementation of “design principles, engineering best practices, and avenues for exploration.”
The website sets out a list of these principles, which are:
- Separation of accounting and computation into different layers
- Implementation of core components in highly modular functional code
- Small groups of academics and developers competing with peer-reviewed research
- Heavy use of interdisciplinary teams including early use of InfoSec experts
- Fast iteration between white papers, implementation and new research required to correct issues discovered during the review
- Building in the ability to upgrade post-deployed systems without destroying the network
- Development of a decentralized funding mechanism for future work
- A long-term view on improving the design of cryptocurrencies so they can work on mobile devices with a reasonable and secure user experience
- Bringing stakeholders closer to the operations and maintenance of their cryptocurrency
- Acknowledging the need to account for multiple assets in the same ledger
- Abstracting transactions to include optional metadata to better conform to the needs of legacy systems
- Learning from the nearly 1,000 altcoins by embracing features that make sense
- Adopt a standards-driven process inspired by the Internet Engineering Task Force using a dedicated foundation to lock down the final protocol design
- Explore the social elements of commerce
- Find a healthy middle ground for regulators to interact with commerce without compromising some core principles inherited from Bitcoin
From this, it’s clear that the Cardano team are looking to build a system based on researching the blockchain space and then developing a set of constructs around their findings. This strategy will likely bode well for critical concerns around blockchain technology, including sustainability and security.
IOHK, under Professor Aggelos Kiayias, have developed the Ouroboros protocol, which is claimed to be the first Proof of Stake (PoS) algorithm impervious to all known PoS attacks.
With a PoS system, the creator of the next block is chosen not by computing power, but in a random manner proportional to the size of the stake held on the blockchain ledger. This avoids the situation where computation becomes increasingly difficult, as more miners join the network, and is, therefore, more scalable and less energy intensive.
A key component of Cardano’s PoS system lies in its ability to randomize the selection of block producers (also known as “slot leaders”). Under Ouroboros, randomness comes from using multiparty computations. This refers to each elector independently performing a “coin toss” and sharing the outcome with other electors. Eventually, the electors agree on a result, whereby a random string is generated, and a slot leader is chosen based on the string and staked coins proportional to the total.
Not content with resting on their laurels, Cardano intends to upgrade to Ouroboros Praos, which will randomize selections using quantum resistant signatures, rather than multiparty computations, as well as concealing the identity of the slot leader to strengthen security further.
Scaling is perhaps the most significant problem facing previous blockchain generations. After all, a blockchain without sufficient capacity will never replace its equivalent legacy system. With this in mind, Cardano’s core component architecture incorporates a modular design.
The Cardano protocol is divided into two layers. The first layer is the Cardano Settlement Layer (CSL), which utilizes ADA in its operation. And the second layer is the Cardano Computation Layer (CCL), which is responsible for running smart contracts. This separation means each layer can develop independently from the other, and so incorporates an element of flexibility at the base level.
As a blockchain grows, it must accommodate increasingly larger amounts of data, however, under a decentralized network, where the nodes will vary in their capacity to relay information, not every node will be able to transmit every message that passes through the system, limiting the network’s ability to scale.
Cardano’s response to this problem centers on the application of a new type of technology – Recursive Inter-Network Architecture (RINA). This solution offers a new way to structure networks taking into account heterogeneous nodes, while still maintaining privacy and transparency.
It operates by providing a secure and programmable ecosystem, where it’s possible to predict how the network will organize, and so data can be restructured in such a way that not every node needs to process every message.
Data, regardless of whether it’s essential or junk, is written onto the blockchain and stored forever. As more users come on board, the blockchain becomes increasingly cumbersome, especially so under a peer to peer system, where the network’s security relies on each node storing a copy of the blockchain.
The Cardano team propose to overcome this issue by partitioning the network. Under this system, network security will not depend on every node holding a copy of the entire blockchain. Instead, different nodes can hold a chunk of the blockchain, significantly reducing the amount of data they need to store.
Charles Hoskinson does not believe there will be a single token that will dominate the space. Taking this into account, the need to connect different blockchains is fundamental to Cardano’s overall vision. Engineers are looking at utilizing sidechains, that runs alongside the mainchain connected by a two-way peg, to provide a secure yet seamless flow for cross-chain transfers.
But for Cardano to become the “internet of blockchains,” the following challenges need to be resolved:
- Metadata – refers to details underlying a transaction such as where did it occur and what on, and since blockchain data is stored in a permanent and transparent way, a situation arises whereby private information is accessible by anyone.
- Attribution – refers to the identity of the people involved in the transaction, and similar to the problem with metadata, the names of the people concerned are on display, presenting an infringement of personal privacy.
- Compliance – all financial businesses must meet regulatory requirements including Know Your Customer (KYC), Anti-Money Laundering (AML), Anti-Terrorist Financing (ATF).
A lack of formal governance has led to some litigious hard forks within the crypto space. For that reason, how a project deals with future development and growth is of utmost importance.
Cardano plans to use on-chain governance so when a change or an update is proposed; the community can decide whether the proposal is worth voting for. Should enough stakeholders support the amendment, this system could implement any changes without the need to hard fork.
Also, with regards to future funding, Cardano sees value in the implementation of a treasury function. It’s proposed that every time a block is added to the chain, a portion of that block reward will be added to the treasury fund. Over time, this will accrue the necessary resources to pay for future development.
The Cardano platform is built on a flexible design philosophy backed by science. It promises innovations regarding consensus, scalability, security, interoperability, and sustainability. However, critical innovations around performance, safety, and scalability (via Ouroboros Praos) have yet to be implemented. It’s difficult to determine whether Cardano is a serious contender to Ethereum, who are themselves looking at scaling solutions for their platform. The coming year will prove critical for Cardano.