Overview
Cardano is the latest Proof of Stake (PoS) smart contract blockchain platform aiming to challenge Ethereum’s dominance in the space. It is a product of a scientific approach to solve the most critical issues of early blockchain projects. The project spent 4+ years in development while it looked to solve latency, throughput, security, and decentralization issues that commonly plague other blockchains. Similar to ETH 2.0, the primary use cases of Cardano are staking on the network, delegating, and transferring ADA for different use cases within the Cardano network.
Cardano is unique in the fact that it was the first project “founded on peer-reviewed research and developed through evidence-based methods.” It was also one of the first projects to commit to the Proof of Stake consensus protocol as well as promises a number of advanced architectural solutions, including a multi-layered network, hierarchical deterministic (HD) wallet, and a community-governed treasury.
However, Cardano’s lengthy research phase is as much a weakness as it is a strength. It remains a nascent network and more of a research project in the works. Cardano’s multi-year development phase allowed first-to-market Ethereum to grow its lead in the sector as well as at least a half dozen other projects to launch and gain adoption.
Academic papers and superior throughput mean nothing without users and an ecosystem. Cardano’s slow progress in this area puts it at risk of being too late to market to penetrate Ethereum’s lead. However, the project’s timing could prove just right as the crypto market as a whole looks to be in the midst of another growth cycle, and early indicators from Cardano’s token, ADA, suggest users are eager to hold and stake the token.
Cardano Strengths
- Cardano boasts a strong, well-respected team with ample financial resources, including development activities by Input Output Hong Kong (IOHK).
- Cardano only recently launched the ability for users to stake, but has a high level of name recognition since it has been a project-in-progress for years.
- Cardano has an extremely detailed and transparent roadmap that allows users to have insights into where the project is headed.
Cardano Weaknesses
- Cardano is competing in a crowded space of general-purpose, smart contracting, Proof of Stake blockchains along with Ethereum, Tezos, Cosmos, Polkadot, and many others
- ADA may be relatively “overvalued” compared to other smart contract blockchains as it is currently an unfinished product; while it boasts years of research and marketing, it is still in an early stage of development and much of its current value may be based on its potential..
- In a worst-case scenario, the separation of the settlement and computational layers could be leveraged to enable censorship or social engineering attacks.
Important Links
- Whitepaper
- Website
- Github
- Telegram
- Block Explorer
- Cardano Chat
- Cardano Forum
- Cardano Community
- Cardano Foundation
- Cardano Foundation YouTube
Technology
Cardano is a multi-layered protocol that utilizes Proof of Stake consensus throughout the system: the CSL, where value is transferred, and the CCL, where computation takes place. The separation into the settlement layer (CSL) and computation layer (CCL) was created to increase the efficiency, scalability, and to increase the network’s capacity for protocol changes and soft fork implementations. By separating the layers, the network can theoretically optimize each without compromise as argued in other current blockchains. However, both layers still use the PoS consensus protocol, Ouroboros.
Cardano is developed in Haskell and its smart contracts are created in Simona and Plutus, programming languages that allow for building stricter contracts. Simon and Plutus are simple scripting languages that can handle the range of common transaction types for the CSL. The main advantage of developing simple scripting languages is that they can be understood by more people, thus allowing widespread peer review and increased security.
The CSL is the value LEDGER of the network and its primary purpose is to account for the value of transactions. The CCL is responsible for the “reasons” behind the values and will enable users to implement conditional activities, support, comply with regulation requirements, and offer the use of a virtual machine. Cardano 1.5.0 Mainnet was released in March 2019, allowing for support of Ourobouros, which uses Byzantine Fault Tolerant-Proof of Stake (BFT-PoS).
In a sense, the network aims to separate value from computation. Cardano developers believe that by making these layers separate, it permits more flexibility in the design, use, privacy, and execution of smart contracts.
The Cardano Settlement Layer’s (CSL) roadmap has the following goals:
- Support two sets of scripting languages, one to move value and another to enhance overlay protocol support.
- Support multiple types of signatures including quantum-resistant signatures for higher security.
- Support multiple user-issued assets.
- Achieve true scalability, meaning as more users join, the capabilities of the system increase.
The CSL also enables User Issued Assets (UIA), allowing users to create and issue tokens on the Cardano blockchain similar to Ethereum’s ERC-20 tokens. However, whereas ERC token creation and use require ETH in every transaction in the form of gas, UIA tokens won’t require ADA. Instead, ADA will act as a bridge token to create decentralized markets around the UIAs on the network.
Having already touched briefly on the different milestones outlined in Cardano’s roadmap, let’s review a summary.
Byron
Byron represents the current state of the Cardano blockchain and includes the foundational elements that allow Cardano to function. Elements implemented at this stage in development include randomness, property-based blockchain testing, and Ouroboros, the consensus algorithm.
Ouroboros is an innovative Proof of Stake algorithm which utilizes a randomized process to elect stakeholders based on the weight of an individual user’s stake. The core innovation of Ouroboros is flexible architecture that allows for the composition of many protocols to enhance functionality. The modularity of the consensus algorithm enables features such as delegation, subscribable checkpoints, random number generation, and sidechains.
Blocks of time in Cardano, referred to as epochs, are divided into slots. Slot “leaders” operate in epochs to aggregate and confirm transactions to produce blocks, which can then be approved by endorsers. Cardano argues this design is more scalable than other networks since the Cardano network can increase the number of slots per epoch and run multiple epochs across the network simultaneously.
A slot has a 20 second duration while an epoch contains 21,600 slots or five days in total. Stake pools will earn transaction fees and a share of the 13.88 billion ADA earmarked for staking rewards.
Since not all stakeholders understand how to produce and validate a block, they can instead delegate ADA to staking pools to also benefit from the network. Users managing the staking pools are randomly selected by the Ouroboros algorithm to ensure fairness.
Shelley
Shelley introduces the delegation and incentive scheme that drives the network and motivates users to exchange value through ADA tokens. The overall goal of Shelley is to create a network that is 50 to 100 times more decentralized than other existing blockchain projects and to create 1,000 different staking pools to ensure decentralization. This implementation aims to deal with the perceived centralization of crypto mining that affects PoW cryptocurrencies like Bitcoin and current-day Ethereum.
Goguen
Goguen provides developers the ability to create decentralized applications and smart contracts. The goal is not just to create these capabilities, but to make them more accessible to wider audiences using Marlowe. Marlowe is a new language dedicated to modeling financial instruments as smart contracts on the blockchain. This will give financial professionals the ability to create their own smart contracts without needing to be programmers themselves.
Basho
Basho focuses on the introduction and development of sidechains and interoperability. The purpose of sidechains is to move workload off the main chain and increase the capacity of the network.
With respect to sidechains, Cardano will support a new protocol called KMZ sidechains developed by Kiayias, Miller, and Zindros. These are Cardano-specific sidechains based upon Proofs of Work. KMZ sidechains operate much like other sidechain solutions such as Lightning, Celer, and Matic. The main difference is that Cardano sidechains allow for the movement of funds in and out of the CSL and onto computational layers or other blockchains built to support KMZ/Cardano. Other blockchains and private ledgers have their own regulatory requirements, private operations, and scripting languages, making them black boxes to CSL. However, with KMZ sidechains, the CSL user will gain access (with certain guarantee tradeoffs) about the ledger state and have the ability to recall funds once computation is complete.
Voltaire
The Voltaire milestone concerns governance mechanisms dedicated to making Cardano a self-sustaining system. Completing this objective requires implementing a treasury and voting system to ensure network participants are able to use their voting stake to direct, develop, and influence the future of the network.
Scalability
After being in development since Cardano’s inception in 2015, Ouroboros Hydra introduces a scalability and latency solution that allows Cardano’s blockchain to transact at a speed that rivals traditional payment and credit card networks like Visa. Hydra is funded by a collective and the European Union, and can theoretically scale up to 1 million transactions per second. According to a spokesperson from IOHK, the firm behind the creation of Cardano, this degree of scalability rivals any global payment system currently in existence, decentralized or not.
Downsides of Splitting the CCL and CSL
Another potential attack vector built directly into the Cardano project is the ability for the project to essentially censor certain types of transactions and use cases within the network.
The CCL deals with the “why” of the ADA transactions and is where smart contracts come into play, versus the CSL which handles the accounting of the movement of assets. . The activities/reasons behind certain applications running on a blockchain may not be ones supported or endorsed by all in the network. For instance, should dark web-like apps be created on Cardano, the entire network, in a sense, endorses this use case behavior by continuing to devote resources to the network (staking, development, etc.)
Because of this, Cardano decided to split the CCL and CSL into distinct layers. Decentralized programs will require some form of gas and nodes will have the option of whether to include the transactions from those programs in their blocks. This gives nodes leverage over the types of behavior they deem permissible on the Cardano blockchain. So, this separation between the root CSL layer and the CCL layer allows for a degree of network protection from computational, legal, and moral perspectives.
While this sounds like an overall positive feature, it introduces subjectivity, moralism, and politics into a decentralized digital world. This, in a worst-case scenario, could open the door for potential social engineering attacks and even censorship. Part of what makes blockchains so powerful is they are neutral, immutable, and censorship-resistant platforms that have no sense of right or wrong. They produce unstoppable, immutable code for all use cases so long as they conform to the protocol’s rules. The opinions and whims of the outside world, which often can be authoritarian or change, are not factors.
While the advantages of separating the CSL and CCL layers of Cardano allow for a greater degree of use-case flexibility, it introduces human complexity that may have unforeseen consequences.
