Cardano (ADA) is a third generation blockchain. What does that mean?

In a nutshell, it builds on all the lessons learned from other coins to create a layered and distributed computing platform which places a special emphasis on security and engineering rigour.

Cardano was officially launched in September 2017 under the so called ‘Byron’ bootstrap phase. It is led by an early Ethereum and BitShares co-founder, Charles Hoskinson. The technology has been developed by a blockchain engineering firm called Input Output Hong Kong (IOHK).

Cardano undertakes upon a slow and deliberate process of  formalizing a “science” for distributed systems design. This is achieved by re-evaluating everything that has been done in the industry for the past decade.

The team began by asking basic, foundational questions to aid the development. These include: What is a blockchain? What are the objectives of a given blockchain? How do different solutions apply to those particular objectives? What types of centralization is one inviting by choosing one approach over another?

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Cardano adopts a scientific methodology built around academic peer-reviewed research (there is no white paper as such). It sets out to formulate solutions to some of the most common issues plaguing the space. These are: scalability, interoperability and sustainability.

The Cardano Project

Cardano is made up of three entities, each with their role in the project.

  1. Cardano Foundation: A Swiss non-profit for the Cardano ecosystem and community. It is proactively working with governments and regulatory bodies and forming strategic partnerships with enterprises and other relevant open source projects.
  2. IOHK: An engineering company dedicated to instrumentalizing peer-to-peer technologies. It is also determined to provide financial services to over three billion people that don’t have access to them. The group is contracted to design, build, and maintain the Cardano platform until the end of 2020.
  3. Emurgo: a company formed to integrate, develop and support companies, businesses and industries who want to make use of Cardano’s decentralized blockchain and computation platform.

Haskell, Formal Methods and Academic Peer-Review

Cardano makes extensive use of Haskell, a purely functional and statically typed language with high degree of fault tolerance. It also uses a Haskell derived language (Plutus) to define smart contracts.

Haskell, although not as mainstream, is widely used in the academia and industries. It is considered to be one of the most secure programming languages providing extremely robust security and formal verifications. This allows for mathematical proofs of code correctness (see zkSNARKs).

Cryptol, for example, is a Haskell-based cryptographic toolchain extensively used by the NSA and in systems used by aerospace companies and defense contractors.

Such formal-mathematical proofs are of paramount importance in applications where value is at stake. Haskell is ideally suited for large scale and enterprise level smart contract applications and mission critical infrastructure intended to secure billions of dollars in cryptocurrency.

One of the defining features of Cardano is the level of technological scrutiny and the high assurance of software standards. They also have a number of relationships with researchers in the academic world. For example, they have partnered with the University of Edinburgh and the Tokyo Institute of Technology.

Cardano’s research driven approach builds on a foundation of diligent, academically peer-reviewed work. This introduces extremely high standards in the space of crypto-economic theory and distributed systems engineering.

Architecture

Cardano Architecture

Cardano is structured as a two-layered blockchain which makes architectural distinction between a settlement, or accounting layer (called Cardano Settlement Layer, CSL) and a computation layer where smart contracts are executed (Cardano Computation Layer or CCL). Included are side chains which are used to connect transactions between the two layers.

This multi-layer architecture allows for easier soft fork updates than Ethereum does. This is because there is no clear-cut distinction between the two layers in Ethereum’s architecture.

Cardano Settlement Layer

The settlement layer provides the basic accounting ledger (think Bitcoin) and the functionality of ADA. The CSL is based on the Haskell implementation of the paper describing Cardano’s consensus engine. It is developed by IOHK in collaboration with the University of Edinburgh, the University of Athens and the University of Connecticut.

Cardano Computation/Control Layer

The CCL that the Settlement Layer is to be extended with will serve as a trusted framework enabling smart contract functionality. This will be done in a manner that doesn’t necessitate the changing of the ground level protocol responsible for the native cryptocurrency. This separation makes it possible that regulated computation layers can be structured to conform to different jurisdictions.

Ouroboros: A Provably Secure Proof-of-Stake Protocol

The logic of consensus algorithms is what drives activity and the production of validated transaction blocks in distributed ledgers. This results in an updated and current state of the ledger consistent with the total history of the records. There’s two broad categories of consensus mechanisms running on blockchains – Proof of Work (PoW) and Proof of Stake (PoS).

The basic idea of Proof of Stake is that instead of wasting electricity to brute force the hash before appending a block to the ledger, a node is instead selected to mint a new block. The probability of the selection is proportional to the amount of coins/tokens this node has. PoS is meant to encourage honesty and long term, engaged participation.

There are two main groups invested in the research and development of PoS mechanisms: one is Ethereum’s Casper and the other is Cardano’s particular iteration of PoS called Ouroboros, developed by IOHK scientists led by Prof. Aggelos Kiayias.

Ouroboros has gone through formal academic peer review and is supported by formal security proofs. The game theoretical alignments and incentivizing reward mechanisms as structured in Ouroboros have demonstrated that honest behaviour is an approximate Nash equilibrium. This means that there is nothing to gain from deviating from the protocol. This is able to neutralize the possibility of selfish actors.

Ouroborous is designed to be modular and future proof. For example, slot leader signatures using quantum-resistant schemes are to be introduced some time in 2018. This will thereby make it possible for consensus to be achieved over a range of blockchains on different lanes with epochs running in parallel.

Epochs and Slot Leaders

The Ouroboros protocol divides time into epochs which are subdivided into slots. These slots, which are short periods of about 20 seconds, will have exactly one block being created within it. Slot leaders are elected among all stake holders with the probability of being selected proportional to the amount of coins a node has.

To ensure that the election process is unbiased, a degree of randomness is introduced via a multi-party implementation of a coin tossing protocol. This will produce the final result where one node is selected to verify and append exactly one block.

The Recursive Inter Network Architecture (RINA), a proposed alternative of the TCP/IP and OSI model, is to be implemented in Cardano. RINA is so engineered that it could seamlessly connect and interoperate with TCP/IP. In Cardano, this would allow for multiple epochs to be run in parallel on different chains thereby making it highly scalable.

Treasury and Monetary Policy

Cardano Proof of Stake

Cardano will have a treasury which is a decentralized bank account. This is similar in principle to the early DAO on Ethereum, but modeled on Dash’s treasury system.This special address/wallet is collectively controlled by all ADA holders for the purposes of Cardano development projects.

The participants will vote for which projects the funds should be released to. This enables the system to pay for its own improvements and ensures its long term sustainability. The treasury is funded via inflation, or deducting a small percentage of every transaction that takes place on the Cardano platform and some portion of newly minted ADA.

The ADA currency is fixed supply, arbitrarily capped at forty-five billion. More details on Cardano’s monetary policy can be found here.

Deadalus Wallet

Daedalus is the Cardano Settlement Layer wallet application that holds the ADA currency. It is intended to be further developed to function as a universal crypto-assets wallet with features such as automated trading, exchanges integration and crypto-to-fiat transactions.

Mantis, the Scala-based Ethereum Classic client, has also been integrated with Deadalus wallet to connect to the Ethereum Classic network.

Scala is another language that is highly suited for distributed systems and blockchains. This is because it is concise and data immutable while adopting a functional style of writing code.

Furthermode, Scala is interoperable with Java and JavaScript and also compiles with the LLVM and to Java bytecode (which makes the process of integrating with Ethereum easier).

Team and Roadmap

Charles Hoskinson Bloomberg
Image via Bloomberg.com

The IOHK team is composed of a large number of engineers and academic researchers. Founder Charles Hoskinson is well-known in the crypto community. He is a trained mathematician having studied Analytic Number Theory at the University of Colorado.

He had been originally involved in the early development of Bitcoin and co-founded Ethereum. He was also the founding chairman of the Bitcoin Foundation’s education committee and established the Cryptocurrency Research Group in September of 2013.

Chief Scientist and developer of the Ouroborous consensus engine is Prof. Aggelos Kiayias who is presently the Chair in Cyber Security and Privacy at the University of Edinburgh. His research interests lie in the field of applied cryptography and foundations of cryptography with a particular emphasis in blockchain technologies and distributed systems.

A technical update tracker which follows github commits and roadmap progress can be found at Cardano updates. There have been 868 commits in the past week.

Exchanges

ADA is presently traded on Bittrex, UpBit, HitBTC and recently listed on Binance with the BNB token and USDT trading pairs just introduced yesterday (the 17th of April) and as of today also listed on Chinese Huobi.

Additional Resources

  • Cardano Hub is the main Cardano website housing all information and resources.
  • Cardano Block Explorer for searching addresses, transactions, epochs and slots on the Cardano network. In the near future the explorer will be supplemented with charts, diagrams, statistics and other data analytic components and tools.
  • Safety guidelines for avoiding falling victim of phishing attacks and such unfortunate scenarios as when a lot of users had their IOTA wallets emptied because they were generating seeds online.

There is also extensive technical documentation by IOHK which can be viewed here.

Powerful Use Cases

While Cardano is no doubt developing revolutionary blockchain technology, the real benefit lies in real world use cases. For example, Long Finance’s just published 78 page long report that is sponsored by the Cardano foundation.

This examines the economic impact of smart/distributed ledgers on world trade and global capital flows. It also hints at Cardano’s scope of ambition to serve as a framework and operating system upon which human civilizations could flourish and prosper. As stated in the publication:

Conceptually, the impact of Smart Ledgers will be realised by reduced cost frictions associated with processes such as paperwork and identity checking, facilitating the creation of new business opportunities, and reducing the volatility associated with international trade.

Cardano’s mission is particularly focused developing and third world countries that are encumbered by corruption, arcane bureaucracies and lack of access to financial services.

Hence, in the battle of the blockchains, Cardano may have a theoretical edge. However, if it can practically be used to transform the way certain societies function, then it will achieve what no other blockchain project has so far managed.

Featured Image via Fotolia

Posted by Editorial Team

Editors at large. Posting the latest news, reviews and analysis to hit the blockchain.