The Purpose, People, and Protocols behind Cardano
Cardano is a smart contract platform with a native token called “ADA”, it aims to fix some problem faced in previous generations of blockchain (namely Bitcoin and Ethereum).
Cardano in brief
Cardano is a blockchain project founded by Charles Hoskinson, co-founder of Ethereum, to “provide a more balanced and sustainable ecosystem” for cryptocurrencies.¹
Cardano has the following key properties:
Energy-Efficient
It requires significantly less energy than Bitcoin thanks to the use of a PoS (Proof of Stake) consensus mechanism.
Scalable
It is theoretically possible to process 1 million TPS (Transactions Per Second)!
Interoperable
It is built to communicate with other blockchain, or even the legacy world information system.
Who is behind the Cardano
There are three key partners who are contributing to the Cardano project: Cardano Foundation, IOHK, and Emurgo.
Cardano Foundation is the legal custodian of the protocol and the brand. Its main goals are to (1) Drive adoption of Cardano, (2) Shaping legislation and commercial standards, (3) Growing global Cardano community.²
IOHK is a fully decentralized engineering company founded by Charles Hoskinson(co-founder of Ethereum and Cardano) and Jeremy Wood(co-founder of Ethereum and Polkadot). This company build most of the Cardano, and it’s also building blockchain for academic institution, enterprise, and government entities.
EMURGO is a founding member of Cardano protocol, and is now the for-profit arm of the Cardano ecosystem. EMURGO drives the adoption of Cardano through commercial practice, like investing. It's also using its power to promote blockchain education and community awareness.
Treasury and Sustainable Governance
Maintenance and improvements of Cardano costs money, right? But as a decentralized network, how does Cardano secure the fund needed to do all that? There is an entity call Treasury in Cardano, it’s a decentralized vault funded by (1) Block mint reward, (2) Tax, (3) Donation. Everyone in the community can submit a Funding Proposal (FP) to the network. It’ll go through a democratic election process, if the proposal is approved, the smart contract in the proposal will be executed, thus releasing the fund.
Ouroboros — Core of Security and Efficiency
Ouroboros is a consensus protocol used by Cardano. Because it is PoS based, it is way more energy-efficient than Bitcoin (PoW based). According to Cardano.org, it is up to 4 million time times the energy efficiency of Bitcoin, impressive!
About security, it is peer-reviewed and mathematically-proved secure. But how exactly does it work, let’s check out these video for both high level overview and In-depth analytics.
You could also check out the original paper to see how all those math works, but since I am not a math guru I won’t dive in too deep about this.
Hydra — Cardano’s 2nd Layer Scaling Solution
When we are talking about scalability, we are expecting Cardano works as fast as the credit card (centralized system) even if the entire world is using it. But it’s just not the case on the blockchain now. Usually, transaction per second (TPS) on blockchain is no more than 100, incompatible to 2,000 TPS on Visa network. We need a solution for higher throughput if we want to grow the platform. Thus, the Hydra came in, it’s Cardano’s 2nd layer scaling solution that will take Cardano to the moon. 2nd layer means it is not happening on the blockchain, it is off-chain instead. It basically works like this:
- Any group who want to perform transactions can open a “Head”, a zone where transactions are not recorded directly on chain. A part of UTXO will be locked to perform in-Head transactions.
- The Head can open as long as you want, but if anyone wants to settle the transactions, they can close the Head.
- The Head will send final state to the blockchain when it’s closing, so whatever happened in the Head will eventually be recorded on-chain, but with only two transaction, open and close.
Each head can handle about 1,000 TPS, but there could be many Head running parallelly, which means it’s possible for Cardano to handle millions of transaction per second. Amazing!
Here is the medium level overview of Hydra…
and in-depth analysis if you want to read more :)
Interoperability
Why we need interoperability
Though Cardano network is amazing itself, there are still plenty of scenarios requiring co-operation. For example, Cardano could decide to freeze your asset or even arrest you, but Cardano can not do it itself. Hence, there is need for Cardano to co-operate with humans (legacy world). For another example, you want to exchange your ADA to Bitcoin, but you don’t want to go through centralized exchange for any reason. You will need a way for Cardano and Bitcoin network to communicate.
Legacy world interoperability
There are some problems we are facing when Cardano wants to communicate with the real world. But the toughest one has to be “Where do the data come from?” Because the data from legacy world is not as reliable as those coming from the blockchain consensus, there need to have some system to build trust between these worlds. The solution for now is to build a list of trusted sources, the bootstrap version of it is provided by the Cardano Foundation, IOHK, and EMURGO, but it’ll soon be replaced by the community curated version.
Our hope is that a reputation system can materialize around good data feeds, thereby creating a positive feedback loop to gradually improve reliability and fidelity. — Why Cardano
Cryptocurrency Interoperability
Compare to the legacy world, it’s much easier to achieve interoperability between two blockchains. The movement can be divided into two main categories, movement of information and movement of value. The movement of information is simpler, it is established by connecting an external network and translating its messages. The movement of value is a bit more complex but can be done through the implementation of a relay system, Atomic swap, or side chain scheme.
Summary
The design and architecture of Cardano is great, but there is still a big shoe to fit if we want to solve more real life problems. In this ever-changing world, there are always endless problems to be solved, but it also means solutions are infinite. Cardano may be a solution, but it’ll definitely not be the last and only one. We may not know the future, but we should all be proud of making it a better one. Hope this article will be a step stone in your journey, thanks for reading.
More resources about blockchain and Cardano
Blockchain curriculum from Berkeley: Highly recommended for every level. The courses cover the general ideology and the underlying details about blockchains.
Why Cardano?: The most complete guide about Cardano.
Ethereum: Cardano and Ethereum share many similarities (Remember the founder of Cardano is also a co-founder of Ethereum). So I highly recommend exploring Ethereum alongside with Cardano.
Reference and Citation
¹ Sharma, Rakesh. “Cardano Aims to Create a Stable Cryptocurrency Ecosystem.” Investopedia, Investopedia, 28 Aug. 2020, www.investopedia.com/news/introduction-cardano/.
² “Our Missions.” Cardano Foundation, Cardano Foundation, cardanofoundation.org/en/our-missions/.
