Hi guys! Welcome to my first actual post. I’ve named this series coincorner, and it’s where I research a project and present it to you in (hopefully) an easy to digest manner. In this way I hope to increase public knowledge about various projects and to help you guys maintain your due diligence. Today I’m having a look at cardano.
The cardano project began in 2015 with the aim of building a public blockchain that can be used in payment for goods and services and is scientifically driven – That is, “the platform is being constructed in layers, which gives the system the flexibility to be more easily maintained and allow for upgrades by way of soft forks.” (Quote taken from the cardano foundation [website] (https://www.cardanohub.org/en/what-is-cardano/).
The Cardano teams
Cardano is being developed by an international team of academics and engineers, however there are three primary organisations which contribute to development:
- IOHK – Founded in 2015 by Charles hoskisson and Jeremy wood, IOHK is a cryptocurrency research company based on the founding principal of “cascading disruption”. IOHK as an organization believe that the current systems of governance are in many cases unstable and perturbations can cause a ripple effect that fundamentally reconfigure the entire system. IOHK holds the contract to develop the cardano platform until 2020
- Cardano foundation – an independent standards body based in Switzerland with core responsibilities to support the community of Cardano users and to work with authorities on regulatory and commercial matters
- Emurgo – A japan-based startup accelerator founded in 2017. Emurgo develops, supports and incubates commercial businesses and helps integrate them into cardano’s blockchain ecosystem.
Project history
Cardano is referred to as a “third generation” protocol. Essentially this just means that from the beginning of the project the cardano foundation has aimed to inherit and adapt successful features, incorporate additional technologies and address current flaws found in first (I.E bitcoin) and second generation (I.E Ethereum) protocols.
There is no actual whitepaper for cardano. The project began as a loose set of design principals, optimal engineering practices and avenues of exploration which over time were refined into clear set of goals and a direction for the project. The big three riddles cardano aim to solve are scalability, sustainability and interoperability.
• Scalability – Decentralized systems are composed of a set of computers (nodes) agreeing to run a protocol or suite of protocols to accomplish a common goal. Ideally, protocols gain resources as nodes join the network. A file hosted by BitTorrent, for example, can be downloaded much faster on average if many peers are concurrently downloading it. The speed increases because the peers provide resources while also consuming them. This characteristic is what one typically means when stating a distributed system scales. The challenge with the design of all current cryptocurrencies is that they actually are not designed to be scalable, in fact the security and availability of a blockchain protocol relies upon many nodes possessing a full copy of the blockchain data. Thus, a single byte of data must be replicated among X number of nodes in order to preserve data integrity. The payment for this security is that additional nodes do not provide additional resources.
Given this topology, cryptocurrencies cannot scale to a global network on par with legacy financial systems. Cardano’s novel consensus algorithm Ouroboros permits a decentralized way to elect a quorum of consensus nodes, which in turn can run more traditional protocols developed over the last 20 years to accommodate the needs of large infrastructure providers. For example, the election of a quorum means there is a trusted set of nodes to maintain a ledger for a specific time period, removing the need for a copy of that ledger to be maintained in every node across the network.
• Sustainability – When addressing the long-term life of a protocol, the allocation of responsibility concerning maintenance and funding becomes unclear. Should the oversight of a central authority be embraced, or should a consensus-driven approach be adopted? Essentially, the question to answer here is Can this system maintain a healthy ecosystem with a consistently high degree of consensus and adaptability while still maintaining a decentralized structure?
The cardano team’s solution for this issue is the eventual implementation of a “treasury” blockchain. The purpose of the treasury is to act as a decentralized trust in order to ensure the long-term security of funding for the project without relying on outside investors. The treasury is funded by inflation from miners and collections from transaction fees. In the majority of blockchain systems, a miner who successfully mines a block would be the sole recipient of that block’s reward. In Cardano’s treasury system, these coins would instead be shared between the miner and the treasury, since a portion of the newly minted coins would be deposited into the treasury’s decentralized bank account.
As the community becomes more informed about the underlying nature of cardano’s technology, decisions about the roadmap can no longer be centralized to a set of core developers or foundation. In this way there needs to be a blockchain based method for proposing, vetting, and enacting changes to the protocol in order to ensure the indefinite and autonomous maintenance of the protocol. This democratic process allowing participants to vote on how to spend the funds that the treasury accumulates. Cardano is looking into a modification of Liquid Democracy - a voting system that allows voters to either directly vote on issues or to delegate their voting power to a trusted party, and combining that with an incentivized treasury model where voters are incentivized to participate in the democratic process. This treasury model is designed to be independent of the Cardano protocol itself in order to allow for upgrades and iteration as needed and is scheduled to launch mid to late 2018.
• Interoperability - In terms of interoperability, there are two prevalent issues.
a. Interoperability with traditional financial systems (the non-cryptocurrency world): Cryptocurrency transactions aren’t designed to include detailed records of a customer’s identity meta data layers for regulatory compliance purposes, and as a result they are by default categorized as suspicious and risky from a bank’s perspective. Thus there is a need for some form of methodology for evaluating a cryptocurrency’s degree of compliance to current KYC, AML and ATF laws. Cardano aims to bridge this gap by embedding metadata into transactions and relying on the legacy system to verify the data in order to comply with industry standards. Due to the ongoing nature of development, it is worth noting that future developments are planned.
b. Interoperability with other cryptocurrencies: This is actually far simpler than interoperability with legacy systems. The intention is that ADA will be able to monitor cryptocurrency transactions on other systems and verify their validity, resulting in an “internet of blockchains” where cryptocurrencies can be seamlessly exchanged. Cardano refers to this as “Non-Interactive Proofs of Proof of Work”.
In addition to making crypto-to-crypto exchange across separate blockchains a seamless experience users will have ability to adapt a transaction to one that a bank would accept by submitting the metadata and identity data necessary for compliance regulation, effectively bridging the chasm between legacy systems and the world of cryptocurrency.
Further reading and resources
• [Cardano academic papers] (https://www.cardanohub.org/en/academic-papers/)
• [Info on orouboros] (https://www.cardanohub.org/en/ouroboros/’)
• [How ouroboros works] (https://cardanodocs.com/cardano/proof-of-stake/)
• [Cardano roadmap] (https://cardanoroadmap.com/)
• [Comprehensive guide] (https://whycardano.com/)
• [Cardano website] (https://www.cardanohub.org/en/home/)
• [IOHK website] (https://iohk.io/)
• [Emurgo website] (https://emurgo.io/)
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