Cardano – The awakening monster of blockchains
Don’t worry! Cardano is not going to eat you (unless you are a middleman). As Charles Hoskinson (co-founder and CEO of IOHK and co-founder and ex-CEO of Ethereum) said Cardano is neither good nor bad. It’s like the Italian mathematican Gerolamo Cardano who lived in the period of renaissance and after whom the blockchain was named.
This post attempts to give a condensed broad overview of Cardano and is written with the non technicall readers in mind. Before we dive into Cardano though we would like to give it some context. If you already know crypto currencies in general you might want to skip to section Cardano, a third generation blockchain.
It all started with Bitcoin
Bitcoin (BTC) is digital money. It is based on blockchain technology. It’s the first generation of crypto currency. With Bitcoin you can transfer your money (bitcoins) via internet without any intermediary for a fraction of a cost of the traditional money transfer services.
“The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.” , M. Friedman
Bitcoin was predicted by a famous economist and a Nobel prize laureate Milton Friedman in 1999. It was invented in 2008 and started in 2009 by an unknown person or group of people using the name Satoshi Nakamoto. Bitcoin blockchain has been running ever since and thus proved itself as a trust worthy blockchain.
Second generation blockchains
Ethereum is the most prominent example of a 2nd generation blockchain. Ethereum is still a crypto currency but it’s also much more than that. With Ethereum blockchain technology becomes a platform for decentralized applications. Through the usage of smart contracts Ethereum can manage agreements between parties on blockchain. Contracts get executed by Ethereum without the need of 3rd parties like regulators, governments or law firms. Most of Ethereum’s popularity however came with its ability to create and run Initial Coin Offerings (ICOs). With an ICO you can raise money for a project like a stock exchange can do through selling shares in an Initial Public Offering (IPO). During crypto boom in 2017 hundreds of ICOs were done by companies, individuals and unfortunately also fraudsters. It was a wild west at the time and a lot of people driven by greed lost their money by investing in bad ICOs. It was only later that governments applied some restrictions on ICOs to prevent or at least diminish such scams. Many of ICOs failed to deliver what they were promising. However there were also some gems among them which are still being developed and pushing towards delivering a working product.
Ethereum does not come without limitations. Like Bitcoin it is not scalable, the consensus protocol uses is Proof Of Stake(PoW) which as a consequence can end up using as much electricity as small country with some estimations saying that number is roughly 0.25% of produced world electricity. Ethereum 2.0 is addressing those problems and will hopefully make them a thing of the past and so does Cardano.
Cardano, a third generation blockchain
While there is no exact definition to what makes a blockchain project qualify as a third generation blockchain we know for sure that it should solve some of the biggest challenges that second generation blockchain faces and Cardano is being built to do that.
What makes Cardano so distinctive and special is not just one thing but if I had to pick just one thing that would be its holistic approach.
Cardano is not just an upgrade or and extension of an existing blockchain like so many blockchains out there. Cardano is being built from the ground up.
IOHK started to work on Cardano in 2015 by following formal methods. They started off without assumptions, posing themselves questions like: What is a ledger? What are the accounting models? How do you write a smart contract programming language? What requirements it must have?
By understanding the fundamentals they started to shape solutions with the collaboration of academia. Together they’ve gone through extensive research and mathematically proved that their novel solutions can work in practice and can be implemented. In 5 years they have published 62 scientific papers (by March 29th, 2020). Their papers have been peer reviewed, meaning that other experts from the field validated them.
IOHK has been criticized by some for their slow and long methodical research and development processes and for missing deadlines many times. All of that has undermined their credibility to some extent but only for those who are not familiar what it takes to build projects of the size and depth of Caradano.
IOHK is probably the most transparent project in crypto space. Chalres Hoskins has been giving regular talks and project updates on his youtube channel for a few years and in the last few months many of IOHK managers joined him by giving regular presentations and updates.
From Cardano roadmap you can see IOHK is building Cardano in many stages or sub projects in parallel. The first stage called Byron was the initial release of Cardano back in 2017 and it brought us Ada, the crypto currency. Year 2020 is and will be very interesting and decisive for Cardano as it will bring us:
- decentralization – (Shelley project)
- smart contracts – (Goguen)
- scalability, interoperability (Basho project)
- governance – treasury and voting (Voltaire project)
Cardano will be the most decentralized blockchain in the world. It will be about 100 times more decentralized than Bitcoin. Why is that important? Well, with a blockchain so decentralized there is a low chance for an attacker to stop it or gaining control over it. Whether it is a malicious group of hackers or a repressive regime, the more decentralized a blockchain is the more difficult (if not impossible) is to bring it down. It’s something like bittorrent. When one node (server) goes down another one emerges somewhere else and the whole network continues to work uninterruptedly. If Bitcoin has never been brought down since its existence, how will a blockchain that is 100 times more decentralized be brought down?
Charles inclines to have around 1000 stake pools but we need to wait for Shelley to be released to confirm that number. One thing is certain though. Shelley Incentivized testnet (ITN), which was launched on December 19th, 2019, has about 880 active pools to date (April 1st, 2020) and more than 1000 registered pools. We can expect that reaching 1000 stake pools on main net won’t be a problem at all. And just for reference, ITN has 40% of all existing Ada delegated which means that not just stake pools but also regular Ada holders have joined the ITN. The fact that time window to join the ITN was quite narrow we can expect the delegation percentage to be much higher once the Shelley is released and deployed on the main net. Cardano certainly has big and vibrant community today and we can realistically expect it to grow in the coming months.
Not too long after the release of Shelley we can expect Goguen project delivering smart contracts functionality. Other blockchains already have smart contracts but Cardano is introducing something completely new in this area too. Goguen brings a smart contract programming language and execution platform called Plutus, encompassed by Marlowe, a domain specific language (DSL) that aims to bring smart contract programming to wider audiences. Marlowe will enable financial and business experts with no technical knowledge to write smart contracts. This, in comparison to Ethereum, is quite a big step ahead, since Ethereum’s smart contract programming language Solidity can be quite complicated even for technically oriented people.
Allong with smart contracts, Goguen will also bring ability to create fungible and non-fungible tokens on Cardano, supporting creation of new crypto currencies and tokenization of digital and physical goods.
Scalability is one of the most important issues that crypto currencies are facing. In order for a crypto currency to be used by millions or even billions of people daily a crypto currency needs to achieve a high rate of TPS. While Bitcoin can do 7 TPS and Ethereum around 20 Visa on average does 100k TPS. Now wonder why crypto currencies haven’t find their use in everyday payments yet. Early tests show that Cardano will have a much higher TPS than Ethereum and Bitcoin. It’s still a bit early to say but estimations go from around 250 to 1000 TPS once the software is optimized. That would be enough to open a range of new usage possibilities for Cardano blockchain. All that will be achieved with deployment of Goguen that is expected to be shipped in 2020. With the possibility to implement Hydra in the years to come the TPS could reach millions of TPS which will completely remove the issue of TPS.
Even though Cardano has the potential to become the best and most used blockchain the fact is that it will never be the only blockchain. Bitcoin may have its problems but it has a good track record. It’s been with us for more than 10 years and will probably stay here for a long time. There are also other blockchains each targeting its niche market and new ones will emerge. It’s for this reason that it is crucial for a blockchain to have the ability to be integrated with other blockchains. Cardano will have that and users will be able to send their crypto currency from one blockchain to Cardano an back seamlessly.
Governance, to be delivered with Voltair project, is yet another fundamental feature integrated with the purpose to ensure Cardano’s decentralized future.
Cardano users will have the possibility to vote on what direction will future development of Cardano take. Each user will have a voting power proportional to their stake of Ada. Users who are invested more will have more power as they have more skin in the game.
Once governance is delivered users will have the option to vote on further development of Cardano blockchain. IOHK has a lot of voting power through the Ada in their bags but with time their influence will probably diminish as the fixed amount of existing Ada gets spread among its users. With all the Cardano code being open source a company or individuals could someday emerge and through the voting system introduce features that IOHK would not.
Another interesting feature of governance is liquid democracy which allows users to delegate their voting power to a third party who may be more knowledgeable in a topic than themselves and will thus make better decisions than they would.
Voltair also brings treasury that once delivered will ensure Cardano’s existence and true decentralization. At that point the blockchain won’t be under IOHK’s management anymore.
Through Cardano’s Ouroboros blockchain protocol a small fraction of transaction’s fees will be stored in treasury for the purpose of funding the future development of Cardano.
Cardano is a monstrous project. The sheer amount of the published scientific papers and complexity behind it is pretty impressive. We’ve been in IT industry for almost 20 years. We’ve worked on some pretty big projects during our career and what IOHK is doing looks like pretty serious science and engineering to us. Does it have problems? Sure, most of IT projects have problems and delays. At IBM only 40% of projects meet the company’s key goals (schedule, budget, quality). Also IOHK has grown quite quickly and it’s quite natural for a fast growing company to stumble here and there before it finds its optimal setup.
Formal methods that Charles very often mentions are really of great importance and are not just a buzzword. They give sound foundation on which developers can implement the ideas that have been mathematically proven to work.
We’ve been following Cardano for a long time and lately IOHK’s work is gaining in visibility. It gives impression that is accelerating. That is just a perception from the user’s point of view because finally he can see the products being released. Make no mistake, for that to happen, IOHK had to work really hard through all these years. It’s like with athletes becoming super stars or with distant stars in the universe. What you are seeing now is just a reflection of their past.
We believe Cardano certainly has the potential to become the best blockchain and based on the current state on the blockchain market it has pretty good chance for that to happen. With the solutions that third generation blockchains bring a plethora of new possibilities will emerge. What a remarkable time to be alive!