Cardano is all about research, review, and readiness for the future.
If you haven’t read the series intro, head there to find out about the technical challenges facing Ethereum, plus an overview of smart contracts, Turing completeness, sidechains, and RSK.
Last week, we considered EOS as a challenger.
This week, the smart contract and decentralized app platform we’re considering is Cardano (ADA).
At #6 by market cap as of this writing, Cardano occupies the place just below EOS.
The teams working on Cardano, which are backed and sometimes staffed by IOHK (Input Output), put a strong emphasis on examining and integrating research in modern cryptography, cryptocurrency, and associated fields relevant for the future of the space.
An update following Twitter communication with two Charles Hoskinsons of opposing genuineness follows this article.
Cardano puts immense stock in the expert peer review of code and in work towards formal verification — where code can be mathematically proven to act according to a set of specifications. Formal verification does not (yet) prove that the code does what it is supposed to do, but it can prove the absence of many kinds of bugs.
Formal verification is an emerging field, and Cardano aims to be at the cutting edge. Cardano’s virtual machine, called IELE, will power the creation of formal verification tools as a part of its package.
I should note that other projects are also working on formal verification:
- Tezos — whose language with support for formal verification, Michelson, was originally for EOS smart contracts
- Several ETH solutions
- EOS solutions (including general C++ solutions)
But for Cardano, formal verification is a central focus, a major part of the priority they place on having code that is trustworthy.
Cardano intends to push all proposed protocols through a peer review system and, when possible, validate programming code with formal verification.
Members of the Cardano community frequently note that “building it first” is not as important as “building it right.”
Cardano’s ticker is ADA? Where did that come from?
ADA is in honor of Ada Lovelace. It isn’t just the ticker, either; Cardano intends for the currency to be called Ada, just as Stellar calls its currency lumens, and Ethereum calls its currency ether.
Ada Lovelace is also why the smallest Cardano unit is called not 1 hoskinson but 1 lovelace.
If you don’t know about Ada Lovelace, the sole daughter of George Gordon, Lord Byron, well, she was a computer whiz — who lived from 1815 to 1852. She worked with Charles Babbage on his mechanical general-purpose computer, and you should read about her sometime.
“Cardano” itself is named after an Italian polymath who was one of the founders of probability and a contributor to numerous other fields.
Cardano’s Founder and Design
The founder of IOHK and Cardano, Charles Hoskinson, was one of the founders of Ethereum and one of the founders of BitShares. He has considerable experience in the space and has had time to consider what a blockchain smart contract platform needs to be and do.
Now, his brainchild is the top market-cap competitor against ETH and EOS — which were built by his former colleagues Vitalik Buterin and Dan Larimer. Incidentally, Buterin and Larimer have both worked with Hoskinson before, on Ethereum and BitShares, respectively.
A large library of papers gathered by IOHK for the Cardano project has influenced Cardano’s general philosophy and concrete plans.
The main idea behind Cardano’s system:
Two ledger layers.
The Cardano Settlement and Computation Layers
Cardano observes the difficulties — encumbrances, even — that many platforms have by recording and validating everything in a single-layer ledger.
Cardano will instead be implemented in two layers. The challenger we considered one week ago, EOS, separated authentication from execution. But Cardano’s separation is more involved:
- The settlement layer (CSL), which has been deployed but still has development work to be done. This layer tracks the transfer of value, the flow of tokens.
- The computation layer (CCL), which has not yet launched. This is where smart contracts and decentralized applications can be deployed, the “reasons as well as conditions behind moving tokens.”
Cardano’s position is that “accounting of value should be separated from the story behind why the value was moved.” Value and computation should be kept separate.
Protocols can be overlaid on the settlement layer when the computation layer is not required for the particular application or protocol in question. The CSL also plans to support quantum-resistant signatures, user-issued assets (similar to Ethereum tokens), and dynamic scalability.
The CCL is in early development, so most details on that layer are tentative.
Separating the layers has some interesting results, including censorship potential and regulatory compliance.
Censorship Potential and Resistance in Cardano
Since Cardano has two separate layers, applications potentially enabling illegal activity do not run on the Settlement Layer.
The CSL is designed to be censorship-free, while the censorship of certain activities — such as spreading state secrets or child pornography — can be censored by the community on the CCL without censoring the CSL.
Regulatory Compliance and Privacy
The Cardano teams plan to implement cutting-edge technology that, like the formal verification technology we mentioned, is just now emerging, so like many other concepts in this article, exactly how Cardano will implement regulatory compliance while maintaining privacy is tentative.
My understanding at this stage in Cardano’s development is that the CCL — why value is moving, the computation layer — will be private. The CSL — what and between whom value is moving, the settlement layer — will be open for regulatory compliance purposes.
The team has made it clear repeatedly that this is their end goal: regulatory compliance and privacy together.
Along these lines, plans have been expressed to implement Sealed Glass Proofs, HSMs (hardware security modules), and a modular regulation DAO that can be customized to interact with user written smart contracts in order to add mutability, consumer protection, and arbitration.
All of these ideas sound impressive. I look forward to tracking how they are implemented.
A Quick Example Cardano Application
In summary, with Cardano’s two-layer system, a decentralized application might keep some things on the computation layer (CCL), such as:
- the details of the house you rented
- the item you purchased
- the kind of event you attended
- the people you messaged and the messages you sent
On the computation layer (CCL), these activities can be private. At the same time, they can be subject to censoring by the whole community, in case the application is facilitating something repugnant to society.
But the actual transfer of value would be on the settlement layer (CSL), where it would be uncensorable, immutable, and available to regulators.
In this way, Cardano applications can offer both privacy and regulatory compliance.
For this application, value transfer on the CSL could be handled in a way that is immune to many kinds of bugs, while computation on the CCL would be flexible enough for a full-featured application.
Cardano has selected Proof of Stake as its consensus model. According to the principles detailed at whycardano.com, this is because PoS can “introduce secure voting, has more capacity to scale, and permits more exotic incentive schemes.”
Since the security of Proof of Stake as a consensus model is still relatively unproven, Cardano has developed Ouroboros, its own Proof of Stake model.
Ouroboros was designed by a diverse team of cryptographers. It is modular, allowing for delegation, sidechains, checkpoints, light client optimization, and more.
Cardano will support multiple signature schemes to keep ahead of developments in cryptography. As I mentioned above, this includes quantum-resistant signature schemes.
Like most cryptocurrencies, Cardano plans to focus on “scaling methods … in 2019 and 2020.”
As the CCL (computation layer) is released, Cardano additionally plans to support a new kind of sidechain that relies on PoPoW — proofs of proofs of work. PoPoW will also allow funds to be securely moved from the CSL to the CCL, or to any other blockchain that supports the same protocol. Users moving their funds off from the CSL will have “certain guarantees about accounting and the ability to recall funds once computation is complete.” I don’t know details on the implementation of this, but I look forward to hearing more.
The Languages of Cardano
Cardano has not one but two new languages: Simon, a language targeted to financial applications and designed just for working on the CSL, and Plutus, a language for smart contracts and for interoperability.
The CCL will also support Solidity for “low assurance applications,” while Plutus will be for “higher assurance applications requiring formal verification.”
IOHK, the entity behind Cardano, has announced plans to develop a Plutus reference library to help developers with their projects, as well as formal verification tools.
The advantage of several languages is that one can be specific and limited and thus less prone to bugs and unforeseen consequences, while another can be more flexible. Applications can use whichever language is better for their objectives.
The Real Difference
The above notes are some aspects of Cardano’s plan that I found most interesting. I encourage you to read whycardano.com to learn more, such as how Cardano plans to allow communication with legacy financial systems, cryptocurrency interoperability, and compliance with regulation. I particularly enjoyed the shorter segment entitled “sustainability.”
But just as many ICO products talk about a “decentralized ledger” and “capped supply” as if they are dramatic differentiators when in fact they are characteristic of many projects, please bear in mind that many of the issues raised in the whycardano.com document are also addressed by other projects. Some other projects even address these issues with solutions that are nearly identical to Cardano’s plans.
This makes sense, as Cardano and these other solutions are both learning from the same predecessors.
So we return to the original selling point: Cardano’s difference from other systems is not that it plans to implement proof of stake, nor its decentralized treasury and improvement proposal voting system, nor separation of layers.
Its primary selling point is this: Cardano’s solutions to these things all undergo careful expert consideration and peer review and aim to eventually pass formal verification.
This is very important to Cardano. For example, Cardano materials introduce the treasury and Ouroboros as follows:
“IOHK’s Veritas team is working in partnership with a group of researchers from Lancaster University under the direction of Professor Bingsheng Zhang to develop Cardano’s reference treasury model.”
“[Proof of Stake model Ouroboros] has been designed by an extremely talented team of cryptographers from five academic institutions led by Professor Aggelos Kiayias of the University of Edinburgh.”
If systems with similar features that launch before Cardano exhibit major faults or even failure, hopefully Cardano’s code vetting processes and formal verification processes mean it has a less likely chance of suffering a similar fate.
Whether the other systems fail, and whether Cardano succeeds if they do, remains to be seen.
The Big Questions
In this series I’ve been focusing on six problems Ethereum critics (and the Ethereum Foundation itself) point out, along with a seventh consideration: how each product hopes to challenge Ethereum’s market dominance.
- Scalability. Ethereum cannot handle nearly enough transactions yet.
- Governance. The Ethereum community has off-chain governance.
- Development Complexity: Ethereum upgrades and bug fixes are difficult, and developers must learn Solidity.
- Timeline: Ethereum will likely solve its issues, but it might take years.
- Generalized Features: Developers often have to write basic features for every app. They must use third-party services or reinvent the wheel.
- Adoptability: Ethereum, like most cryptos, is not grandma-friendly.
- Market Position: Ethereum has a huge market advantage.
Let’s apply them to this week’s platform.
3) Cardano (ADA)
Cardano is implementing a proof of stake protocol, called Ouroboros, which IOHK and other experts say is mathematically proven to be secure. Partitioning, sidechains, and other scalability plans are slated to be a focus in 2018–2020.
Cardano’s transactions per second are currently not much higher than Ethereum, as these improvements have not yet been completed.
Cardano plans to implement a voting center for updates to the protocol (Cardano Improvement Proposals). Users will be able to vote on protocol and software updates, and their votes will be weighted by the stake of ADA they hold. Any users that do not want to be involved can delegate their voting rights to others.
3. Development Complexity
Smart contracts use Plutus, a “strictly typed pure functional programming language.” In addition, applications which require the use of Cardano’s Settlement Layer and are not “higher assurance applications requiring formal verification” can use Solidity.
Platform-specific languages enjoy some boost in confidence regarding security and the avoidance of problems resulting from non-standard usage of other languages, but platforms may have difficulty selling developers on learning a new language.
However, Cardano’s Computation Layer does include provisions for easier updates and bug fixes than Ethereum does.
Major Cardano updates are likely to come out some time during 2018, with scalability and other improvements scheduled for 2019 and 2020. For details, see https://cardanoroadmap.com/
ICOs/TGEs will not be able to choose Cardano for quite some time.
Cardano plans human-friendly addresses and, interestingly, a Cardano debit card. Cardano plans for transaction fees to become increasingly small as time passes, and Cardano may even subsidize the transaction fees for its customers. Transaction fees are currently taken but are burned.
6. Generalized Features
Cardano plans to release a reference library of Plutus code and some tools for formal verification. Other generalized features may be upcoming, but it is too early for details.
7. Market Position
How does Cardano (ADA) challenge Ethereum’s market share? Cardano has already gained a huge amount of hype and attention, capturing the imagination of billions of dollars in market cap, for a variety of reasons known and unknown.
It is up to Cardano and its supporters to maintain interest for the duration of its long runway to full launch. Will the stability Cardano promises — with its peer-reviewed code and formal verification efforts — attract applications away from Ethereum? The community and the markets remain hopeful that it will.
Some may deeply criticize peer review as a basis for certainty, in a variety of fields. But even with that caveat, it is hard to deny the thoroughness of Cardano’s philosophical, mathematical, and technical preparation.
If development works out as planned, Cardano will be an innovative and impressive platform.
I will be keeping a close eye on Cardano’s progress relative to its roadmap.
Update (May 1, 2018): Today I received this tweet from Charles Hoskinson.
This was followed by a tweet from a parody account:
Yes, I omitted Cardano’s K work and MPC research, or at least included them only obliquely, under links to IOHK’s research and whycardano.com.
“MPC” research refers to Multi-Party Computation, and “K work” refers to the K Framework, a language that is “suitable for defining truly concurrent languages even in the presence of sharing.” Cardano is doing “rigorous work formalizing the Ethereum Virtual Machine” with the K Framework.
Implementing these could indeed give Cardano significant advantages in decentralized computation. As Bizarro Charles points out, they are not yet implemented.
As far as “testnet” goes, I only originally referred to a testnet in reference to the upcoming IELE-VM testnet that Cardano is planning to launch later this month.
You can read a little more about IELE and K work in this March 29 post.
At the end of this series, I will be putting up a post defending Ethereum’s chances against its challengers. But we have a number of other platforms to consider first. Next week, we will talk about China’s NEO.
This article has not undergone peer review. If you notice something that could be improved or updated, please let me know.