What is Cardano (ADA)?

1. What is Cardano (ADA)?

Cardano is a multi-level blockchain platform based on Proof-Of-Stake, written in the Haskell programming language and designed to create decentralized applications based on smart contracts.

The platform is named after Gerolamo Cardano (1501 – 1576), a prominent Italian mathematician, physicist, biologist, chemist, astrologer, philosopher, writer and gambler.

It makes sense that Cardano’s creator, mathematician Charles Hoskinson, named the project after Cardano, which aims to create a flexible and interoperable kind of programmable money using scientific methods based on mathematical proofs and game theory.

Cardano’s native cryptocurrency token, ADA, is named after Augusta Ada King, Countess Lovelace (1815 – 1852). The daughter of the poet George Byron, Ada Lovelace was a mathematician and author of the description of the first computer for which she wrote the world’s first program. She is considered the first programmer in history.

The subunit of the cryptocurrency ADA (0.000001 ADA) is called Lovelace.

2. Who invented Cardano and when?

  • Charles Hoskinson is the founder of Cardano, a mathematician and entrepreneur who was behind Bitshares and Ethereum.
  • Jeremy Wood is Cardano’s co-founder and director of strategic development. He served as executive director of Ethereum Foundation in late 2013, after which he acted as a consultant for a number of other cryptocurrency projects.
  • Aggelos Kias is the project’s chief scientist, cryptographer and professor at the University of Edinburgh.

In June 2014, Hoskinson left Ethereum due to a disagreement over the further development of the project, after which he and Wood founded Input Output Hong Kong (IOHK), which in 2015 began to develop and develop Cardano.

On February 7, 2017, IOHK developers unveiled the Ouroboros blockchain protocol whitepaper.

The Cardano platform was officially launched on September 29, 2017. Token trading began on October 1, 2017.

3. Who is involved in the development of Cardano?

  • Cardano Foundation is a non-profit organization registered in Zug, Switzerland, whose main function is to “standardize, protect and develop Cardano technology. It is responsible for liaising with financial regulators, government agencies, the public, as well as developing strategic partnerships with other projects.
  • IOHK (Input Output Hong Kong) is an engineering and technology company founded by Wood and Hoskinson. IOHK is involved in cryptocurrency development and research. The company is tied to the Cardano Foundation under a contract that will keep it as the main developer of the platform until 2020.
  • Emurgo is an investment fund with offices in Singapore, Japan, the U.S., Indonesia and India. Its mission is to “develop and support commercial enterprises and help integrate businesses into the Cardano ecosystem.”

4. What is Cardano’s blockchain model?

Cardano currently uses the UTXO model, which is used in bitcoin, to make transactions. However, the Shelley era also allows the use of the account model (similar to Ethereum/EOS). Addresses in this format are used to accrue rewards. Cardano takes advantage of both models.

Inputs and outputs contain information about the origin and movement of funds: inputs report from which address funds originate, and outputs report from which address funds are transferred.

To prevent double-spending, each node in the network keeps a record of transactions. When a new transaction becomes available (appearing either in a block or in a mempool), it is analyzed to see if it modifies the unspent output associated with each address in the network.

The UTXO model cannot optimally support smart contract functionality. To address this problem, Cardano plans to release its own adapted version of UTXO called Extended UTXO (EUTXO).

EUTXO uses mechanisms that divide the execution of a smart contract into multiple transactions: each transactional output contains a data field with randomly selected information associated with a particular smart contract. The EUTXO model is expected to be fully implemented during the Goguen phase.

There are two types of blocks in the Cardano blockchain: basic and genesis blocks. The main block consists of a header and a body (the inner part of the information object). The header contains the block’s metadata, while the body contains transaction data. Like basic blocks, genesis blocks also have a header and a body, but they are generated once per epoch, being indexes for the basic blocks to which they are connected.

5. What is the Ouroborous algorithm?

Ouroboros is a PoS protocol with provable cryptocurrency strength. According to the developers, the Ouroboros protocol is a consensus algorithm that can be the foundation for a more robust and scalable blockchain and a significant increase in transaction speed. The block creation process is divided into epochs and slots. An epoch is formed by N (number of) slots, during which a certain level of stack distribution is set. It is either programmed (at the initial stage of crossvalidation) or at a later stage of development is calculated from the snapshot of the block.

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At the beginning of each epoch, leaders are elected, each empowered to process transactions and sign blocks in specific slots. For each slot, a leader is randomly chosen from among the stakeholders, who creates another block linked to the previous one in the chain.

While transactions are written in blocks, the allocation of stakes through which the leader is chosen changes. Unlike the Byzantine Fault Tolerance algorithm, where validators finalize blocks as they are created, in Cardano the probability of blocks being recognized as “canonical” increases as the number of blocks created on top of them (as in Proof-of-Work schemes) increases.

The processes for selecting leaders and assigning slots are based on the allocation of steaks and a lottery. However, anyone who gets the right hash first does not win – the leader for each slot is determined by a number generated through calculations of a number of stakeholders in the previous epoch. A slot’s chances of winning are proportional to the amount of its hash, the percentage of coins it controls either directly or through delegates.

6. What implementations of the Ouroboros protocol exist?

Ouroboros Classic.

Ouroboros Classic is the first implementation of the Ouroboros protocol, published in 2017. It laid the foundation for the protocol’s future role as an energy-efficient rival to Proof-of-Work, provided a mathematical basis for Proof-of-Stake analysis, and introduced an innovative mechanism for incentivizing participants within the Proof-of-Stake analysis protocol.

The most important thing that distinguished Ouroboros from other blockchains, and from Proof-of-Stake protocols in particular, was its ability to generate objective randomness in the protocol leader selection algorithm and the security guarantees it provides.

Arbitrariness prevents the formation of patterns and is critical to protecting the protocol – predictable behavior of a network participant can be exploited by attackers. While providing full transparency, Ouroboros also prevents attempts to exert pressure on network participants. Ouroboros was the first blockchain protocol with extremely intensive operational reliability analysis.

In Ouroboros, the blockchain is divided into slots (time slots) and epochs. Each slot lasts 20 seconds, each epoch (a series of slots) represents the value of the slots over approximately five days.

The Ouroboros model assumes that attacks are inevitable, so the protocol has built-in resiliency, preventing attackers from distributing alternate versions of the blockchain and allowing attackers to send any message to anyone in the network at any time. The protocol guarantees protection as long as 51% of the steins are controlled by honest (following the protocol) participants.

For each slot, a leader is elected who is responsible for adding a block to the chain and passing it on to the next slot leader. To protect the protocol from attempts to destabilize it, each new slot leader is required to treat the last few blocks of the received network as temporary or transitive: only the chain preceding the preset number of transitive blocks is considered approved. This feature is also known as “approval delay”. It also means that a stakeholder can remain offline and still remain in sync with the blockchain during the “approval delay” period.

In the Ouroboros protocol, each network node stores copies of the transaction memo, where transactions that are consistent with existing transactions are added, and the blockchain. The locally stored blockchain is replaced when the node learns of an alternative, longer valid chain.

The minuses of Ouroboros Classic are that it is vulnerable to adapted attacks (Ouroboros Praos solved this problem) and does not give a new participant a safe way to exit the blockchain (Ouroboros Genesis solved this problem).

Ouroboros BFT.

Ouroboros BFT (Byzantine Fault Tolerance) is a simple protocol that Cardano used during the Byron phase, when it was transitioning from the old source code base to the new one. BFT was designed to prepare the network for the Shelley release and decentralization.

With Ouroboros BFT, nodes no longer need to stay online all the time – the protocol offers an integrated network of servers (blockchain) and synchronous communication between them, providing the consensus of the registry in a simpler and more deterministic way.

An additional benefit is instant confirmation that a transaction is approved (the speed of the network connection to the OBFT node is the deciding factor).

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Ouroboros Praos.

Like Ouroboros Classic, Ouroboros Praos processes transaction blocks by separating chains into slots aggregated into epochs. However, Ouroboros Praos is analyzed in a semi-synchronous environment and is resistant to adapted attacks. Ouroboros Praos allows two possibilities: attackers can delay messages from an honest participant longer than one slot, and attackers can send arbitrary messages to any participant at any time.

With the option to select a private leader and direct-secret signatures using keys, Praos ensures that an attacker with powerful resources cannot predict the next slot leader, launch a DDoS attack, and rollback the protocol.

Praos is also resistant to message delivery delays and a gradual increase in the number of corrupt participants in a growing population of stakeholders, which is critical to maintaining network security in a global environment, provided that a majority of honest stakeholders persist.

Ouroboros Genesis.

Ouroboros Genesis contains a chain selection option that allows parties to break away from the genesis block – importantly, there is no need for trusted checkpoints or past availability assumptions.

Genesis also provides proof of the protocol’s universal compatibility with other protocols in arbitrary configurations in real-world situations. The security parameters are preserved. Thus, the reliability and viability of the protocol and the network that uses it are enhanced.

Ouroboros Hydra

Ouroboros Hydra is a Layer 2 offchain protocol aimed at further scaling the network.

The Hydra Whitepaper describes multi-user state channels that allow parallel processing of transactions: this makes it possible to significantly increase TPS output and achieve instantaneous transaction confirmation.

Offchain “descendants” of the registry – state channels – are referred to as “heads”, which makes the registry “multi-headed”, in accordance with the name of this implementation (“Hydra”).

Ouroboros Hydra allows Cardano to scale horizontally, increasing performance through the implementation of additional nodes, rather than vertically by adding more powerful hardware.

The first simulations show that each “head” is capable of up to 1000 TPS. 1,000 heads bring that figure up to 1,000,000 TPS.

Although Hydra is designed in conjunction with Ouroboros and Cardano, it can be implemented in other networks as long as they have some of the same specifications as Cardano.

7. How is Cardano’s iterative development process structured?

The development process consists of five phases (eras). Each era represents another milestone in the development of the network. Different components of each era are worked on in parallel.

The Byron phase is named after the poet Byron, Ada Lovelace’s father. This is the initial phase (started in September 2017), in which key components were developed and the calculation layer was prepared for decentralization.

The Shelley phase is named after the English poet Percy Bishey Shelley, a friend of Lord Byron and author of the famous sonnet “Ozymandias.” The hero of the sonnet finds in the desert the wreckage of a monument honoring a once-powerful ruler, of whose kingdom not a trace remains. The title alludes to the inevitability of decentralization, which the Shelley phase marks.

According to another version, this phase is named after the English writer Mary Shelley, wife of the poet Shelley. She is best known as the author of Frankenstein, or the Modern Prometheus. After arguing with Byron and her husband over which of the three of them could create the best work in the horror genre, Shelley wrote a story in which the main character was a scientist who created a humanoid monster. The story was published anonymously and had a significant impact on world literature and popular culture.

Although the Cardano ecosystem has nothing to do with the horror genre, in the Shelley phase, thanks to the implementation of the Ouroboros Genesis consensus algorithm, the platform will be fully decentralized. Also in the Shelley phase, the system will have stacking pools, allowing any user to delegate ADA coins to them and receive dividends.

The third phase of Goguen is named after the American mathematician Joseph Goguen (1941 – 2006), a professor at Oxford and UCLA, who worked on developments in algebraic semantics and formal verification.

During the Goguen period, native tokens will be implemented: more secure, standardized, and less resource-intensive than their ERC-20 and ERC-721 counterparts. Their use does not require the creation and execution of smart contracts.

Further in this phase, the implementation of a computational layer designed to execute smart contracts is envisioned, and includes the following elements:

  • Plutus, a specialized smart contract development language and code execution platform based on the Haskell functional programming language.
  • Marlowe is a high-level domain-specific language based on Plutus. Marlowe simplifies the process of creating smart contracts for financial applications by allowing subject matter experts without deep programming knowledge to contribute directly to Cardano.
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The fourth phase of Basho is named after the Japanese poet Matsuo Base, master of the haiku poetry genre. This is the era of optimization as well as increased scalability and interoperability of the network. This phase is expected to improve the underlying performance of the network and Cardano will begin to accept applications with high transaction volumes.

One of the key innovations of Basho will be sidechains: new blockchains that are interoperable with the main Cardano blockchain. Sidechains can be used as a sharding mechanism, shifting the load from the main blockchain to the sidechain, thereby increasing the efficiency of the network. Sidechains could be used to test experimental features without affecting the security of the main blockchain.

The Basho stage will see the implementation of different account models. While the main Cardano blockchain will continue to use the UTXO model, it will be possible to switch between UTXO and different account models. This will result in increased interoperability and new use cases.

The fifth Voltaire phase is named after the 18th century French Enlightenment philosopher Voltaire (François-Marie Arouet). The Voltaire phase includes the implementation of decentralized onchain governance (i.e., direct democracy, with which the Enlightenment and Voltaire era are associated) and a treasury system.

The three phases of the Cardano platform launch
The Testnet era (September 2015-January 2017) included the initial stages of the Cardano network rollout, when the first users could take part in beta testing. During this period, two-thirds of all ADA tokens were sold (26 billion at $0.0024 each) and $62,993,614 was raised.

At launch, 31,112,484,64 tokens were available (ADA issuance is limited to 45,000,000,000 tokens). The remaining tokens (13,887,515,354 ADA) will be issued after the launch of the final stage of the core network. Some of them will go to the treasury and some will go to the stackers.

The Bootstrap era (“spin-up era”) begins with all consensus nodes being controlled by IOHK and partners, and no support for smart contracts. During this period, the network is completely centralized, no rewards are issued, and transactions are routed to the testnet rather than the decentralized core network. On December 13, 2019, Shelley Incentivized Testnet and about 500 stacking pools were launched.

The testnet launch was a real-world experiment designed to evaluate the quality of the ADA’s owner reward mechanism (through the delegation of steak and steak pool management capabilities). During this era, users will receive approximately 3.8 million ADAs, but they cannot be spent before the main network launches.

Reward Era – A period when the core network is launched and the Cardano settlement layer is fully operational as a PoS cryptocurrency.

During this period, ADA holders will be able to receive rewards for stacking their coins. ADA holders will be able to manage steaming pools or delegate their steaming to existing pools. Sources of funds to reward users will be transaction fees and coins not yet created.

8. How is the Cardano project evolving?

On February 21, 2020, the Cardano network hosted the Ouroboros Byzantine Fault-Tolerant (OBFT) hardforward to lay the groundwork for the launch of the main Shelley network.

In March 2020, IOHK announced the release of Ouroboros Hydra, a Level 2 offchain protocol aimed at further scaling. Work on the protocol has been underway for the past five years.

In April 2020, Charles Hoskinson announced the mining of zero blocks on the test network, bringing the community one step closer to upgrading Shelley. The release of the genesis block marked the start of closed beta testing.

On July 30, 2020, developers activated the Shelley update on the main Cardano network. After the hardforward, users were able to both manage the pool on behalf of other Cardano holders and delegate the coins they own so that someone else can take over that role. Such functionality has already been implemented in the wallet. IOHK, the company behind the development of the project, expects that over time the number of stacking pools will approach a thousand.

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