Blockchain is a potentially transformative technology. However current solutions are hampered by issues such as lack of regulatory oversight, experimental software with unproven security, poor governance that stifles scalability, and a lack of long-term planning for protocols. With the imminent launch of the Cardano protocol and the completion of the first ever crowdsale to perform detailed compliance checks on its 10,000 individuals, Cardano aims to change this.
The Cardano project is a next generation blockchain, creating a new decentralised economy, and democratising finance in emerging markets. It addresses the need for regulatory oversight whilst maintaining consumer privacy and protections through an innovative layered architecture. This software stack is flexible and scalable, developed with the most rigorous academic and commercial software standards. Cardano has a democratic governance model that will let the project evolve, and a visionary treasury system to fund it sustainably.
Evolution of blockchain technology
Bitcoin disrupted the traditional trusted third party structure in finance, challenging the need for trusted institutions like banks. Instead it introduced decentralised transfers by distributing the process of validating transactions across the network’s participants. Furthermore it ignored regulation and institutional control over monetary policy, while embracing anonymity. Recent cryptocurrencies like Zcash and Monero have adopted this mantle, whilst conversely Ripple and R3 CEV have focused on the needs of regulators.
If blockchain is to transform regulated industries such as finance, tools for regulatory integration must be created, while individual rights to privacy in financial transactions must still be protected, as Bitcoin allows. Cardano solves this seeming contradiction through its innovative multi-layer architecture.
The Cardano settlement layer (CSL) stores and accounts for value, and is a standalone blockchain with a token called ADA. It’s what Bitcoin would look like if it were built from scratch today. Bitcoin’s energy-consumptive Proof of Work consensus mechanism has been replaced with the first provably secure Proof of Stake (PoS) algorithm, built specifically for Cardano. ADA users have similar privacy protections to bitcoin when transacting on the CSL, at much greater speed and transactional capacity because of its PoS algorithm. ADA is set to be available for trading on exchanges in June.
A separate Cardano computation layer (CCL) will be built, upon which executable code may be run. Sophisticated decentralised applications (DApps) and smart contracts will be able to run independently of the CSL. Cardano applications can be customised to meet the regulatory requirements of a particular use case. This means where regulatory oversight is required it can be given, on an application-by-application basis.
Developers can build a complete financial stack using the CSL and CCL, designing ingenious applications to stimulate a new decentralised economy. Blockchain’s ability to tackle financial services problems in emerging markets, like high fees, has been hampered by regulatory challenges: identity management; KYC; lack of financial history. Cardano’s “regulated computing” allows an institution to create an exclusively digital financial service with full compliance — for example lowering the cost of KYC — thus extending financial services for the billions of unbanked.
For developers to build these high-value applications, we must be able to credibly demonstrate the reliability and security of our platform. Many blockchain technologies are built with an experimental ‘hacker’ mentality that encourages rapid development, but low-security code. With Cardano we have placed security at the core of our philosophy. To achieve this the project is built on a bedrock of academic research produced by 11 contributing PhD’s.
For these disruptive applications to last, Cardano must be able to adapt and evolve. Bitcoin’s functionality has been hobbled by an inability to get community agreement on how to make critical updates. Its failure to adapt reflects inherent weaknesses in the setup of its governance model. Reliable systems must have an efficient way to be updated, especially when supporting financial infrastructure.
Cardano therefore will operate a type of constitution, providing a means of agreeing upon change within a stable framework. Token holders can vote on how to change the protocol, capturing stakeholder intent and reducing the potential for fragmentation. Updates to the software will need to be made through soft forks. Governance has been carefully designed, and every ADA holder can take part.
Longevity requires more than just an update mechanism, it requires funding. Figuring out how to raise capital and allocate it to pay for protocol costs is key. Cardano uses a treasury system, which allocates a percentage of the block reward into a pool of capital for costs deemed necessary for the network, and a voting system for stakeholders to decide what to fund. This could include competing development teams; marketing efforts; hackathons; venture capital.
Who is behind the project?
Cardano involves three distinct entities, with independent teams and leadership.
The Cardano Foundation acts as a promoter, educator and standards body for the Cardano blockchain protocol and its applications. All strong protocols require standards which can be carefully controlled in a collaborative and transparent environment. With TCP/IP, the protocol of the internet, you know that if you follow the standard, your product will work. Most cryptocurrency engineering however lacks this guarantee. The Foundation will provide a formal specification and standardisation process — critical for enterprise adoption and government engagement.
The Foundation will talk to regulators about Cardano’s wide-ranging potential and act as a community hub, providing authoritative, timely information about the technology.
Essential to Cardano is IOHK, a unique engineering company that is building the Cardano platform. Charles Hoskinson and Jeremy Wood, the founders of IOHK, have extensive experience in blockchain, with Charles formerly serving as CEO of Ethereum. IOHK has a world-leading team working in the Haskell language, which is the bedrock for Cardano’s rigorous security. All research is peer-reviewed and published in accordance with the project’s transparent aims.
Security goes beyond academic proofs and into the actual code implementation, which can only verifiably be done by third-party audit. IOHK has retained leading firms to perform these functions. With leading academics and engineers, peer-reviewed proofs of security, and independent auditing, IOHK’s work gives Cardano the guarantees of formal security that nurture confidence in the platform for scalable high-value applications.
The final business partner is CGG which incentivises and integrates commercial ventures to build on the Cardano blockchain. It does this by directly funding start-ups building DApps on Cardano, as well as providing the expertise, tools, and teams for companies to build revolutionary blockchain applications. For developers, this will reduce commercial uncertainties by connecting them with real use cases.
Our large and talented team of developers means that the CSL and the CCL can be worked on concurrently by two separate IOHK teams.
The CSL is currently being tested, and we expect it to be released in June 2017. Once launched, you will be able to transact and trade ADA on the fully functional, standards compliant blockchain. The goal for the CCL is to release beta by Q1 2018. Once both CSL and CCL are live, developers will be able to setup a custom environment to build decentralised applications on Cardano.
The Cardano Foundation will also be talking with regulators and gathering potential business requirements and use cases which the development team will transform into the Software Development Kit (SDK).
The Cardano Project is a truly collaborative effort at an exciting stage of its development. The crowdfund has been completed, with KYC checks conducted on all token holders. With the launch of the settlement layer at the end of this month, the world will be able to participate in the Cardano platform.
Cardano will create a new world of decentralised applications that protect privacy whilst allowing for regulation — built on a world-class, stable, and secure platform. As the Foundation we are excited to work with governments, enterprise, and individuals to share how this technology can be used.
In addition to being a forum and repository for other voices and knowledge in the Cardano community, as Chair of the Cardano Foundation I intend to frequently update all interested parties on progress through multiple channels.
28/05/17 Article edited to reflect updated project timelines.