Interest in Cardano is increasing as the launch of the Shelley Mainnet gets closer. This article is meant to provide a brief overview of where Cardano came from, what it is, who is developing it and the approach to development. It’s a quick guide in getting up to speed on Cardano.
Cardano is a 3rd generation blockchain protocol.
Blockchains get their name because of how they work. Wikipedia describes a blockchain as
A growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data.
To really appreciate Cardano, you need to understand a little about the prior two generations of blockchains.
The 1st generation blockchain protocol is Bitcoin. Bitcoin changed the world when the whitepaper was published in late 2008 and it became operational on January 3, 2009. Few knew it at the time, but a major shift was beginning, the likes of the creation of the internet by DARPA back in the late 1960s.
Bitcoin is the first effective digital money (some call it digital gold) that can be sent from person to person without needing to send it through a trusted 3rd party such as a bank or company like PayPal.
A lot has been written and said about Bitcoin. My assumption is that readers of this article have at least heard of Bitcoin already. However, if you’re not sure how it works, this video is a good place to start in learning about bitcoin.
Bitcoin was game changing. Many had unsuccessfully attempted to create digital money before, such as Nick Szabo with Bit Gold, but Bitcoin was the first time a digital money implementation gained real traction. It opened the flood gates for technological innovation just like the creation of the internet did before it.
In his paper titled, Smart Contracts, Szabo defined a smart contract as,
“a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”
Stated a little differently, smart contracts are the idea of programmable money. A smart contract is a program that runs on a blockchain, monitors a series of inputs and takes automatic financial actions based on the inputs triggering conditions in the program.
With a working form of digital currency gaining traction in Bitcoin, the concept of smart contracts was within reach in practice. To that end, Ethereum was created by a group of people including Vitalik Buterin and Charles Hoskinson and went live in July 2015.
Ethereum had enormous success as people and new companies began building on top of the technical capabilities that the smart contract platform enabled. One of the capabilities the was especially unique and game changing was the ability for individuals to raise funds with an Initial Coin Offering (ICO).
The ICO craze in 2017 led to enormous price speculation in cryptocurrencies and many fortunes were made and lost as Bitcoin ran to $20,000 / bitcoin and many Ethereum based ICOs ran up in price during the same timeframe.
While Ethereum experienced a lot of success in 2017 — its success highlighted some of its limitations too.
Enter Cardano and many other projects competing for the mantle of 3rd generation blockchain. In the 2014 time frame, Charles Hoskinson left the Ethereum project and shortly later began working on Cardano to address many of the shortcomings he had seen in Ethereum.
Those limitations are often broadly grouped into the following categories: scalability, interoperability, and governance. Projects that claim to be 3rd generation blockchain are generally attempting to address one or many of these challenges.
In fairness to Bitcoin and Ethereum, their communities are trying to address some of the same challenges in their improvement design such as the Lightning Network and Ethereum 2.0 respectively. If you think about it, Ethereum 2.0 is effectively a 3rd generation blockchain too, the second generation of the second generation is actually a third generation… but I digress.
I’ll likely talk a little bit more about these areas that Cardano is working to improve in future articles.
Charles Hoskinson’s whiteboard video below provides a lot more detail on Cardano’s ambitions in these three areas. I highly recommend watching this if you’re interested in more info. Many Cardano supporters point to this video as their introduction to the project that propelled them into following and investing in Cardano.
A big part of understanding the difference between Bitcoin, Ethereum, and Cardano is understanding the difference in the consensus mechanisms.
A consensus mechanism is the way that the blockchain determines who created a valid block. Each block contain records of the transactions that have taken place on the network. In other words, the consensus mechanism is the way that the blockchain validates the legitimacy of a transaction.
The consensus problem is very difficult to solve in a decentralized way and that’s what the truly innovative blockchain projects are trying to do. Doing this in a decentralized way is what enables the removal of trusted 3rd parties. It’s why these protocols are called “trustless”. Which is a little confusing, because it means that you don’t need to “trust” anyone and you can still confidently transact using the system.
Bitcoin uses a Proof of Work Consensus mechanism. Ethereum also currently uses a PoW consensus mechanism. Proof of Work requires computational work by a “miner” to produce a block on a blockchain. The computational power required to do this work consumes a lot of electricity — Bitcoin consumes more energy each year than all of Switzerland.
Cardano is launching a Proof of Stake (PoS) consensus mechanism with the production launch of its Shelley era in mid-August 2020, per the roadmap below released by IOHK last week.
Proof of Stake is very different from Proof of Work.
“Work” is not needed in Cardano’s consensus mechanism. Rather, Bitcoin miners are replaced by Cardano Stake Pools that are given slots (opportunities to produce a block) based on the amount of Stake the pool has been delegated by ada holders (ADA is Cardano’s ticker symbol and the currency is referred to as ada when not referring to the ticker symbol).
There are pros and cons to different consensus mechanisms. Cardano’s design is intended to improve on 1st and 2nd generation blockchain limitations. One example of that is energy consumption. While Bitcoin consumes an entire country’s worth of electricity in a single year, Cardano’s network will consume the equivalent of a neighborhood’s electricity.
That’s just one example of a target improvement Cardano intends to provide. Because this article is meant to provide a quick overview of Cardano, I won’t make a case for why its design is better than other blockchains.
Project Team and Organizational Structure
Cardano isn’t just a Charles Hoskinson effort. There’s a very well thought out organizational structure behind the project. In fact, there exists a separation of powers that was built into the project very similar to the separation of powers behind the founding of the United States.
Cardano is propelled by three primary organizations: the Cardano Foundation, Input Output Hong Kong, and Emurgo.
The Cardano Foundation has a web page that does a fantastic job of outlining the roles and responsibilities of each of the three organizations here.
If you’re interested in a TLDR version:
- The Cardano Foundation is responsible to support and grow the Cardano ecosystem
- Emurgo is responsible for nurturing commercial adoption of Cardano
- IOHK is responsible for building Cardano
Cardano’s team is comprised of 100’s of hard working team members that make up one of the largest teams of researchers, developers, and supporting establishment in all of the blockchain world.
One of the biggest reasons that I’m a huge supporter of Cardano is its research and development approach. An overview of Cardano would be incomplete without explaining this important characteristic of the project.
During the ICO craze of 2017, it was common to publish a whitepaper that was little more than thin air — literally make-believe technology. Other projects had legitimate ideas for innovation, but rushed to market with massive security flaws.
When you’re designing a system to replace the legacy financial system, store people’s health records, or become the basis for public voting systems — you can’t accept failure. It requires fail safe operation the same way the launch of a space shuttle does. There is no room for error.
This is why Cardano uses a peer-review process. Starting with research through renowned universities, the academic research is submitted to well-known conferences to vet the theory behind the innovative technology being built into the Cardano protocols. The worlds smartest minds in cryptography and networking have the opportunity to poke holes in Cardano long before your funds at put at risk.
Formal design specifications are then written before bending any code. The software is then written in accordance with those requirements. This process is called formal methods. It’s the same process that NASA has used (at least in part)to ensure the safety of astronauts. I like the idea that my “money” will be secured by a process like this.
To top the process off, auditors are brought in to review the code and report on vulnerabilities that are then fixed. Reports from the audit cycle are made publicly available for anyone’s review.
Speaking of open source — all software on the entire Cardano project is open source and available to review on GitHub here.
Many noteworthy blockchains that endeavor to solve the same problems Cardano is working on have taken different approaches and suffered the consequences. I’m not just talking about exchange vulnerabilities like infamous Mt. Gox hack. I’m talking about actual blockchain or smart contract vulnerabilities.
The DAO Hack is one example. It resulted in Vitalik Buterin and the Etherum Foundation choosing — what they assessed as the lesser of two evils — sacrificing ideals in Governance to restore stolen funds to those who had been robbed. More recent exploits in the Decentralized Finance (DeFi) space show the danger of taking shortcuts like “copied code from an earlier version of …another decentralized lending application”.
Cardano’s critics point to the delays the project has experienced and hold them up as reasons the project is doomed to failure.
I’ve got my fair share of experience in research and development of mission critical systems and software. I’ve seen agile software development up close and personal. I will tell you that Cardano’s design approach, the lessons in development that IOHK is learning, and the end product will all benefit from the research, design, development, and test methodologies of the Cardano team.
I hope this article has helped you quickly learn some new things about Cardano. If you like what you heard, be on the look-out for my next article that will provide some ideas for how to get involved and find a seat aboard the Cardano space shuttle.