Hey! You may not have noticed me around here before but I previously posted a NANO deep dive as a consequence of this poll in which Cardano (ADA) came in second and was therefore entitled to the follow up Deep Dive. Now, you may have noticed that it says 'weekly' but the NANO deep dive was posted over two weeks ago. Life tends to get busy like that. In any case, I'm back and hoping to catch up a bit! This week I am finally posing the Cardano deep dive, and will be doing a double-feature on Tuesday and Thursday next week to take a look into Ripple (XRP) and Stellar (XLM) as per the second poll. Anyway, without further ado, here is my DD on Cardano.

Disclosure & Liability Statement

Each deep dive contains a disclosure statement wherein I state if there is any stake that I currently or have recently held in the coin discussed. This is to ensure transparency and provide clarity on potential conflicts of interest related to the work. However, for privacy and security reasons, I will not be providing evidence to support the disclosure statement.

I currently hold or have recently held some amount of ADA.

While every effort is made to ensure accuracy and objectivity of the content provided herein, I cannot guarantee the factual accuracy of any claims made in this piece, nor should this be considered an exhaustive account of the available relevant information. It is highly recommended that readers engage in their own due diligence prior to determining if or what amount to invest in the coin or token described. No statements or claims made within this work are to be interpreted as financial advice. When seeking financial advice, it is recommended to seek consultation with a registered fiduciary in your area of residence where possible.

Introduction & History

When first conceived, cryptocurrencies and blockchains were intended to solve the “double-spend” problem and principally replace modern fiat currencies as the predominant medium of exchange. However, a Russian-Canadian programmer in his early 20s named Vitalik Buterin changed all of this when he released the whitepaper for his idea of a new kind of blockchain network: Ethereum (ETH). In this whitepaper, Buterin laid out the foundation for a new type of more functional blockchain, where applications could be built using so-called “Smart Contracts” (a concept first described in the early 90s) tied to the blockchain. Together with a team including Joseph Lubin, Gavin Wood and Charles Hoskinson, the Ethereum Network was launched in the summer of 2015. Around the same time, Hoskinson expressed discontent with Buterin over keeping Ethereum as a non-profit initiative and left the project to form Input Output Hong Kong (IOHK) with Jeremy Wood and begin development on a new platform to be called Cardano (ADA).

In the team’s view, there were several issues that needed to be overcome in order to make a smart contract platform that could truly see mainstream adoption. Scalability, security, and cost-effectiveness needed to be put front and center if businesses and individuals were to become members of this new form of digital ecosystem. To achieve this, Cardano set out to brand itself as a “third generation” blockchain that prides itself on its slower, more deliberate, more academic approach to its development. Indeed, the network lends its name from 16th century Italian mathematician Girolamo Cardano, known for his authoritative books in the realms of arithmetic and algebraic mathematics. Its roadmap phases also borrow the names of famous thinkers including Byron (named for Romantic poet Lord Byron), Shelley (named for English poet Percy Shelley of Ozymandias fame, with the recent ‘Mary’ hardfork named after his wife and author of Frankenstein), Goguen (named for computer scientist and logician Joseph Goguen), Basho (named for 17th century Japanese poet Matsuo Bashō) and Voltaire (named for the French Enlightenment Age philosopher). Hoskinson also added the Cardano Foundation and Emergo to his list of organizations, with each managing some aspect of the project; IOHK being primarily responsible for development work, while the Cardano Foundation handled the brand and vision, and EMURGO was responsible for corporate and governmental partnerships. With the elaborate plan and philosophy in place, development work began in late 2015. About two years later, with the launch of the mainnet in 2017, IOHK managed to raise approximately 600 million to fund its continued development.

As a consequence of its development funding and academic appeal, Cardano’s native coin, ADA (named for Ada Lovelace, the first person to write an algorithm for a mechanical computing machine, and incidentally the daughter of Lord Byron) reached a high of nearly $1.20 USD in early January of 2018 – the height of the “alt-season” of the 2017/2018 bull run. But as with most cryptocurrencies, it was not immune to the proceeding crash of the market, eventually falling below $0.02, losing 99% of its value. That may have spelled the end of a large number of projects from the era, but Cardano’s team kept moving the project along, publishing their work and building the ecosystem they hoped to see realized.

Despite its credentials and darling status among cryptocurrencies, Cardano was continuously plagued with delays that Hoskinson attributed to the scientific approach the company has taken with the network’s development and in particular, its foundational Ouroboros proof-of-stake mechanism. Five years after starting IOHK, and multiple iterations of Ouroboros later, Cardano upgraded to the ‘Shelley’ phase of its roadmap in mid-2020, beginning the process of decentralizing the network through public node operation and stake pools. Its next phase – implementation of smart contracts as part of the ‘Goguen’ era – is ongoing as of this writing, with one element (the creation of native assets on the Cardano blockchain) dubbed the ‘Mary’ hardfork having been implemented at the beginning of March 2021.

Technical Overview

As noted previously, Cardano takes highly academic approach to development. Consequently, the technical overview provided here will be rather high-level and skip over a number of details in the interest of keeping this readable to the layperson.

As with many modern blockchains, Cardano utilizes a Proof-of-Stake (PoS) mechanism wherein the network is validated not by competing hardware pools but by the amount of the blockchain asset (in this case, ADA) that is held. Those holding the asset can assign it to a stake pool, and the probability that the stake pool’s corresponding node is selected as the ‘leader’ who will add the block is directly proportional to the size of the pool’s stake based on the Follow-the-Satoshi (FTS) algorithm. Cardano is written entirely in Haskell, a purely functional programming language Cardano’s flagship innovation, its Ouroboros architecture, has added a number of additional features to this basic structure in order to secure it against different forms of attack.

The Orobouros protocol has gone through multiple iterations since Cardano’s initial mainnet launch. In its first form, known as ‘Oroborous Classic’, the Cardano team set out to ensure that, without 51% control of the available ADA stake by actors hostile to the network, an attack is not possible. This is achieved in part by making a prespecified number of blocks transient, creating a settlement delay that allows subsequent leaders to prevent propagation of a malicious attack on the blockchain. In addition, network nodes store a copy of the mempool and blockchain, which is replaced only if a longer valid chain is detected. Furthermore, block settlement is divided into 20-second time slots, and slots were aggregated into epochs that each last approximately five days, forcing delays in any attempt to perform a predictive attack that would allow hostile actors to reliably be chosen as leaders. Classic also addressed the issue of maintaining randomness without sacrificing the scalability and resource efficiency that the protocol allowed. Essentially, randomness is a security requirement because predictability with respect to block leader selection would ultimately mean vulnerability to predictive attacks. Ouroboros BFT then made a number of quality-of-life improvements including dropping the need for nodes to be online at all times and improving transaction speed. However, this iteration did not allow for protection against so-called adaptive attacks in which a skilled attacker observes the network and is capable of sending messages to any of the network participants in order to attempt successive compromising of leaders. This type of adaptive attack was addressed in the Praos release, adding key-evolving signatures, private leader selection, and semi-synchronous analysis. Genesis, as the naming suggests, added the capability to perform bootstrapping (put simply, joining the blockchain and getting up-to-date information on its valid contents) directly from the genesis block without certain trust requirements or assumptions that could again provide exploitable attack surface. The most recent update to Ouroboros as of this writing, Hydra, is so-named for its addition of multiple ‘heads’ or off-chain state channels that allow for parallel processing. With up to 10 heads per node, 1000 heads processing at 1000 transactions per second (a theoretical number based on Hydra’s other improvements) creates a theoretical upper bound on Hydra of 1,000,000 transactions per second, far exceeding current global payment systems.

In addition to the ongoing improvements to Cardano’s primary protocol, the IOHK team and its affiliated partners have created the Daedalus (full-featured) and Yoroi (light-featured) wallets for storing and staking ADA. The team has created two developer tools called ‘Plutus’ and ‘Marlowe’ for the creation of simulated smart contracts with a focus on financial applications (although it is important to note that as of this writing, the Cardano network does not have a smart contract implementation on its proper blockchain). The recent ‘Mary’ hardfork has also allowed for the creation of native assets such as fungible and non-fungible tokens (NFTs) on Cardano’s blockchain – notably at the ‘settlement layer’ meaning that these assets, for all intents and purposes except for payment of transaction fees, would behave identically to ADA. This is in contrast to many layer 2 solutions which may be slower or may expose additional attack surface compared to their layer 1 underlying technologies. A final notable feature of Cardano is its hardfork combinator, which allows for updates to integrate into the blockchain seamlessly rather than by creating a true hardfork.

ADA coins are limited-supply, with a maximum supply of 45,000,000,000 ADA. At the time of this writing, the total and circulating supply are approximately 31,900,000,000 ADA, representing approximately 71% of the max supply. Its market capitalization is therefore the current price of a single ADA multiplied by 31,900,000,000 and its diluted price is equivalent to approximately 71% its current price.

Use Cases & Roadmap

Much like Ethereum, Cardano’s overall vision is to allow for a broad range of decentralized applications to be built on its network. In particular, as implied by the focus built into Cardano’s developer tools as well as Charles Hoskinson’s own comments, it aims for real-world applications where its fundamentals on security, scalability and cost-effectiveness are key. Indeed, Hoskinson has spoken of its uses in identity verification and the financial sector, with a special eye towards bringing the unbanked of the world into decentralized banking systems. To that end, Cardano has made outreach and distribution efforts in developing economies, especially in Africa. It has also aimed to establish strong relations with Japan and has signed memorandums of understanding with the Georgian and Ethiopian governments. Interestingly, another report claims that Cardano signed an MoU with the US government for Agri-tech applications in 2018, but I could not find formal corroboration of this report. If any readers can find a reputable corroborating source, I will update this accordingly.

As has been alluded to, Cardano’s roadmap is broken up into 5 key phases called Byron, Shelley, Goguen, Basho and Voltaire. Each of these phases has a key focus, with Byron being the foundational phase in which the fundamental protocol and infrastructure was developed. The Shelley phase is focused on achieving decentralization of the network through the proof of stake mechanism. Goguen is then intended to build the smart contract functionality that allows for decentralized application development on the network. The Basho era is then aimed at improving and optimizing the network for scalability while the Voltaire era aims to fully transfer all governance functions to the community including development plans and approval. A summary of each phase and its achieved or anticipated milestones is given below.

In the Byron phase, the Ouroboros protocol previously discussed was implemented in the testnet and mainnet. In addition, multiple fundamental aspects of the blockchain were added including the native asset (ADA), the blockchain explorer, the full-featured and light-featured wallets, and support for paper and hardware wallets. The Byron era also aimed to optimize UTXO selection to help improve transactional performance.

The next phase, Shelley, introduced the versions of Ouroboros that have been developed since the BFT version (including Praos, Genesis and Hydra). However, the key aim of the Shelley era is to achieve decentralization of the network via the propagation of node operation through the community. To this end, incentive models, voting mechanisms and node operation have been systematically implemented or democratized throughout this period. Significant improvements to wallets and node operation have been rolled out throughout this period as well, and Cardano is expected to achieve 100% decentralization by the end of March 2021.

The smart contracts implementation phase, Goguen, is the next key phase of development with its implementation being one of the most important aspects of Cardano’s long term prospects. Malicious smart contracts continue to offer significant attack surface, and Cardano aims to implement these tools in a manner that ensures that exploitable vulnerabilities are minimized. A key milestone of the Goguen Era, multi-asset support at the settlement layer, was released on the mainnet in March 2021. A secondary area of focus for the Goguen era is adding developer tools that will allow even non-programmers to build high-level Dapps on the Cardano blockchain using the Plutus language and Marlowe Playground.

The Basho and Voltaire eras, although not yet formally in progress, are focused on creating a new features and optimizations that could enable a highly scalable, highly secure and truly decentralized blockchain. For instance, Basho intends to implement sidechains and sharding mechanisms while extending support to non-UTXO based accounting for greater interoperability. With Voltaire, the aim of the project will be to put development decisions entirely in the hands of Cardano stake holders and establish a transaction fee-funded treasury to monetize ongoing improvements by independent developers.

Key Strengths

Cardano’s place as perennial top 10 (by market cap) blockchain and resilience through the 2018 cryptocurrency market crash are testaments to its staying power within the industry. Its intent focus on academic research, security, and forward-thinking has also endeared it to many in the community who consider these hedges against the wave of insincere projects that launch and fade into obscurity before disappearing completely within the cryptocurrency space. In stark contrast, Cardano has been the most heavily developed blockchain network on Github thoughout 2019 and 2020, attesting to the ongoing effort that is put into the project regardless of the market conditions surrounding it.

The creation of three separate organizations with specific missions related to Cardano’s growth is relatively unique among blockchain teams and speaks to Cardano’s intention of securing its spot among the world’s top providers for its services. As previously discussed, it has close ties to a number of government entities, as well as some institutional interest in its product.as exemplified by its 2018 partnership with New Balance. It is also supported at the research level by university research teams that have developed and published much of its theoretical framework.

The transactional capabilities of Cardano, its comparatively low fees of typically just a fraction of 1 ADA and exceptional focus on security make it significantly faster and less costly than some of its key competitors – most notably Ethereum. Its high degree of decentralization, among the most of any blockchain network as of this writing, also helps to ensure the security of the system. While the network theoretically remains vulnerable to a 51% attack, it has achieved popularity and distribution levels that make such a risk infinitesimally small and ludicrously costly (in principle, a 51% attacker would need to control 51% of all ADA, then proceed to maliciously attack the network, making the tens of billions of dollars needed to own 51% of ADA completely worthless following the attack).

Key Weaknesses

As the co-founder and rather outspoken CEO of IOHK, Charles Hoskinson has prominently and gleefully tied his name to the Cardano project. While some consider this a potential strength (think along the lines of an Elon Musk or Steve Jobs type), others consider this a weakness in light of some of Hoskinson’s more controversial points of view. He has publicly expressed support for Texas’ controversial rollback of its mask mandate, called noted right-wing radio personality and provocateur, the late Rush Limbaugh ‘great’ and compared criticism of Cardano to “Trump Derangement Syndrome” – a term meant to pejoratively dismiss criticism of Donald Trump’s presidency as merely frustration with his perceived successes. On this basis, it’s fair to conclude that Hoskinson holds at least some right-wing views which could be considered unfavourable when scrutinized in the public eye. Now, while in principle a project and its founder are two different things, it is undeniable that any serious controversies surrounding Hoskinson are likely to leave a blemish on Cardano’s reputation due to his close association with the project.

While concerns around Hoskinson’s views and close association with the project exist, and certain technical aspects such as on-chain voting are disputed, Cardano is most often criticized for its lack of a final product. While it is technically functional in a purely transactional sense (tokens can be created and ADA can be transacted presently), Cardano has gone to great lengths to position itself as a solution to Ethereum’s shortcomings and a competitor to any smart contract platform that currently exists. This puts it in the awkward position of making bold claims about its smart contracts capabilities without presently having any smart contracts written on it. This also means that real-world stress testing of its capabilities has not truly happened, with Cardano mostly engaging in theoretical and mathematical proofs of its approaches. It is also believed that these ongoing delays mean that projects that exist now are not being built on Cardano, thus weakening its market position and opportunities if or when it does ultimately achieve smart contract functionality.

Conclusion

Co-founded by one of the original members of the team behind Ethereum, Cardano has been an ambitious project from the beginning. With its aim of becoming the most secure, scalable, and adaptable blockchain available and its vision of doing so through a strict academically driven development plan, it has endured as one of the most popular blockchain projects in the field. It has pioneered advances in Proof-of-Stake security and endeavoured to solve complex problems around growth while actively pursuing partnerships around the globe. It’s often-touted potential, however, is frequently juxtaposed against its continual delays in delivering on that potential, and there is quiet but growing discomfort with how intertwined the project is with its founder. Should Cardano successfully deliver on its promises and capitalize on the opportunities it has, it could be a game-changer in the blockchain world, but there is perhaps the same chance that Cardano delivers too little too late; Only time will tell.