Understanding Cardano Sustainability

The blockchain network should serve as a decentralized public infrastructure available to all people on the planet. Blockchain must be similar to the Internet. Blockchain, like any technology, requires the ability to change and evolve. Design flaws must be corrected. Technological progress must be accepted and leveraged. In principle, the blockchain network is difficult to change, as it requires the consensus of stakeholders and coordination when implementing the change. It is necessary to address long-term sustainability. The Cardano protocol must become a public infrastructure over which no centralized entity has control, but at the same time, the protocol must evolve to meet future needs. That is a challenge.

A Fight For Control

It is natural for people to try to gain control over technology if they can make an economic profit from it. A blockchain network is no exception. Decentralization can be just an empty word if there are no mechanisms in place to allow it to materialize.

Decentralization can be relatively well observed and assessed at the block production level. We can count the number of nodes in the network, the number of block producers, the number of those who own and provide an expensive resource (stakers, miners, etc.), and so on.

People naturally try to get as much power as possible. In the Cardano ecosystem, they want to operate as many pools as possible (be multi-pool operators) or hold as many ADA coins as possible. It is the same in the Bitcoin ecosystem. You can observe two dominant pools (one Chinese and the other American) and hash rate centralization in large mining halls.

In the crypto industry, there is no ecosystem in which there is no struggle for power.

It is natural that the struggle for power also takes place at the level of control over the source code of protocols, over the (dominant) client, or project management (governance).

Project management includes tasks such as planning, scheduling, coordinating contributions, and overseeing the overall direction of the project. In the context of open-source projects, this role is often performed by a core team of contributors or a project maintainer. Specifics may vary depending on project size, complexity, and community involvement.

Even (for-profit) organizations can manage the development of open-source projects.

For example, Android is an open-source project. While Google maintains the Android source code and has people working full-time to make improvements and add new features to Android, other companies and individual contributors also play a significant role in its development.

An even better example is the Internet. The Internet isn’t owned by any single entity. The majority of the Internet infrastructure is owned by a small number of large communication companies. The responsibility for improvements and implementing fixes is a collective effort. The tech industry, government, and civil society all play a role. The Internet is largely uncontrolled and self-regulating, making it incredibly hard to regulate.

The Internet is a good example of where the governance of blockchain projects could go. There is a catch, though.

In both Android and Internet cases, the governance structures are complex and involve a variety of different actors with different interests and agendas. This leads to power struggles as different actors seek to assert their influence and control over the direction of the project.

The power struggle is present always and everywhere.

Who is responsible for the governance of blockchain projects?

IOG team (formerly IOHK) is a for-profit organization building Cardano according to the road map since 2014. Cardano is an open-source project. The source code, but also the research (almost 200 papers), are publicly available. The team raised funds for the development of Cardano through the public sale of ADA coins.

Bitcoin is also an open-source project. The Bitcoin Core client, which is the most popular software client, is maintained by a global team of developers. Bitcoin development is subsidized by individuals, organizations, but also VC funds.

It is important to note that there is also a power struggle going on in the crypto industry. It doesn't matter if it is visible or hidden. It doesn't matter if it's talked about publicly. It doesn't matter who says what. The power struggle is natural and pervasive.

Teams may have some (good) intentions that may be publicly declared. However, the management structure is often complex and contains both good and bad actors. Pressures on team members can be internal or external. The interests of individual actors may differ.

Governance can be perceived similarly to the production of blocks. We can say that the more actors and stakeholders, the better. It is not possible to decentralize governance to 100%. Specific steps will always be the responsibility of a small group of people. However, it is possible to try to distribute decision-making power to stakeholders as much as possible.

It is possible to separate decision-making power from the right to perform individual tasks or implement changes. It is even possible to limit external influences by making the protocol self-sustaining.

Lessons From The Past

It can be a frustrating experience when most agree that a specific problem needs to be addressed, but it is not possible to agree on specific steps.

The debate over increasing the Bitcoin block size was the largest public manifestation of governance in the history of the blockchain industry. The community split into two camps: small blockers and big blockers.

Many debaters saw the dispute as less about block size and more about how easy or difficult it should be to change Bitcoin's rules. That is, about the extent to which Satoshi's legacy should be preserved. The block size war was just a proxy issue. It was as much about the philosophy and governance of Bitcoin as it was about its technical specifications. It was the first public power struggle.

The result of the block size war was a compromise that emerged in Segregated Witness (SegWit), a solution that effectively increased the block size limit by altering the storage and verification methods of transaction data. So the small blockers won because the vast majority in terms of hash rate and number of network nodes joined their side.

Consensus has proven to be very difficult to achieve and disagreements can ultimately be decided by stakeholders. It was obvious that changing the rules of the protocol, even one simple parameter that would (at least temporarily) solve an existing network problem, is very difficult, if not almost impossible.

It opened up new questions. Does it make sense to build on top of infrastructure that cannot adapt to new conditions? Will users feel comfortable knowing that some issues may not be addressed because it is difficult to reach a majority agreement?

We still don't have an answer to that. Developer activity has shifted to Ethereum. Development over Bitcoin has almost stopped (with a few exceptions like the Lightning Network). There is a slow revival brought about by Ordinals, Inscriptions, BRC-20, BitVM, etc. However, these innovations had to do without support (changes) at the protocol level. Some members of the Bitcoin Core team have even openly opposed some of the innovations.

When the foundations of the Cardano project were being laid, it was clear to the team that it was necessary to address the topic of governance and the ability to reach a collective consensus.

The Cornerstones of Long-Term Sustainability

If there was a centralization of power, it would be very difficult to change the rules of protocol. Those who are comfortable with the current situation can resist change. Conversely, they can try to force change without majority approval and have a relatively high degree of certainty that they will succeed.

Neither is correct from the point of view of decentralization.

The decision on whether to change the rules of the protocol or keep the current ones should be the result of a collective vote. There should be an effort to have the majority of stakeholders actively participate in the voting.

One of the pillars of on-chain governance is the introduction of documentation, formal processes, and technical readiness for voting. Roles in the system and their responsibilities should be well described.

It should be possible to propose changes to the structure. It should be well described how the approval process takes place. It should be possible to change the process itself.

CIP-1694 is the first step to introduce formalized governance. Not only the documentation is being prepared, but also the technical component - Sancho Network. While CIP-1694 describes governance actions, Sancho Network will enable the execution of governance actions.

One of the other important pillars of on-chain governance is the project treasury.

Research, maintenance, and implementation of changes require funding. Dependence on VC funds is not optimal. It is one way through which third parties can try to gain control over protocol rules by gaining control over individual team members.

A project with its treasury becomes independent of external financing and is therefore self-sustainable. There are over 1.4M ADA coins (~530M USD) in the Cardano treasury at the time of writing.

In dollar terms, the value in the treasury can grow as the social and financial importance of Cardano grows.

Control over the treasury project is one of the governance actions that will be in the hands of ADA holders. One of the other governance actions is the initiation of a non-backward compatible network upgrade or a change of Cardano protocol parameters.

The project has a functioning Cardano Improvement Proposal (CIP) process (similar to the BIP process in the Bitcoin ecosystem). The CIP process is used to describe an existing problem and propose a change. Each CIP can be debated between experts at a technical level.

The Cardano constitution, commission and DReps, CIP process, control over the project treasury, and the possibility to vote can be seen as the basis of on-chain governance enabling stakeholders to decide on the future direction of the project.

The IOG team, along with other entities, will not have direct control over treasury and protocol upgrades.

Voltaire is the last era in the Cardano road map. The Byron (foundation), Shelley (decentralization), and Goguen (smart contracts) eras are over, although further developments are underway in the field of Proof-of-Stake and smart contracts. The IOG team is working on scalability (Basho era).

Once the Voltaire era is complete, Cardano should be completely in the hands of the community. At the time of writing, it is not known how the handover will take place and whether it will be tied to a specific date or event.

I dare to say that in the case of Bitcoin, as well as in many other projects, something similar has never happened. Teams still have a lot of influence over protocols and their development. On the other hand, many projects are further in governance than Cardano and stakeholders participate in voting.

Conclusion

Long-term sustainability is associated with the ability to evolve, correct design flaws and adapt to new conditions. In the context of blockchain networks, in my view, it is mainly about the ability to maintain a high degree of decentralization. If blockchain technology is to become the new backbone of the world (trust layer) similar to the Internet, it must retain the key characteristics that are the basis of its very existence. Block production must be as decentralized as possible. In this, Cardano is the champion. The next step is decentralized governance, which will enable the long-term sustainability of the protocol.