What is the value proposition of Cardano?

Sometimes a very simple question pops up on social media. What is the value proposition of Cardano? The question is legitimate, but it is very difficult to answer in a few sentences. To say that Cardano is a social and financial operating system is a too abstract answer that doesn't tell anyone how Cardano differs from other smart contract platforms. If one wants to explain a single detail, the others can be overlooked. The project must be seen in all its details in order to get a realistic picture. We will try to create a list of things that should be looked at by everyone who wants to know the value proposition of Cardano.

TLDR

• It is easy to overlook the advantages of the Extended UTXO model.
• PoS Leios can solve the blockchain trilemma in a very elegant way.
• Cardano has a so-called multi-asset ledger. Tokens are stored directly in the ledger similar to ADA coins and smart contracts are not needed for interaction.
• Cardano has native liquid staking.
• Mithril is a light client that enables even mobile devices to communicate Peer-to-Peer.
• The IOG team is building Cardano as a mission-critical system, i.e. as software for nuclear power plants, aeroplanes, hospitals or banks.
• It is easy to upgrade Cardano via a hard-fork combinator. No ghost blockchains and ghost tokens.
• Cardano has a fair distribution of ADA coins.
• Cardano has a project treasury and Catalyst.

Extended UTXO

It is easy to overlook that Cardano uses the Extended UTXO model. At first glance, this is not visible, yet it is a crucial difference compared to all EVM-based smart contract platforms.

The purpose of the EUTXO model is to support higher expressiveness of programmability while maintaining all the benefits of Bitcoin’s UTXO model. EUTXO has the following advantages: greater security when executing smart contracts, fee predictability, local verification ensuring that transactions will be accepted after the submission, and an inherently fragmented blockchain state. This allows parallelization in transaction processing, which has a positive effect on scalability.

When processing smart contracts, the order in the block does not matter, there is no need to consider the execution results of other contracts in the block, so the execution itself can be considered more secure. In other words, since the individual smart contract execution results are independent of each other and there is no shared mutable global state, there is less surface for attacks.

The reality is that at the time of writing no Plutus script has been exploited. Cardano is the ideal platform for mission-critical systems that are expected to be highly secure and reliable. It can be tricky to learn Haskell, but it's definitely worth it if you want to build a reliable financial service for millions of users.

Ouroboros Leios

Almost no blockchain network scales well, as combining this feature with decentralisation is a technological challenge. Many platforms that scale well have had to sacrifice decentralization and have very high hardware requirements for those who want to produce blocks.

Ouroboros Leios is an enhancement to the existing version of PoS that will allow Cardano to achieve high scalability and retain its quality decentralization. This is made possible by the use of the EUTXO model. It makes it relatively easy to assess the concurrent nature of two transactions. There are no side effects.

Blockchain nodes usually work only when they have to produce a block or validate the one they receive from another node. Resources are mostly unused. Leios will allow the construction of three different types of blocks that will be produced at different rates and will have different purposes. Input blocks that will be the most frequent. Further, endorsement blocks. They will be pre-validated by other nodes. Input blocks will be used as input for the pre-validation and construction of endorsed blocks. Finally ranking blocks that will reference the endorsed blocks and that represent the final settlement.

Input blocks are bundles of transactions. They are the actual data payload containing information. They are meant to be produced at a fast rate and validated concurrently. Endorsement blocks are used to achieve a relatively high degree of confidence. Nodes will approve these blocks by endorsement certificates which inform other nodes about how many peers are approving them. Ranking blocks are bundles of references to endorsed blocks. They are used to achieve global consensus.

Leios can solve the blockchain trilemma in a very elegant way. The IOG team has proven to the world that they can deliver a working PoS and there is no doubt that they can deliver a Leios PoS as well.

NFTs are native tokens

Cardano does not use smart contracts to interact with tokens and NFTs. The network treats them the same way it treats ADA coins. It has a so-called multi-asset ledger, so tokens are stored directly in the ledger similar to ADA coins.

Cardano has an accounting infrastructure for tokens defined in the ledger model and can transfer them natively. This reduces complexity and transaction fees while increasing security.

Cardano has a fixed fee policy, which means that the fees depend on the size of the transaction. The fee is not dependent on the current network load. For a regular transaction, you'll pay the same ADA fee today as you will in a year.

Cardano has liquid staking

Cardano has native liquid staking. This means that it supports this feature directly at the protocol level.

Staking does not require the locking of ADA coins for a certain period of time. Cardano does not have slashing. The protocol cannot take coins from the owner. Incentives are set up very similarly to PoW consensus. Rewards can only be earned for behaviour that is consistent with the interests of the protocol. Stakers control the behaviour of pools much like miners control pools in the Bitcoin network. Stakers can delegate ADA to another pool at any time. This system has been working well for more than two years and Cardano is one of the most decentralised networks. Moreover, decentralisation is growing even in a bear market.

Other PoS networks do not have native liquid staking. Users are forced to entrust native coins to a third party. In return, they get tokens that have a market value similar to native coins but have no meaning in the network consensus. This represents a high degree of centralisation and is a risk for the network.

I dare say that staking on Cardano is the current PoS standard.

Peer-to-Peer without a full node

Most current users of blockchain networks use a client-server architecture. This is true for users of light wallets or HW wallets Trezor and Ledger. Third parties can collect data without users' permission, send them fraudulent data, censor transactions, or authorities can force them to shut down the server. Simply put, network consensus tends to be decentralized for most networks, but user access to the blockchain is currently highly centralized.

If someone wants to communicate Peer-to-Peer, i.e. without a third party, they need to run their own full node. In the case of Cardano, the Daedalus wallet makes this possible. Most people on the planet don't want to run a full node and never will. The blockchain industry knows the solution to this problem. We call it the light client.

Mithril is a light client. It enables even mobile devices to run Cardano nodes that will be synchronized fast using blockchain snapshots.

Full nodes contain the whole blockchain. They constantly validate new blocks in order to retain synchronisation. It requires resources that smart devices do not have.

Light clients store only part of the data that is relevant. This makes them more resources efficient, cheaper, faster and user-friendly. To achieve that, there will be a special layer above full nodes that will communicate with light clients and provide necessary data. Thus, the light clients could have similar security and trustlessness as a full node.

IOG team, Cardano Foundation and Emurgo

The three founding entities are an integral part of the Cardano ecosystem. The IOG team is the R&D building Cardano. This team is one of the most competent in the entire blockchain industry. They are building Cardano as a mission-critical system, i.e. as software for nuclear power plants, aeroplanes, hospitals or banks. There is math and science behind Cardano.

Isn't development based on formal methods slowing down the building of Cardano? We believe that Cardano is being built in the fastest way possible. Blockchain networks are being built to be used by millions, maybe billions, of people around the world. These networks must not fail. At the same time, they must be made more efficient. For example, the aforementioned scalability. You can't do this with conventional corporate software development without a background in maths and science.

You can have Cardano and another similar smart contract platform side by side. At first glance, they will be the same. It is even possible that the other smart contract platform has been on the market longer because the team delivered it faster.

The difference is that Cardano has never needed a network reboot and there have never been any serious problems. There were attempts to overload the network, but the network behaved exactly as it should. Plus, if you build the network carefully like the IOG team, you have a plan for future upgrades and know how to do it. At the same time, you have relatively high confidence that the upgrade won't break things that are already working.

It's easy to upgrade the Cardano network, as the team created a hard-fork combinator. As a result, ghost forks, ghost applications and ghost tokens are not created after a network upgrade.

The Cardano Foundation has many things in its job description and it helps build the ecosystem. Let’s mention the role of Cardano Ambassadors. They are working to grow the Cardano community and spread awareness of the project. This is succeeding and it is important to mention that Cardano has one of the largest communities in the entire blockchain industry.

EMURGO is the official commercial arm of the Cardano blockchain. This entity built the first lightweight wallet Yoroi. At the Cardano Summit, it announced the launch of the USD-backed stablecoin USDA. We have only mentioned some of the activities.

Cardano had a fair coin distribution

VC funds did not participate in the initial distribution of ADA coins. The distribution of ADA vouchers took place in Asia in four stages between October 2015 and the start of January 2017.

25,927,070,538 ADA were sold to the public. The Genesis block distributed ADA to 3 entities: Cardano Foundation, Emurgo, and IOG. Cardano Foundation received 648,176,761 ADA, Emurgo received 2,074,165,644 ADA, and IOG received 2,463,071,701 ADA.

The sale made 108,844.5 BTC to IOG. Over 8,000 BTC was donated to the Cardano Foundation.

A total of 31,112,484,646 ADA was distributed. 13,887,515,354 ADA were part of the reserve. These coins will be released gradually in circulation by the Cardano protocol until the maximum of 45,000,000,000 ADA is circulating.

At the time of writing, 78.3% of ADA coins are in circulation. Of these, 71% are ADA staked. Compare it with other projects.

Decentralised governance

Decentralization is not only about network consensus, but also about the team that maintains and develops the protocol. It is not talked about much in the communities that the teams are points of centralization.

The more successful a project is, the stronger the external pressures will be on it. Whoever gives the team the money can and usually does have some demands. The team can thus get into a conflict of interest. On the one hand, there may be a community that wants something, on the other, there may be a VC fund that wants something else from the team.

Cardano has a project treasury that will fund future protocol development. Importantly, the IOG plans to hand over management of the project to the community in the Voltair era. The community will vote on what to work on and also who will work on it. This can be the IOG team, but theoretically any other team.

The community takes part in the Catalyst voting. Catalyst is designed to fund projects proposed by community members. ADA holders can decide which project will receive funding from the project treasury. Catalyst is arguably the largest DAO in the entire blockchain industry.

There were over 364,000 votes cast in Catalyst Fund 9. It is a 53% increase from Fund8. 205 projects received funding.

It can be said that the preparation for the handover of the project to the community is progressing satisfactorily. There are projects that seek decentralised governance. However, there are also those that do not want to achieve this and the community is comfortable with this.

What else is worth paying attention to

We could go on and on. Let's briefly mention some other details worth noting.

Babel fee will allow users to pay transaction fees directly in the tokens they send. Thus, users do not need to have ADA in their wallets and can still send, for example, stablecoins.

The IOG team is building an identity management solution called Atala PRISM, which will allow them to create a decentralized identity in accordance with the W3C standard. This solution is being used in Ethiopia.

A second layer called Hydra is being built.

Milkomeda is a very successful sidechain with many applications.

There are many wallets in the Cardano ecosystem that are being built by third parties.

Project Midnight will be a sidechain made by the IOG team. It protects sensitive personal and business data using zero-knowledge cryptography.

Cardano is one of the most decentralized networks in the blockchain industry.

Conclusion

It is very difficult for an individual to have a deep insight into all the relevant ecosystems. Every project has a competitive advantage. Even if a project has the best technology, it is not necessarily the one that is the most popular and most used. Community, partnerships and adoption by new users are other important factors to consider. Cardano is a strong project that is sure to establish itself and remain relevant for the next 10 years. During that time it will be upgraded many times and many new applications will be built on top of it. It's certainly good to see what Cardano has today, but it's more important to realize what Cardano can be in a few years. The best is yet to come.