Cardano has adopted the best technologies and concepts from Bitcoin and Ethereum. The IOG team took inspiration from the best available technologies. They thoroughly researched all concepts to verify their safety and would be able to improve them. They subsequently linked the different technologies in one project in such a way that further innovations are feasible. Bitcoin's key technologies include the Nakamoto consensus and the UTXO model. The most significant innovation of the Ethereum project is the ability to issue tokens and the ability to use the Solidity programming language to write a smart contract. Based on the research, the team created Cardano and implemented it using formal methods. The implementation is at a very high level which is comparable to software for NASA, hospitals, or nuclear power plants. Why is Cardano the way it is? We must look to the past for answers. Charles Hoskinson was one of the first people to teach about Bitcoin, and he was also one of the co-founders of Ethereum. TLDR Before founding Cardano, Charles taught about Bitcoin and co-founded Ethereum. Principles, visions, and ideals are as important to the project as technology. Cardano uses Nakamoto-style PoS consensus. The IOG team has created an Extended UTXO model that allows higher programmability than Bitcoin. Cardano does not need a smart contract to create and transfer tokens as it treats them natively. Just as political movements or parties survive their founders, protocols can survive their spiritual fathers or developers. It all started with Bitcoin Charles Hoskinson was one of the first people to talk publicly about Bitcoin. On Udemy, you can find Charles' course on Bitcoin, which has a 4.9 rating and has been attended by over 112,000 people. In 2013, Bitcoin magazine partnered with the Bitcoin Education Project (BEP). BEP was founded by Charles Hoskinson to reduce the knowledge barriers to entry for individuals to enter the world of Bitcoin, and to highlight Bitcoin’s utility in mainstream activities. He was the founding chairman of the Bitcoin Foundation's education committee and established the not-for-profit Cryptocurrency Research Group in September 2013. Let’s add that Charles knows all the Bitcoin OGs, many of them personally. Charles joined the Ethereum team as one of the five original founders with Vitalik Buterin in late 2013. He held the position of chief executive. He left the Ethereum project in 2014 after a dispute over whether the project should be commercial or nonprofit. In late 2014, Hoskinson and former Ethereum colleague Jeremy Wood formed IOHK (renamed to IOG), an engineering and research company. That was the beginning of Cardano. Charles's past is very important, because from our point of view what is most important is clinging to the ideals, visions, and basic principles of decentralization. This is what Charles knew well, as vision and ideals were the driving force behind Bitcoin's adoption in the beginning. Let's leave aside that today may be different. Principles and ideals are to some extent more important than individual technologies. Any technology can always be improved or replaced completely. What endures and can survive the century are the ideals and principles. The concept of decentralization has been with us since the French Revolution and will not disappear from the world even if the current blockchain networks disappear. To some extent, the blockchain industry can be seen as a political movement whose strength will come from the possibility of creating an alternative financial and later social system. Charles was very aware that the most important feature of blockchain is decentralization. While it is clear that mass adoption is not realistic without solving scalability problems, decentralization must not be sacrificed. The IOG team has taken this idea and is building Cardano in this spirit. The project is attractive to people who care about decentralization and want to participate in it themselves. While not everyone can become a pool operator, the option of staking ADA on Cardano is inclusive and affordable for almost everyone. Charles is and will always remain the spiritual father of the Cardano project, just as Satoshi is an integral part of Bitcoin. However, this does not mean that Charles decided what specific technologies and concepts would be used. He put together a formidable team of researchers and scientists who worked together to find the answers. We see Charles as the figure who set the direction of development and oversaw the principles. This role is irreplaceable at the birth of the project. Cardano is moving towards full decentralization at the project management level. One day, ADA holders will be responsible for adhering to the principles of decentralization and determining the future development of the project. Just as political movements or parties survive their founders, protocols can survive their spiritual fathers or developers. What technologies does Cardano use? Satoshi Nakamoto, the anonymous creator of Bitcoin, created the Nakamoto Consensus. The properties of Proof-of-Work are well described academically, and not only thanks to the research of the IOG team. Cardano utilizes Nakamoto-style consensus that is very similar to Bitcoin where nodes follow the longest chain rule to come to an agreement. We were able to verify the robustness of the protocol in January 2023. There was a transient anomaly that caused a disconnection and automatic restart of about 50% of the nodes in the network. Most of the affected nodes automatically recovered and resumed their work. The Nakamoto-style PoS that Cardano uses is different from other blockchains that often use PoS with Byzantine Fault Tolerant (BFT) style consensus protocols. Instead of following the longest chain rule, BFT-style consensus protocols come to an agreement in a quorum vote. For example, to confirm a block, 2/3 consent of all participants is required. This means that when ⅓ + 1 node is unavailable, the network is unable to produce a new block. Blockchains that use Nakamoto-style consensus are able to produce a block even if a large number of nodes are not available. Half of all nodes can be unavailable and the network is able to produce a new block. Sometimes with a delay. If you become a slot leader in a Cardano network, you can mint a new block that running nodes accept if it is valid. Let's add that instead of a hash rate, Cardano uses ADA coins to decide who gets the right to mint a block. This innovation makes Cardano more than 99% more environmentally friendly. The team building Cardano adopted not only the basic design principles of network consensus from Bitcoin but also the accounting model. The IOG team examined all the pros and cons between the UTXO model that uses Bitcoin and the account-based model that uses Ethereum. In the end, they decided to use and extend the UTXO model. The Extended UTXO model (EUTXO) was born. The EUTXO model supports higher expressiveness of programmability while maintaining all the benefits of Bitcoin’s UTXO model. Moreover, EUTXO offers some advantages over the account-based model. In particular, 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 on-chain scalability. EUTXO allows users to optionally add arbitrary user data in JSON-like format to UTXO. This data is called Datum. The Datum will allow developers to give scripts state-like functionality. Transactions can carry user-specific arguments, called a Redeemer. Redeemer can be viewed as the intention of the author of the transaction on how to spend the UTXO. When a transaction is being validated, a validation script can operate with Datum, Redeemer, and context that includes transaction data. Unlike Bitcoin, Cardano is a smart contract platform on which, for example, DEX or lending protocols can be created. Datum and Redeemer are important components that allow easy programmability through Plutus scripts. Cardano, like Ethereum, is a smart contract platform, and at first glance, the layperson may not see any major differences in technology. Ethereum was the first to come up with an account-based model. It made it possible to write a small program with complex logic called a smart contract. Transactions are interpreted as events that change the global state. Ethereum Virtual Machine (EVM) computes the state transition result of these events based on the prior blockchain state. The previous state becomes an integral part of the current calculation of the new global state. In other words, the correctness of the current calculation is dependent on the past. Transactions and validation of Plutus scripts are independent in the EUTXO model and are deterministic. It means that they will very likely not fail when the local validation passes. The Plutus script only works with the state that is associated with the EUTXO and further with the data it receives in the transaction. The script execution does not depend on the shared global state so there is less surface for attacks. Different technologies are suited to different problems. We certainly don't want to say that EUTXO and Plutus scripting capabilities are the best solutions for everything. The account-based model and Solidy definitely have their merits as well, and the team works on improvements. User-issued tokens are defined in the UTXO metadata. They are therefore native tokens because they exist on the same layer as ADA coins. Cardano uses the same ledger for both. This is a fundamentally different approach from non-native tokens. To issue tokens on the Ethereum platform, users must deploy a smart contract. Smart contracts are then used for all transactions, including transfers. Working with tokens on the Cardano platform is cheaper and more secure, as behavior is programmed at the protocol level. Users need to define a minting policy. Simply put, Cardano can do similar things to Ethereum in terms of the main differences from Bitcoin. Still, there are significant differences between the two smart contract platforms. Conclusion Charles Hoskinson said that Bitcoin is blind, deaf, and dumb. He certainly doesn't mean it badly and considers Bitcoin to be digital gold. We think the point of this statement is that Bitcoin is not technologically ready enough for alternative financial services to be built on top of it. Charles went on to say of Bitcoin that is not scalable, that it is not interoperable with other systems, is not economically sustainable, or that he is not happy with Bitcoin's governance. These are all relevant topics. Ethereum has solved some of them, but not all. In our eyes, the Cardano project has mainly adopted the vision and ideals of Bitcoin and some concepts from Ethereum, in addition to the technology. However, it is going its own way entirely. Most notably in its efforts to create decentralized governance. Cardano takes the best from his predecessors due to the fact that Charles Hoskinson was at the beginning of both of them.
