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Design rationale

Cardano is an open source proof-of-stake blockchain project that began in 2015 to address existing blockchain challenges in the design and development of cryptocurrencies. It aims to provide a more balanced and sustainable ecosystem that better accounts for the needs of its users as well as other systems seeking integration.

The first generation of blockchains (like Bitcoin) offered decentralized ledgers for secure cryptocurrency transfer. However, such blockchains did not provide a functional environment for complex deal settlement and decentralized application (DApp) development. As blockchain technology matured, the second generation (like Ethereum) provided more enhanced solutions for writing and executing smart contracts, application development, and the creation of different token types. On the other hand, the second generation of blockchains often faces issues in terms of scalability.

Cardano is conceived as the third-generation blockchain as it combines the properties of the prior generations and evolves to meet all the arising needs of users. When comparing blockchain properties, many aspects should be considered. Thus, the best solution must ensure the highest security, scalability (transaction throughput, data scale, network bandwidth), and functionality (besides transaction processing, the blockchain should provide all means for business deal settlement). Moreover, it is important to ensure that blockchain technology is constantly developing in terms of sustainability and is interoperable with other blockchains and financial institutions.

To address these needs, Cardano has been built focusing on such core concepts as:

  • Scalability – ensures that the Cardano network is capable of processing an increasing number of transactions as user demand grows. Scalability also provides higher bandwidth capabilities to allow transactions to carry a significant amount of supportive data that can be easily managed within the network. For these needs, Cardano is implementing various techniques (like data compression for instance), and introduces such scaling solutions as Hydra and Mithril, for example. Read more about the research underpinning Cardano's scalability here.
  • Interoperability – ensures the most multi-functional environment for financial, business, or commercial operations by enabling users to interact with different blockchain systems. Cardano aims to support cross-chain transfers, multiple token types, and commonly used smart contract languages. Read more about the concept of partner chains.
  • Sustainability – designing a proof-of-stake blockchain means it is vital to ensure that the system is self-sustainable. To drive growth and maturity in a truly decentralized manner, Cardano is built to allow the community to maintain its continuous development by participating, proposing, and implementing system improvements. This is now being implemented through CIP-1694 on-chain governance mechanisms.

Cardano advantages

  • Academic research – formal methods, such as mathematical specifications, property-based tests, and proofs, are the best way to deliver high assurance software systems and give confidence to users for the management of digital funds. Cardano has been built using formal methods to achieve strong guarantees on the functional correctness of core components of the system. All of the research and technical specifications that underpin Cardano are publicly available, and all Cardano development activity is published online.
  • System design – Cardano is written in Haskell, a secure functional programming language that encourages building a system using pure functions, which leads to a design where components are conveniently testable in isolation. Advanced features of Haskell enable employing a whole range of powerful methods for ensuring code correctness, such as basing the implementation on formal and executable specifications, extensive property-based testing, and running tests in simulation.
  • SecurityOuroboros (the Cardano proof-of-stake protocol) establishes rigorous security guarantees; it was delivered with several peer-reviewed papers presented in top-tier conferences and publications in the area of cybersecurity and cryptography.
  • Energy efficiency – Cardano is a proof-of-stake blockchain. In contrast to proof-of-work blockchains, Cardano requires much less energy and computational power. The Bitcoin network is secured through computers doing ever-more-energy-intensive computations – proof of work – which is unsustainable in the long term. Cambridge University has an online tool that shows the computers powering Bitcoin already consume more electricity than some countries, like Switzerland for example.
  • Seamless upgrades – traditionally, blockchains upgrade using hard forks. When conducting a hard fork, the current protocol would stop operating, new rules and changes would be implemented, and the chain would restart – with its previous history being erased. Cardano handles hard forks differently. Instead of implementing radical changes, the Cardano hard fork combinator technology ensures a smooth transition to a new protocol while saving the history of the previous blocks and not causing any disruptions for end users.
  • Decentralization – Cardano is maintained by over 3,000 distributed stake pools that are operated by the community. All blocks and transactions are validated by network participants without any reliance on a centralized authority.
  • Functional environment for business use cases – Cardano is establishing a foundation for global, decentralized finance to develop a range of DApps that can run using functional and domain-specific smart contracts, providing multi-asset tokens for any needs.