Galaxy Digital Research: Cardano

Led by the one-time Ethereum founder Charles Hoskinson, Cardano is a general-purpose blockchain network that bills itself as a “peer-reviewed network’’ and the next generation blockchain after Bitcoin and Ethereum. Primarily researched and built by academics, the PoS chain first launched in 2017. Operationally, Cardano is the least developed platform in this report, but that hardly makes the chain unworthy of note. Thanks to institutional and global partners, a developer community that’s been second in size to only Ethereum as of June 2021, and its near-religious following, the network has become one of the most (in)famous chains, earning it a top-five spot by market cap.

After leaving the Ethereum project in its youth due to concerns over interoperability and scaling, Hoskinson helped secure funding for the Cardan Foundation, the entity in charge of development and ecosystem growth, and Input-Output (IOHK), which leads research and development, via a public sale of the chain’s native currency, ADA. Additionally, Hoskinson helped secure institutional partnerships from several universities and nations, including the University of Edinburgh and the Ethiopian government. However, years after launching, Cardano still has yet to find a major use case in production.

Besides its impressive mix of partners, Cardano’s technical design makes it unique. Unlike the other networks in this report, Cardano abandons an account-based model utilized by Ethereum and most of its competitors, instead using the Extended Unspent Transaction Output model (EUTXO), which is more commonly utilized on monetary networks like Bitcoin. The technical differences of these models are small but important; the account model is indeterministic (unpredictable) while the EUTXO model is deterministic (predictable), which ostensibly offers more security, privacy, and lower fees. While at face value those benefits sound nice, the EUTXO model is far from perfect, and detrimental to the creation of complex smart contracting ecosystems.

Because transactions in the EUTXO model are funded from old inputs, which are then destroyed after being used, the EUTXO model, at least in its current iteration, allows anyone to access a dapp’s asset pools to spend funds deposited into the pool. Additionally, this architecture restricts users who access the same dapp by essentially forcing them to compete to spend the same transaction output within the same block period. In other terms, smart contracts, without further development, can only be called once per block, severely limiting the adoption potential of smart on tracts on such chains. To mitigate that problem, dapp developers must put limits on which addresses can access which outputs. Put more simply, the EUTXO model is structurally more complex for dapp developers to build on, meaning it’s far harder to build the interoperable DeFi apps Cardano needs to compete with other smart contract platforms. Workarounds are being developed, but current iterations require some degree of centralization.

Notably, much of the community was in the dark about the design process and system architecture, as the chain’s developers continue to build Cardano in a mostly closed fashion, with IOHK and the Cardano Foundation determining developmental decisions. In the meantime, Cardano users are left to utilize minimally accessible applications and watch as applications on other chains continue to grow, perform, and evolve.

While the chain’s design specifications are concerning, it is important to note that the outcome is not predetermined. Cardano is certainly behind almost every other smart contracting platform considered in this report, but that doesn’t mean it can be written it off - its developers are experienced and the chain is somewhat battle-tested as evidenced by the successful launch of its third phase, Goguen. Moreover, the chain should have EVM compatibility sometime in early 2022 and continue to see other upgrades come closer to fruition. But more than anything, Cardano can bank on the strong community it has formed, which has been the bedrock of its success to date and continues to be one of the most important and underestimated drivers of blockchain’s success. So, while the technology behind Cardano is undoubtedly complex and lagging other Layer 1s, it cannot be counted out - after all, it’s never prudent to bet against a large global community of adherants.

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This is a hit piece. Galaxy digital is run by a billionaire named Novogratz, an early ethereum acolyte. There is more to the story but I will leave it at that.

What’s the purpose of this digital research ?

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