How Does Cardano Work?

Introduction

Hello world it’s Siraj and today. We’re gonna talk about a cryptocurrency  Called card on. Oh well the coin itself is called  Ah da but the blockchain that it supports is called card ah no.  And it was created by the cofounders of aetherium you’ve got Charles Hoskinson.  Which is he’s basically like the Steve Jobs of crypto and you’ve got Jamie wood so both of these guys have been in the space.  For five plus years, and they’ve seen a lot of the problems that happen with crypto currencies.  And they took all of those problems in the decide to make one single solution call court card on.  Oh, which I’ve been researching a lot lately, and I think the platform is very very cool so in this video  I’m gonna talk about its architecture. How it works?  How its delegated proof of state algorithm works, and how it’s different from Bitcoin and etherium?

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1st generation – Bitcoin

So let’s start off with Bitcoin. You always gotta start off with Bitcoin right when it comes to crypto currencies. So there have been three  generations of distributed ledger technology. So far the first generation was obviously Bitcoin,       right you got litecoin and all the  Initial altcoins, but the idea was always the same.  Can we create decentralized money and the answer was yes right so money that doesn’t require a trusted third party no.  I’m not gonna explain how Bitcoin works.  I’ve done that in previous videos.  But I will say that Bitcoin allows  Alice to send money to Bob.  Without meeting a trusted third party right we had the traditional way to do this and involve the bank a clearinghouse the ACH network  all these different.  Networks that were pre internet.

Right and so it took it takes some time for Alice to send money to Bob if he’s in a different country.  Because it’s requiring all these different old  old-world protocols.  But there’s one thing that Bitcoin cannot do what if Alice wants to send money to Bob, only if Bob mows her lawn.  Right so you’ve got to have a network  that’s able to communicate with the real world some kind of lawn mowed API or something like that where the transaction can tell if  Bob mowed Alice’s lawn, and if and only if that happened it will release the funds and send them to  Bob from Alice but Bitcoin does not allow for this however a lot of people don’t realize that.

Bitcoin does have its own scripting language right Satoshi implemented a scripting language in Bitcoin however.  It’s very limited.  And that’s for security reasons mostly for example the Bitcoin scripting language does not allow for looping at all.So this is an example of a Bitcoin script. It’s a very trivial example. You just have three variables here.  I add them together and then. I return them so that’s an example of Bitcoin script.  It’s useful for things like escrows.  But not very detailed escrows or anything more than just you know Multi multi signature transactions.

2nd generation – Etherium

So enter etherium so if ariane came from a problem with bitcoin as in.Can we decentralize everything else in the way that we can decentralize transactions without the need for a third party?  Can we also decentralize computation right can we decentralize the way of building an application in general?  So I’ll take quote Vitalik the founder of aetherium when I say  ,,Comparing Bitcoin to aetherium is kind of like comparing an apple to a phone,,.  There’s just completely different technologies, so if you’re in for example is if theorem is a programmable blockchain.  That’s the way you could think of it.

It’s a programmable blockchain, and you might be saying what wait a second Bitcoin has its own scripting language its programmable.  It is but it’s very very limited. If theorem is a has a turing-complete.  Programming language called solidity turing-complete means it’s able to do everything loops is one trivial example recursion is another one.  But anything that any programming language can do if theorems  Solidity can do it’s kind of like when javascript came to the browser for example before  Javascript all web pages were static right you had HTML. You had CSS but once javascript entered the browser.  We were able to do dynamic things and had much much many more features than we could before right so  It allows for customizable transactions and what I mean by that is code on the blockchain.

So Heroku is a great example pre aetherium you’ve got Heroku you code some script you upload it to Heroku.  Heroku is that centralized source for that code it runs the computation and then all nodes that are can.  To your web app with your Heroku back-end have to connect to this central source  however with aetherium you don’t push that code to Heroku you post you push it to all the nodes in the network via a.  Transaction that’s your push your push is a transaction, and then all the nodes that are running a full aetherium.

Client have to process that computation.  Block and so then once that code is run all the nodes in the network have to compute that code right so it’s decentralized  computation and  this allows for  unstoppable applications.  Applications that no one can shut down this has a range of use cases from financial transactions to healthcare all sorts of things.  But I won’t go into that either. Here’s an example of aetherium script right here solidity. It’s much more readable.  It looks kind of like Python, but this is a proof of existence script in etherium. You’ve got one function.  That’s returning another function so that’s an example of solidity.

3rd generation – Cardano & others

But aetherium as awesome as it is has its own problems right so a theorem has governance problems  Aka the hard fork or in the soft Fork. It’s got security problems aka sick scalability.How do we solve these problems right how do we solve scalability? How do we solve?  Interoperability and how do we solve sustainability?  I’m gonna go into each of these three points in a second.  But if we look at the blockchain history Bitcoin allowed for a distributed ledger and it allowed for the advent of cryptocurrency.  Aetherium allowed for this is the same two things in addition it allowed for smart.  Contracts now the third generation of blockchain has to do more than both of them combined. What can it do well we know that any kind of programmable blockchain is?  Turing-complete it allows for building all sorts of decentralized applications.  However the problem is not the number of features that the problem is.  It’s its infrastructure. How do we improve that?  infrastructure, right.

Scalability

So one huge problem when it comes to block chains of scalability, and these are the three points that Cardno aims to solve.  I’m gonna go into how it aims to solve all three of them right so for scalability.

There are different  proposals for solving Bitcoin scalability right what we shift the burden onto the users via trusted intermediaries for  Aetherium what if we tweak the tuning parameters limited Headroom, or do security margins and then there’s entirely different?  Solutions like semi-closed groups like the ripple protocol, or stellar you lose your openness, but you have public transparency benefits.  And then the hardest solution is to rethink your architecture entirely and that’s where.

Third-generation cryptocurrencies are coming into play right now.  I talked a bit about iota right so iota just discards the idea of a blockchain entirely and moves to a directed acyclic  Graph right, so it’s it’s it’s instead of a linear data structure.  It’s a dag data structure, but that’s just one way to solve it. It’s not that the idea of a blockchain is inherently bad.  It’s just that the infrastructure around it can cause these problems, right  Having a blockchain.

That uses the proof-of-work for example requires huge amounts of computation way too much a lot of electricity a lot of scalability problems.  Having all the nodes have to download a full copy of every transaction in and of itself is just not  Able to scale right what if we have you know what if in five years?  We have billions and trillions of transactions. You’re telling me if I want to be a miner.  I have to download all of those transactions to my laptop.

That’s a lot of transactions hence the problem with scalability right and.  So that brought the blockchain protocol the Bitcoin protocol specifically relies upon many nodes.  Possessing a full copy of the blockchain data.  And so this restriction prevents crypto currencies from scaling to compete with legacy financial systems like Visa for example, right.  The Bitcoin network allows for seven transactions per second visa is something on the you know just orders of magnitude more like 10,000 plus.  Transactions per second so what Cardno offers as a solution to this is its own proof of stake protocol.

It’s it’s actually a delegated proof of stake protocol and they call it Ouroboros.  Which I’m gonna go into at the end of the video. There’s another problem with scalability.  It’s not just about the number of transactions per second. It’s all about bandwidth.  So when it comes to bandwidth?  How much data can we pipe through these networks all at once and so their solution for this is using a network  architecture called Rena which is short for recursive internetwork architecture which I’ll go into a bit as well at the end and  the last problem when it comes to  Scalability is data scale right. How do we scale the amount of data that it’s that is in the network?  How do we structure that data so everything is as fast as possible and there are several solutions for this there’s pruning?  There’s compression  There’s partitioning so there’s a lot of problems when it comes to this and there’s a lot of proposals on how to fix this.

Interoperability

So interoperability right so this is the second major problem. We’ve got scalability  interoperability and  The last one which is sustainability so when it comes to interoperability.  Whenever we want to send cross-border payments using the legacy financial system.  One bank will send money to another Bank right and they have this partnership right they have these  Protocols to send money between different banks, they have partnerships, and they have all these you know kyc and all these different compliance protocols.

So they’ve been around for a while and so it’s very difficult for Bitcoin to communicate with aetherium for example and other altcoins  However for banks. It’s easy because they built these protocols over many many decades  and so in the traditional financial world.  How is a bank supposed to talk to Bitcoin forget about Bitcoin talking to about talking to other altcoins?  How do you get a bank like ING to talk to the Bitcoin network for example?  This is very hard right banks need these compliance regulations kyc.

You know there’s all these different compliance regulations that other banks are really good at  Complying with that cryptocurrencies are not they’re just these networks run by developers, and they’re not as mature  so we would need these compliance protocols built into these crypto currencies for the  traditional financial world to be able to talk to the new financial world and  We need cross chain transactions without the need for a third party right so right now the way that Bitcoin can talk  To aetherium is by using a centralized  party like coin base for example or crackin or any of these exchanges .

So these are kind of per area solutions to transfer value between different currencies, but their centralized solution in and of themselves.  Right so we need a way to.  Allow for value transfer between crypto currencies without the need for a third party.  And we also need three other kind of smaller details we need metadata.  That is who is sending the transaction and have that be opt in or opt out.  Based on whether or not you want to be visible we need. Attribution who sent what right and we need compliance like I talked about before kyc and so for Bitcoin.

There’s this idea of the sidechain proposal where you peg an altcoin to Bitcoin and this would require a change.  Inside of the Bitcoin network that the developers have to accept, and there’s this whole theory behind, how side chains can work etc.  But it’s in the works.

Sustainability

Now lastly, there’s one more problem when it comes to crypto currencies in general and that’s sustainability, okay. So,  How do we sustain a network over a period of years? If not decades so one way to do?  This is by using the ICO model right so the initial coin offering model.  This is a way for the network to gain a huge sum of money all at once.  But the problem is this is a huge sum of money all at once right this money can well no matter how big it is  Eventually it’s gonna run out.

So it’s not a very sustainable model for fundraising for the developer to the network and for the the users and the contributors.  It’s just not sustainable so a better way of  Sustainably funding a network is through the idea of a Treasury right a Treasury system  so one cryptocurrency that did this very well is the –  Protocol so what the – protocol did is it has this Treasury that is this kind of vault of?  Savings that the network.  Holds and so the users can vote on how that on how the money in the Treasury is spent through voting right so you.  Have all these different proposals for things that would grow the – network like launching – in Zimbabwe promoting – to 200,000 people  let millions of Chinese investors on who all be invest in – all these different things right – documentary and.  Users can vote on how much cryptocurrency want of to be allocated towards these proposals.

So that’s just a more sustainable way of doing things and Cardno has adapted this model of using a Treasury.  Right so oh, you know how should we go about something?  How do we solve the problem of governance and this is a this is a very hard problem right with even with aetherium there’s been.  This idea of the hard fork and the soft fork to explain a little bit about the difference between the two.  Hard forking is not backwards compatible, so it’s a completely different.  Type of network soft forking is right.  So it’s  a change to the network that the old nodes would have to upgrade to or else they’re not a part of  the network ever anymore.

The team

So let’s talk a bit about Cardinal now that we’ve talked about the problems with blockchain so far so the team so far  consists of Charles Hoskinson and Germany would both of these are co-founders of  Etherium these guys have been around for a while so they’ve they’ve seen the problems that come from both turing-complete  and non turing-complete block chains.  And so they claim that it’s the first blockchain platform to evolve out of a scientific plus.  Philosophy and a research first driven approach. I mean if you look at their team. They’ve got a bunch of PhDs.  It’s a it’s a very solid team. Which is which is cool and it’s backed by three independent entities the Cardinal Foundation.  Which is a non-profit?  the IO  HK, which is a crypto studio started by both of these two and emergo which is a card a no specific blockchain studio.  So it’s got a lot of money.  That’s been funded into a lot of resources development and and funds.

Programming language

So when it comes to its architecture one thing that I think is very interesting is the fact that?  It uses Haskell as a programming language.  It’s the first blockchain to be coded in Haskell and in Haskell if you’re if you love math. Haskell is a language for you  but basically.  Haskell is a language that allows for  Prototyping very complicated math equations very fast, and I’ve got a little example for you here.  That I just pulled from their  Repository to see just so you can see what Haskell looks like in the context of a blockchain.

So it’s the first cryptocurrency to be written in Haskell.  It also has two scripting languages one of them is solidity.  So it another example of solidity very readable language looks a lot like Python, and if you’re familiar with Python.  You’ll  catch up with solidity very fast.  Also, it’s composed of two independent blockchain layers.  You’ve got the settlement layer, and then you’ve got the control layer, and I’ll talk about the difference between the two.  Cardno separates the accounting from the story behind it by creating two protocol layers a settlement and the  Control layer the settlement layer will have a unit we’ll have a unit of account or value  while the control layer runs computations in the form of smart contracts so right now we can look at the settlement layer the  Computation layer is still in the works.

It’s still to be built, so let’s take a look at the settlement layer, which we can look at on github right now  but it’s a standalone blockchain powered by the actual ADA token, which you can buy right now and  Ouroboros there a proof of stake algorithm allows for features such as delegation and side chains which allows for interoperability.  So if we look at this github repository right now.  We can see that what the settlement layer looks like the whole thing is coded in Haskell. It doesn’t have that much internal  documentation on the github website.  But if you want to see documentation they’ve got the separate website called Cardinal Docs.

Which we can look at a lot of it is just reasons why you’d want to use Cardno.  But it’s also got installation instructions as well for supporting platforms. You can install their  their wallet on Windows and Mac OS  and it’s got a  Bunch of descriptions of how api’s work how that how the transactions work how the stake is distributed, it’s got a lot.  So it’s got a lot of documentation which is a good thing?

And I can make another video on that to go really into those technical details.  But check out the github repository and check out that technical documentation.  Now the computation layer is what they want to build so this is kind of a future thing.  But it’s where information contained in this settlement layer is processed or computed in particular transactions.  So it’s the smart contract layer TBD. It’s just I mean TLDR. It’s a smart contract layer  it’s what never touches or wait for the CSL layer except for when a reference point is necessary and runs an  Implementation of their proof of State algorithm just like the settlement layer, so they both do.

Ouroboros

So let me talk a bit about Ouroboros now their their consensus algorithm.  So when it comes to proof of work the way proof of work works is.  You have the probability of mining a block dependent on how much.  Computational work a miner does and so payouts become smaller and smaller for Bitcoin miners.  And there’s less incentive to avoid a 51% attack  and they’re these pows systems become.  These powerful mining communities that tend to become centralized so the way proof of steak works is instead of saying,  It’s all about computing power. It’s about how much money you have in the network.

How much stake you have in the network so a person can mine depending on how many coins?  They hold so depending on how much stake they have in the network and the POS system makes any  51% attack more expensive and  So POS systems are more decentralized.  But must work hard to build communities around their coins right you don’t want  centralization in terms of only these people have you know this much stake so when it comes to  Delegated proof of stake and this is what aura Boros implements.  Voting power is determined by how much stake you have it’s not just about how much mining power.

It’s about voting power right so.  Whale that owns a hundred thousand tokens has much more voting power than a minnow that only owns a hundred.  Tokens right and so based on how many tokens you have your voting power  increases right so it’s kind of it’s it’s it facilitates the  Decentralized elections of a quorum of consensus notes so it’s not completely decentralized.  It’s not totally centralized.  It’s a mix between the two.  It’s kind of like liquid democracy if you’ve heard that term before.  But it’s delegated proof of State you’ve got some delegates right that people vote for in the network  And if the delegate is bit as corrupt  Everything is transparent.

Then you just fire the delegate and find a new delegate right so.  That that’s kind of what they do bad actors are firing and it removes the requirements for widespread  Storage of the entire chain, so not every node has to download a full copy of the blockchain which speeds up speeds up transactions.  Right it solved that scalability issue and so these consensus dode  And run more traditional protocols developed over the last 20 years to accommodate the needs of large  Infrastructure providers at Google and Facebook that are more centralized because these notes have been elected democratically by the network  And it reduces resource requirements.

Which makes it easier took for multiple quorums concurrently to partition transactions to different forums?  So the the other part is the recursive internet work?  Architecture and this solves the problem of bandwidth so rina is actually pretty complex.  There’s a lot of there’s there’s a lot of theory behind it, and they’re actually still developing it.  But it’s been around for 10 years, but essentially it’s an alternative to tcp/ip that is more suited for decentralized  Applications, so it’s it’s better suited than tcp/ip is for nodes that are completely decentralized.

Right so in the end of this video. I want to go into how you can buy card on  Oh, so this is great link here called get crypto info slash card on  Oh, and they’ve got the step-by-step tutorial on how to buy card on  Oh, but the first the first step is you want to download their wallet which is?  Daedalus, I hope I said that right Daedalus.  But you’ve the first efforts for you to download their wallet. Don’t worry. They have it for Windows.  They have it for Mac. So go ahead and download their wallet you can run the program and once you’ve synced with the blockchain.

You’ve created your personal wallet.  You’ve created your passphrase.  Then you can go you could pick any theory of exchange to buy some aetherium or you could buy some Bitcoin and then exchange it.  From there coinbase is another example.  But this is a great link for that get the wallet download it.  I think this is this cryptocurrency has a lot of promise and I hope you found this video useful.  Please, subscribe for more programming videos and for now. I’ve got to study some networking protocols, so thanks for watching.

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How Does Cardano Work?