Proof of Stake (PoS)
Proof of Stake (PoS) selects validators to produce blocks in the Cardano blockchain. The two key parties involved in this process are validators and delegators.
Validators are nodes in the Cardano network who add blocks to the blockchain, while delegators give their right to produce a block to a validator.
Anyone who holds the native ADA token (stake in the network) has the right to produce a block when selected, but not everyone has the skills or hardware to do so. Delegation allows any holder of ADA to participate in network consensus without becoming a fully fledged validator themselves.
Multiple entities delegating stake to a single validator accumulates into a stake pool. Delegating the right to produce a block to a validator is totally safe, without any risk of funds being lost or stolen. No financial value is transferred to the validator, only the right to mint blocks.
Block production takes place in each slot, with a group of slots comprising an epoch, roughly equivalent to five days.
Ouroboros is a family of protocols created by IOG as a way of securing the network. The launch of Proof of Stake at the launch of the Shelley era implemented Ouroboros Praos into the network. Ouroboros Praos uses a Verifiable Random Function to securely and fairly select the next validator to produce a block based on a secret lottery.
The protocol is designed to generate fresh randomness at every epoch, which is used as a basis for the lottery that selects the validator chosen for a given slot. This ongoing process inspired the naming Ouroboros, a mythical creature eating its tail, to represent the continuation of the network in perpetuity.
Cardano’s foundational research is peer-reviewed, meaning the code currently in use was built to formal specifications and is regarded as high assurance. A peer-reviewed approach is often taken in mission-critical industries with high amounts of value on the line, such as aerospace or medical technology. For this reason, Cardano’s methodology is seen as laying a solid bedrock for high-value financial applications and transfers of value which the blockchain aims to host.
Furthermore, Cardano is built using Haskell, a statically typed, purely functional programming language. This programming language has a strong type system and is considered extremely safe as a programming language for building software.
Cardano’s smart contract programming language is Plutus. Plutus is a functional language with roots largely based in Haskell. The Plutus programming language aims to bring a higher level of security to the creation of smart contracts than what is seen on other blockchains.
Cardano also hosts Marlowe, which is a Domain Specific Language (DSL) for building and executing smart contracts via a graphical user interface. Marlowe allows anyone with domain specific knowledge to get started building contracts without a deep understanding of programming required.
Marlowe allows experts in law or finance (fore example) to easily develop their own smart contracts without relying on an external developer.
Hard Fork Combinator
Cardano has pioneered a gold-standard for upgradability in live blockchains through their innovative hard-fork combinator. Separating these concepts out, a hard fork generally refers to a radical change in the blockchain in which a new version of the code is run.
A downside of this traditionally would be that the chain restarts and the previous history of the blockchain would be unavailable. Cardano’s hard fork combinator eliminates this problem by combining two sets of code bases into one single unbroken chain whenever a radical change to the rules of the ledger is needed.
An example of this hard-fork combinator used in practice was in the transition from Byron to Shelley. This move from a static and federated to a dynamic and decentralized system required an entirely new set of ledger rules, however could be facilitated by the hard-fork combinator.
This incorporated all of the rules of the previous Byron era, with the new and upgraded Shelley era. The result was a single unbroken chain from the September 2017 mainnet launch to the present day.
This functionality is significant because the system has a seamless ramp for upgrades which does not result in contentious hard forks. Future upgrades to Cardano’s ledger rules can incorporate the entire history of the chain without compromising security. Such capability is unique to Cardano’s blockchain.
Cardano’s decentralized treasury provides a pot of funding to help finance projects and developments on the Cardano blockchain. Cardano’s treasury is is outlined in the paper A Treasury System for Cryptocurrencies: Enabling Better Collaborative Intelligence. The treasury is constantly replenished by funds from minting new ADA, staking rewards and donations. As the value of the ADA token grows, so too does the purchasing power of the treasury to fund developments in the ecosystem.
According to Zhang et. al, the core pillar of the treasury system is summarized as follows:
“The core component of a treasury system is a decision-making system that allows members of the community to collectively reach some conclusions/decisions. During each treasury period, anyone can submit a proposal for projects to be funded. Due to shortage of available funds, only a few of them can be supported. Therefore, a collaborative decision-making mechanism is required.”