Cardano has faced a rollercoaster ride in terms of price action throughout 2021 and seemed to settle at or around $1 during Q1 of 2022. Price however is just one metric and all other metrics have shown improvement. According to DefiLama, the total value locked within the Cardano ecosystem rose from $2.6 million on 17 Jan 2022 to $272 million on 20 March 2022, just over 100x. This staggering influx of value clearly demonstrates the thirst for projects on the ecosystem. Cardano also proves to continually have the highest transaction volume in the last couple of months, more than any other blockchain, according to Messari, with native wallets also steadily increasing to over 3.1 million during Q1 of 2022.
As of March 2021, there are over 500 dApps built on Cardano, drawn to the ecosystem for its low fees and efficient architecture. The ecosystem is truly waking up with many projects still in development and waiting for significant Cardano updates, set to be implemented this year, to enhance their functionality.
Cardano set out with the goals to tackle all three aspects of the blockchain trilemma - scalability, security and decentralization. The journey to incorporate and evolve these fundamental pillars isn't instant, it requires inching forward with dedicated research, stress-tests, improvements and patience. To combat and achieve these goals Cardano set out a road map and as of 2022 we have entered the Basho Era, concentrating on optimisation and scaling.
There are 11 ways in which Cardano will scale in 2022
- Block Size Increases - With careful and close observation of real world network performance, this parameter is set to increase at incremental points throughout the year. This optimization ties in with Cardano’s Basho era of network capacity and on-chain scaling.
- Pipelining - Imagine data as a fluid source being funneled into a sink. Along the way this data is transformed through various filters which can then be pumped all at once or systematically controlled. Pipelining optimization improves the propagation times by reducing dead time between blocks. This will pave the way for enhancements such as further blocksize and script memory increases.
- Input Endorsers - Allows transactions to be separated into blocks which will ultimately improve transaction throughout and block propagation times.
- Memory Improvements - Improvements in memory across the chain for UTXO handling, stake distribution and hash representation.
- Script Enhancements - Script sharing reduces friction, reduces transaction size and execution costs. Reference inputs will allow scripts to be inspected without the need to create one.
- Node Enhancements - This will help evenly distribute computation for stake and reward across epochs, allowing further scope for block size increases, with also more efficient memory use.
- On Disk Storage - Nodes will no longer be required to hold as much memory improving the parameters for scalability.
The above improvements are all on-chain. Further improvements also include off-chain developments.
- Sidechains - A sidechain is a separate independent blockchain that is interoperable with the parent chain. A bridge linking the blockchains allows assets to be sent two ways between them. A parent chain (Cardano) will be able to have multiple independent blockchains that all operate with them in their unique ways. This will truly open up the ecosystem for interoperability and allow Cardano to finally fully express itself. Ethereum Virtual Machine (EVM) sidechains that will be interoperable with Cardano initially are dcSparks’s, Milkomeda and IOG’s MAMBA.
- Hydra - Hydra offers an interoperable side-chain scaling solution able to reduce confirmation times of 20 seconds to under 1 second. Reduced latency and increased throughput are all mandates of Hydra. A “hydra head” is an off-chain mini-ledger which works similarly, however much quicker, than the on-chain main ledger. Ultimately each head can process 1000 transactions per second (tps) with 1000 heads being stackable. This in theory produces the possibility of 1 million tps being possible, and also relieves the main chain from being overloaded and congested.
- Off Chain Computing - Simply offloading on-chain computation will lead to all round efficiency improvements.
- Mithril - A solution to improve chain synchronization without compromising on security. Another development that paves a path for scalability.
Cardano has the tools and framework in place to be competitive long-term in the space and plans to use its highly sophisticated architecture to its advantage to scale and handle the growing demand that is currently flexing and congesting the system in terms of transaction throughput. Most importantly however, with the launch of NFT's, centralized exchange integrations and the large number of dApps currently operational on Cardano, it needs to scale in a manageable and systematic way. Increasing the scaling parameters is a balancing act between increasing transaction throughput, memory usage and storage of state data, against maintaining security and not burdening node clients with unmanageable storage volume requirements and general computational demands.
From the 11 ways Cardano aims to scale throughout 2022, increases in block size and script memory play critical parts. Block size refers to the actual size and bites of a block of transaction. Simply put, the larger the block size the more transactions per block, whereas an increase in script memory allows for generally more complex and flexible smart contracts to be executed. To accommodate bigger block sizes and increased script memory, IOHK introduced a scaling solution known as pipelining in a recent blog post in Jan 2022.
Blocks follow a sequential path as it moves across the chain. There are in fact 6 steps to the process which, given the amount of blocks and volume of nodes, can take a considerable amount of time. Pipelining or diffusion pipelining, which it is more accurately called, overlays some of those steps so they happen concurrently, saving time and increasing throughput. This provides the headroom necessary to flex and accommodate other parameters such as block size and script memory. The Vasil hardfork, named after Hungarian mathematician Vasil Daboy, a cherished Cardano community member, will upgrade the system in June and will see many of the above improvements come to fruition, specifically pipelining. It is this enhancement which dApps are waiting for, so that functionality of their protocol can reach full potential.
A recent response tweet from Charles Hoskinson on March 12th quoted:
"What most also don't understand is that many Cardano dApps are waiting for the Vasil hardfork in June to launch to benefit from pipelining. So it seems we ain't seen nothing yet on TVL."
There are some concerns surrounding Hydra for DeFi scaling which in part are legitimate in the sense that each isomorphic head is designed to operate within a band of defined users restricting itself to open source smart contract interaction required for DeFi. There are however many party solutions to DeFi scaling, lessons learnt from Ethereum’s ecosystem, using zero knowledge proofs and ZK rollups. In very simple terms, whereas the reality is very complex, zero knowledge rollups and proofs allow speedy verification of transactions off chain, by rolling many transactions into a single bundle, and posting these transactions back to the main chain. This allows the cost of a single transaction to be spread across many users. Smart contracts also verify these transactions off-chain freeing up resources on the main chain. A zero knowledge proof is a cryptographic method used by the protocol in which one can prove to a verifier that a statement is true without revealing any information apart from the fact that the statement is true. This negates the necessity of data transfer, speeding up throughput and increasing efficiency.
For DeFi protocols such as MELD to deliver their vision in bringing economic freedom to millions, the parameters surrounding the blockchain on which it functions must be efficient and seamless. When millions of people are interacting with the MELD protocol all these scaling enhancements will come into play to deliver a truly efficient and dynamic product. It will be third party sidechain solutions that will really optimize the MELD protocol, such as Orbis, who are currently developing a ZK-rollup layer two scaling solution for Cardano. Such scaling solutions will open the floodgates for financially deprived individuals who desperately need financial products to enrich their lives. MELD will finally be able to offer loans at the cheapest rates on the planet to everyone on the planet.
The pieces are all starting to align on the Cardano ecosystem. Refinement and tuning of on-chain parameters and off-chain solutions are key in excavating every inch of potential efficiency within the ecosystem, in order to deliver a revolutionary new world system to the masses.
The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.
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