Key takeaways
- Cardano is in the 4th stage of its roadmap - Basho, which is focused on scaling. Scaling refers to improving transaction throughput while not compromising on decentralization;
- Cardano is scaling through various on-chain solutions like pipeline, reference scripts & reference input, and off-chain solutions like Hydra, sidechains, and rollups;
- According to IOG, the Vasil Hard fork is the "largest and best improvement to date," offering greater throughput, better script performance for developers, and reduced costs;
- Vasil will help developers build quicker, more effective DApps by enhancing the already robust Plutus platform. Cardano's EUTXO model can be better used by optimizing for smart contracts, which includes adding reference inputs (CIP-31), inline datums (CIP-32), and reference scripts (CIP-33). These features provide a reduction in transaction size which allows more transactions per second;
- To be hyper scalable, Cardano needs to implement off-chain scaling solutions like Hydra, Sidechains, and Rollup. These technologies will provide high throughput & significantly lower fees while being decentralized and secure.
The number of crypto users has exploded in the last few years, with most blockchains running into capacity issues causing congestion of the network. This congestion leads to higher fees, long waiting times, and deterioration of user experience. Cardano is one of the few blockchains that has developed a strong roadmap to scalability that will onboard the next billion users to blockchains.
What is scaling?
Scaling means an improvement in transaction throughput (high transactions per second) and latency without increasing the hardware requirements to run a node. The ability to scale without increasing hardware requirements is essential to allow small users to run their own nodes and keep the blockchain decentralized. Blockchain scaling has to be done without sacrificing decentralization or security.
The significant and widespread adoption of blockchain depends on enhancing the network's speed and throughput, which is why numerous solutions are being investigated, tried, and applied that aim to build the capacity needed to onboard billions of users to crypto.
Cardano has been built methodically using formal development methods to be scalable, secure, and decentralized. Cardano is in the fourth stage of its five-stage roadmap, with the current stage known as the Basho era, which focuses on optimizations, improving scalability, and interoperability of Cardano. The aim is to boost the Cardano network's performance using network upgrades and off-chain solutions to enable application growth and mainstream adoption.
Vasil hard fork (on-chain)
Vasil is one of the most significant network upgrades which brings significant improvements to the performance and capability of the Cardano network. Vasil will be deployed seamlessly without any disruption to end-users using Cardano’s hard-fork combinator (HFC). Vasil’s key scalability benefits come through a reduction in transaction size, a reduction in latency, and an increase in processing capabilities.
Vasil enhances the existing robust Plutus platform, enabling developers to produce DApps that are quicker and more effective. Smart contract optimization makes better leverage of Cardano's EUTXO (Extended Unspent Transaction Output) paradigm.
The key upgrades coming soon are:
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Diffusion pipelining
This is a change at the consensus layer, which parallelizes sharing of blocks between validators by overlapping the validation and broadcasting time period. A faster propagation time would allow bigger block sizes or more computational intensive scripts while ensuring propagation within five seconds which is required for network stability. This would be followed by parameter increases in the block size and an increase in Plutus parameter limits (more complex transactions).
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Plutus enhancements
Vasil will significantly enhance the existing robust Plutus platform, enabling developers to produce DApps that are quicker and more effective. Smart contract optimization makes better leverage of Cardano's EUTXO paradigm possible.
Plutus platform CIPs (Cardano Improvement Proposals)
CIP-31: Reference Input
Cardano works on the UTXO model, where your tokens or data are represented using an ID known as UTXO. This UTXO is consumed after each transaction and this can be done only once per block (~20s), this would cause problems for applications that need to use the same data multiple times in a block.
Reference input solves this by allowing to refer to input without spending it, enabling applications to access the data recorded in the blockchain without spending UTXOs. This could be very useful for applications like Oracles, where multiple applications need to use the same data feed.
CIP-32: Inline Datums
Cardano has tried to minimize the usage of on-chain resources; this has enabled Cardano nodes to be of small size, ~30x smaller than Ethereum. Currently, data is not posted on-chain to minimize resources and only the hash of the data is provided, and users or developers have the responsibility to provide the required transaction data. However, this is very inconvenient in terms of user experience.
Inline datum allows uploading data on-chain, developers can now write scripts and attach data directly to outputs. This makes it easier to utilize datums because the user no longer needs to input the datum for it to match the specified hash.
CIP-33: Reference Scripts
Smart contract transactions require Plutus scripts, which aren’t currently submitted on-chain; this would imply that each transaction would have to include the script which dictates how the transaction is processed. As these scripts are large in size compared to normal transactions, this would cause congestion to the network.
Reference scripts can reference the scripts which are stored on-chain every time instead of including the whole script. As a result, transaction size is drastically decreased, throughput is increased, and script execution costs are decreased (since the script only needs to be paid once).
There are various other solutions and proposals which will help improve the throughput at the protocol level. The road to hyper scalability includes using off-chain solutions along with on-chain optimization, off-chain are scalable solutions that borrow the security and decentralization from the primary network. What are these off-chain solutions?
Sidechains
Sidechains relieve the main chain of resource constraints and boost the network's total capacity. Sidechains are different blockchains operating in parallel and connected to Cardano (main blockchain) by a bridge that allows assets to transfer tokens between chains.
Sidechains can implement different accounting styles or computation styles, this helps with interoperability. We can implement Ethereum-based smart contracts, directly through a sidechain that supports those types of contracts e.g. Milkomeda from dcSpark.
Because theoretically, an endless number of sidechains might link to the mainnet and perform various duties that their designers had imagined, sidechains are utilized to increase the capacity of the network. However, sidechains generally do not inherit the security or decentralization of the primary network, this is where oBFT-based sidechains come in place.
Sidechain – Mamba
Mamba represents the culmination of research and experiment by IOG into a definitive strategy. These sidechains will use ‘merge staking’ which allows validator nodes (SPOs) to participate in the sidechain construction without needing to stake any new coins; this helps borrow the security and decentralization from the main network. Mamba has a two-way bridge that facilitates cross-chain transfer in trust minimized way, making Cardano interoperable with EVM-based applications.
This offers Ethereum developers and community members the best Cardano has to offer,, including enjoying low fees, with strong security and decentralization guarantees.
Read more: Introducing the Cardano EVM Sidechain
Hydra
Cardano aims to support scale for real-world applications, like payment, identification, gaming, or mobile services. Bitcoin aims to scale using lightning–a payment channel where users can infinitely transact without paying any fees, this however lacks smart contract facilities.
Cardano Hydra is a state channel, a layer-2 technology with high throughput, significantly lower costs, and transaction finality in sub-seconds. Cardano Hydra allows the processing off-chain transactions with settlement on the main network, users deposit their coins to open a channel in which they can perform payment or smart contract operations, and once done, they can close the channel. Hydra scales linearly with the number of nodes, as more nodes join the network the transaction capacity increases with the expected capacity in millions of transactions per second.
To allow each channel to process on-demand, simultaneously, and asynchronously, each Hydra head will function as a natural extension of the Cardano mainnet. It won't call for global consensus, but it will maintain security guarantees and remain connected to the mainnet. State channels have suffered from low adoption as it has limitations on participants or funds entering after the channel has opened and availability or routing nodes, Cardano solves this problem by creating isomorphic state channels that route through high-availability participants like network validators (SPOs).
Read more: What is a Layer-2 blockchain scaling solution?
Rollups
Rollups execute transactions outside layer-1s and then post the transaction data or honest execution proofs (validity proofs) to layer 1 where consensus is reached. They are natively secured by the underlying chain, as rollup transactions can be validated by all the validators of layer-1. They have permissionless bridging between layers and provide the strongest guarantees for general-purpose transactions. Multiple rollups executing parallelly make Cardano a modular blockchain, the settlement layer of transactions and applications.
There are multiple projects working on creating rollups on Cardano like dcSpark and Orbis project. Pure rollups are currently not supported on Cardano, but solutions are being built by the community to make trust-minimized rollup solutions available. However, rollups are a huge technical challenge and would need a lot of work to be ready for mainstream adoption.
Read more: What is Cardano’s Vasil hard fork?
Final thoughts
Cardano is utilizing two strategies to enable the network to absorb demand rapidly, and support sustained growth on the current, high-performance layer. Cardano will be further improved by using safe and extensively examined layer-2 scaling alternatives, making it the preferred platform for demanding DeFi protocols and NFT applications.
The primary enhancements that the Vasil upgrade will offer have been discussed. In actuality, the upgrade will also bring about several additional minor upgrades. The Plutus platform may be made more scalable, which opens up new opportunities for developers and advantages for users. This coupled with the various off-chain solutions opens the door for hyper-scalability.
