What is Cardano’s Ouroboros Protocol?

Cardano is one of the most interesting blockchain platforms on the market today. Founded by a co-founder of Ethereum Charles Hoskinson, the blockchain platform was born out of the desire to standardize the development of new cryptocurrencies. 

The Cardano Protocol

Put more simply, Cardano is attempting to revolutionize the way cryptocurrencies are built by introducing the concepts of scientific research and peer review in the design process of blockchain programs. Over time, this idea of scientific proof and study has been famously brought to other avenues of computing, including networking, for instance, which led to the development of the TCP/IP protocol.

Cardano is an attempt at replicating such an endeavor in the blockchain and cryptocurrency ecosystem.

Cardano is primarily built by three organizations, namely The Cardano Foundation, InputOutput Hong Kong (IOHK) and Emurgo.

Except for the last one, both organizations are solely committed to the development of the Cardano platform and related protocols. Emurgo, on the other hand, is a third party Japanese company that “develops, supports, and incubates commercial ventures on Cardano.”

How is Cardano Different from other Blockchains?

According to the founder Charles Hoskinson, Cardano is a “third generation” blockchain platform. He believes that pure cryptocurrencies, or those used for transfer of value, are first generation blockchains. Bitcoin and other such currencies were instrumental in creating a truly decentralized economy but did little else considering the potential of blockchain technology.

Second generation blockchains were a significant step up in this regard, introducing decentralized applications and smart contracts that made digital transactions more about a transfer of assets. Ethereum was the first to introduce this paradigm and is currently the most successful, as is evidenced by its market cap worth several billions of dollars. However, it came with its own set of restrictions, including but not limited to poor scalability, lack of governance and improper resource allocation.

The problem of improper governance in Ethereum is quite apparent when one considers that the original blockchain was forced to split into Ethereum and Ethereum Classic as a result of the infamous DAO hack. Cardano’s engineering philosophy has almost been designed from the ground up to avoid a similar occurrence from tarnishing the blockchain.

Cardano’s second motivation in the cryptocurrency segment is to solve the problem of blockchain scalability. For a while now, popular cryptocurrencies such as bitcoin and Ethereum have been mired in a debate over this particular topic. While plenty of people will agree that the tried and tested Proof of Work consensus mechanism is no longer the most viable option for arriving at a consensus, there are very few alternatives that have achieved mass traction yet.

Cardano employs a type of the Proof of Stake consensus mechanism. Co-incidentally, it is also the same principle adopted by The Ethereum Foundation and a few other cryptocurrencies. Nevertheless, there is still a lot that separates Cardano’s Ouroboros protocol from other proof of stake mechanisms.

While the topic of scalability shall be the focal point of this article, Cardano has extensive documentation on what its founders set out to achieve and other factors that make the platform unique from different blockchains. In essence, “Cardano has been a marathon project involving feedback from hundreds of the brightest minds inside and outside of the cryptocurrency industry. It involves tireless iteration, the active use of peer review, and brazen theft of great ideas when uncovered.”

Blockchain Scalability and Cardano

The primary reason why blockchain scalability is a key talking point among cryptocurrency enthusiasts and critics is that of the paltry transaction throughput of traditional currencies. Bitcoin, for instance, is often criticized for being able to complete no more than 7-8 transactions per second. Ethereum, on the other hand, is not that much better at around 20 per second. For reference, fiat payments processor Visa can handle tens of thousands of transactions per second in times of increased load and routinely sees a few thousand simultaneous transactions.

Because of this throughput limitation, quite a few cryptocurrencies have been mulling the switch away from the proof of work consensus mechanism. Bitcoin and Ethereum currently both rely on miners using computational resources to process transactions. However, this is a power guzzling process that also cannot be sped up without compromising security. As a result, alternative algorithms such as proof of stake have become popular over time. Cardano’s Ouroboros implementation uses just that.

However, Ouroboros does not only address the problem of transaction throughput. Cardano’s developers have also managed to propose solutions for network scalability and data storage.

With an increase in usage over time, a cryptocurrency’s network can get bottlenecked or choked, especially considering that transaction data needs to be propagated to every participating node. To solve this problem, Cardano is looking to implement Recursive Inter-Network Architecture technology (RINA) sometime in 2019 to improve communication speed.

Furthermore, for a blockchain platform offering the ability to create smart contracts and decentralized applications, the size of stored data can start to balloon pretty quickly. The Bitcoin blockchain, for example, is already over a hundred gigabytes and will keep growing with new blocks being mined. Cardano’s approach to this limitation is by implementing sidechains and data compression.

Ouroboros vs. Ethereum PoS

As previously stated, The Ethereum Foundation and the cryptocurrency’s co-founder Vitalik Buterin are also actively working towards the implementation of a proof of stake protocol for Ethereum. Named Casper Friendly Finality Gadget (FFG), the Ethereum blockchain is soon expected to adopt it to move towards PoS and second layer scaling solutions such as sharding. The Casper+Sharding FFG-RPJ spec is an example of this dual implementation.

One of Ouroboros’ critical advantages over Casper is its academic background and solid mathematical proofs that have all been made available to the public.

As stated by Prof. Aggelos Kiayias, Chief Scientist at IOHK:

“The Ouroboros protocol is analyzed in a model that is fully described: it unambiguously defines all the participants’ programs, their execution and interactions, their communication – including network properties – and the potential corruption by an adversarial entity of any set of parties controlling a minority of the stake.”

While Vitalik Buterin has co-authored the Casper FFG paper and the FFG mini-spec, Cardano argues that the documents do not sufficiently describe the Casper protocol to the degree that Ouroboros’ equivalents have. Furthermore, while Cardano’s Ouroboros mechanism was designed for proof of stake-based blockchain, Casper’s original specification was not.

This meant that the Ethereum blockchain could still be vulnerable to a 51% attack after migrating to Casper. Importantly though, Casper FFG-RPJ may not have the same vulnerability as it is a newer proposal, but is still considered incomplete.

Regardless, there are numerous other differences between the two staking protocols, including security, availability and the way they each achieve transaction finality.

Citing the Ouroboros Genesis Paper, Prof. Kiayias stated, “Ouroboros is proven to achieve persistence and liveness under the assumption of honest majority of all stake in the system, even in the case that some significant portions of stakeholders are not participating in the protocol.”

In contrast, Ethereum’s Casper achieves finality when “2/3 of all validators make maximum-odds bets that a given block or state will be finalized.” Buterin has stated that the system strongly incentivizes validators to “never try to collude to revert the block.” If they do and are unsuccessful, as is likely to happen, they will lose all of their staked Ether.

Ouroboros and Casper FFG RPJ also share a few similarities though. For instance, both offer eventual consensus that makes older blocks much more difficult to reverse. Because of this, transaction finality is not a binary answer, but is dependant on the “probability of reverting a transaction as a function of the strength of the adversary and the length of time that has passed since the block containing that transaction was added.”

Notably, the initial Casper FFG specification offered near-instant finality instead. While beneficial for quick confirmations, instant finality required more tokens to be staked and demanded increased availability.

Conclusion

At this point, it is rather clear that Cardano, Ouroboros and even other proof of stake consensus algorithms are still not entirely fleshed out projects yet. Vitalik Buterin and Prof. Aggelos Kiayias have both extensively debated the varying implementations of the two technologies. In the end, though, both of them are trying to achieve a similar goal, which is, to never have to worry about blockchain scalability again.