What Makes Cardano's Proof-of-Stake Protocol Unique?

Cardano’s proof-of-stake model using the Ouroboros protocol has helped it attain heights to which rival cryptocurrencies aspire

Summary: Discover the unique features of Cardano's Ouroboros proof-of-stake protocol, which is the driving force behind its blockchain. Here we explore the meaning of consensus protocols, how they work, and the differences between the classical and Nakamoto consensus mechanisms. We also explain how Cardano's Ouroboros protocol sets itself apart from Bitcoin's consensus protocol by utilizing proof of stake, which reduces energy consumption and promotes scalability, decentralization, and security.

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As you, astute reader, may already know, Ouroboros is the proof-of-stake consensus protocol presently used by Cardano's blockchain. However, Cardano’s is the Layer 1 blockchain that most resembles Bitcoin, arguably more so than any other.

The ever-mysterious Ouroboros consensus mechanism can be found right in the middle of this comparison. More importantly, Ouroboros is better known as Cardano’s driving force, its dark matter if you will, in that we see its effects but don’t really grasp them. In stark contrast, Bitcoin uses the Nakamoto consensus mechanism. And although different in many important ways, both of these processes give solid security guarantees for their respective cryptocurrencies.

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What Exactly Do the Words "Consensus Protocol" Mean?

In order for us to truly hope to understand the Ouroboros consensus mechanism, we have to travel all the way back to the beginning. To further unravel this narrative, let's start by having a conversation about what exactly a consensus protocol actually is.

"Input Output Hong Kong" (IOHK for short) is the name of the company responsible for the development of Cardano. Cardano is best described as a distributed and decentralized peer network with its participants agreeing to work in unison by solidifying their operational rules by using something called a consensus protocol (for more on the Cardano platform, check out John Greene’s book).

Being in consensus means that they have reached a decision regarding the current state of the distributed ledger. This means 100% agreement as in that the outcomes have been accepted by all of the participants, as they must be. Bitcoin, in the vast majority of situations, uses two separate mechanism’s to achieve universal consensus.

Mechanism 1: The Classical Consensus

This agreement is reached through voting that is open to all participants. This is more than a prerequisite; it's non-negotiable in order for the protocol to succeed in reaching consensus. The consequence of this is a burden of highly detailed communication that must be multiple times more complex still. Yet complexity comes at a cost of introducing a higher risk of data corruption and node failures.

Proof of work has something referred to as PBFT ("Practical Byzantine Fault Tolerance"), a particular form of fault tolerance. A simple explanation for this would be that the proper operation of the proof-of-work system is upheld even though the vast majority of its nodes (or generals) have been corrupted.

To put it another way, before the nodes in the network can agree on anything, they need to talk to each other and exchange information with one another. As a result, there are a total of 100 messages accessible with each 10 nodes.

Scaling it out even further: in the event that you possess one thousand nodes, you will be in possession of one million messages. Let’s be brutally honest in that this does not make for not a truly decentralized method of doing things. It remains painfully obvious that if you want to reach a decision in the shortest amount of time, the consensus mechanism should not have an excessive number of nodes participating in it.

The recognition and focused elimination of this fundamental weakness is being carried out with ruthless efficiency, by all of the Layer 1 blockchains. To highlight this trend, take a look at Polygon which possesses 97 validators, whereas BNB possesses only 21.

Mechanism 2: The Nakamoto Consensus Protocol

Bitcoin's elusive but nonetheless visionary creator, Satoshi Nakamoto, saw the future as being decentralized, permissionless, and scalable; using the default approach that we had previously applied would not allow for the achievement of this goal. Some other form of validation was needed—with proof of work and still being a fundamental component of this technological revolution.

We cannot escape the need to have independent validation methods that must be present in order to achieve consensus. That consensus is what ultimately allows us to completely disconnect from traditional financial institutions.

The miners still have the responsibility of figuring out how to solve a computationally difficult problem. Problems are considered solved as soon as they are discovered by a miner, with the miner who solves that problem being granted permission to validate and create new blocks.

There is an increased likelihood of confirming new blocks whenever there is access to a larger amount of computing power. Yet, there is also a disadvantage associated with employing this method in that it is tied to the consumption of a substantial amount of energy or electricity. Some have reported that Bitcoin consumed around 161 terawatt-hours worth of energy in 2022 alone.

To put that in clearer terms this represents at least 0.64% of the total quantity of electricity produced across the entire planet! It is not an understatement to say that Bitcoin necessitates a significantly disproportionate amount of energy. This massive dependency on energy is why we are quickly witnessing the growing erosion of Bitcoin’s decentralization.

Where Cardano’s Ouroboros Proof-of-Stake Protocol Shines!

At this stage, our understanding of what constitutes a consensus protocol has hopefully advanced. The question now shifts to the following:

• Is it still worthwhile and rational to spend such a substantial amount of effort on ensuring that a network is secure?

For those that say yes, there is no clear-cut solution to the very real danger of compromising the decentralized nature of the system in the process.

This is the point in which the vision of proof of stake, and more importantly the Ouroboros protocol, is shown to be in stark contrast to the inefficiencies and inadequacies of the proof-of-work model.

The phrase "Ouroboros consensus protocol" raises a number of intriguing questions. First being: what is it? The protocol known as Ouroboros is what Cardano uses in order to arrive at a consensus. It holds the distinguished characteristic of being the first proof-of-stake protocol that can be secured by independent verification.

It bases its validity on independent, data-driven research that has been vetted by other experts in the field. It is the first blockchain to do so, and as such it is considered by many in the know as being a pioneer in the blockchain field. The Ouroboros consensus protocol is what upholds and maintains both Cardano’s blockchain integrity and continuity over time—and not only for the Cardano blockchain, but also for any other blockchain that would choose to incorporate it.

And there are at least six different strategies that are essential in accomplishing this lofty objective.

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Strategy 1: For a Trustworthy Blockchain To Exist, There Must Be Two Important Characteristics Present

They are as follows:

• The first of the two conditions is persistence. Persistence exists when all of the transactions that are received by the nodes continue to be valid and identical. They are set in stone and are immutable.

• The second of these conditions is referred to as liveness. Liveness describes how all of the nodes are able to reach a consensus simultaneously, which, when taken as a whole, makes the transaction ledger more trustworthy.

Strategy 2: A Unified, Randomized and Exclusive Blockchain Model

The selection of block builders that Ouroboros utilizes is wholly determined by random chance thanks to Cardano’s use of proof of stake. The distributed ledger system becomes the broadcast channel for profit-driven validators, traders, and investors as a result of this equitable albeit somewhat-flawed distribution system.

Taking things one step further requires us to also point out that Cardano’s Ouroboros protocol divides time into epochs. Each of these epoch windows is active for a period of five days and has 432,000 slots available for use. To provide further clarification, the length of time allotted to each slot is around twenty seconds. A slot is the smallest time period in a blockchain.

In any slot, zero or more block-producing nodes might be nominated to be the slot leader. On average, one node is expected to be nominated every 20 seconds, for a total of 21,600 nominations per epoch. These slots can and do run simultaneously to help Cardano’s blockchain scale, helping the network expand capacity whenever necessary.

This is not merely marketing hype, as Cardano can currently process about 250 transactions per second (TPS). Even more interestingly, with Cardano's Ouroboros Hydra upgrades we could continue to see the network's possible TPS increase exponentially, with the general expectation being as high as 2.5 million TPS! This would utterly annihilate even centralized processors that are in the range of 1,700 to 5,000 TPS.

Strategy 3: Excelling by Completing Formal Arguments

The Ouroboros model presents a selection of formal reasons for validator nodes to enter into consideration. In doing so they make certain that the blockchain’s tenacity and vitality cannot be disrupted in any way. We can state that this is more of a guarantee than a promise at this point.

The end effect is that, by using formal arguments to establish sufficient and healthy coverage, Cardano’s team and blockchain are able to achieve a high degree of Byzantine Fault Tolerance with the system that they have in place. To put it another way, ensuring everyone's data integrity is not an ancillary concern, but rather the primary focus.

Strategy 4: A Well-Thought-Out Approach to Handing Out Prizes

Everyone who takes part in the protocol is eligible to receive a monetary award at the end of it, with an immediate benefit being that participants need to avoid acting in an unethical manner at all costs.

Strategy 5: Implementing an Effective Stake-Delegation Mechanism

Cardano has aggressively updated its core blockchain technology from the date that it was first implemented. Because of this history of thoughtful implementations, it will be able to scale the protocol even if there are many distinct stakeholders involved in the process. Stakeholders have the opportunity to participate in the process of selecting block producers, and Cardano’s staking system is built with the mindset of protecting the tokens of Cardano wallet owners in any way possible.

Strategy 6: Building and Expanding Blockchain Capacity With An Efficient Design

When compared to Bitcoin, the amount of time it takes Cardano’s protocol to finish a transaction might be anywhere from 10 to 16 times faster! Cardano’s development team even employed a simulated double-spending assault to test and ensure that the blockchain’s level of assurance never dropped beneath 99.9%.

Final Thoughts on Cardano and Ouroboros

Ouroboros is a one-of-a-kind protocol with the historic distinction of being the first proof-of-stake system to be independently verified as being secure. As rising waters lift all boats, the security guarantees offered by competing protocols such as Bitcoin’s Nakamoto one have since been elevated to a higher standard. And validating large amounts of transactions can be accomplished through the use of proof of stake powered by Ouroboros at a much lower cost in terms of energy than would be required by proof of work.

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Conclusion: Cardano's Ouroboros proof-of-stake protocol continues to revolutionize the blockchain industry by reducing energy consumption and enhancing scalability, decentralization, and security. Its unique features have the potential to make Cardano's blockchain more efficient and reliable than ever before. By using a proof-of-stake consensus mechanism, Cardano is driving innovation that could lead to a more sustainable and decentralized future for the blockchain industry. As always, feel free to share your thoughts on Cardano, proof of stake, and other trending cryptotopics in the comments section!

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