During the Cardano Summit, we announced a new strategic partnership between IOG and Acuant, an identity verification, document authentication, and fraud prevention technology services provider. Its goal? To create a safer decentralized finance (DeFi) environment with Atala PRISM, IOG's decentralized identity platform.

This deal has been forged in response to evolving regulatory requirements for blockchain-based finance and identity platforms. Many regulatory bodies now require that blockchain projects can prove a user’s identity and ensure that malicious actors are kept out. The integration with IOG's platform will mean that Atala PRISM has access to over 300 sanction lists and watch lists. This digital awareness, and the implementation of Know-Your-Customer (KYC) and Anti-Money Laundering (AML) compliance checks will prevent bad actors from infiltrating the ecosystem.

One of the fundamental principles of digital identity is that individuals should be able to hold the keys to their own identities, rather than be dependent on fragmented and siloed third parties. This is something that both IOG and Acuant are firm believers in. Having a verifiable identity credential could be a game-changer for the 1.7 billion people globally who currently cannot prove their identity. By leveraging blockchain technology to foster financial inclusion, all these people could gain access to vital services like bank accounts, loans, healthcare, and many others.

Partnering with Acuant will allow us to enrich Atala PRISM, and offer a more secure digital ID verification process, ensuring provable identity is available to everyone. The creation of verifiable and secure identity credentials makes ID checks easier and more reliable. Ultimately, all these factors combine to create inherent trust in the system.

Global partners in every major industry

Atala PRISM is built on Cardano, a third-generation proof-of-stake blockchain. Combining Cardano’s provable security, scalability, and speed with Acuant’s market position and regulatory compliance technology creates a feasible alternative to current national identity systems. This opens up financial and social services to billions of underserved sectors of the global population.

Acuant has worked with hundreds of global partners in every major industry and almost in every country and territory in the world. The company has verified billions of identities worldwide for transactions ranging from simple age verification to border-crossing or opening a bank account, and it currently collaborates with almost one hundred blockchain based businesses, including more than 50 digital currency exchanges.

Speaking during the Summit, Jose Caldera, Acuant’s Chief Product Officer, said: “Our trusted identity platform has been built with purpose and serves our mission to power trust for all. We aim to empower our clients with inclusive technology that allows them to execute their vision of providing services to all demographics, even those that may be otherwise financially underserved.”

“This partnership with IOG is so exciting to us,” he continued. “We share the belief in creating technologies that have a positive social impact. The fundamental concepts that are built within the Cardano blockchain align with our principle of democratization of trust.”

AI is coming to the Cardano blockchain in the form of Grace, the AI robot developed by Awakening Health, a joint venture between Hanson Robotics and SingularityNET. They have chosen Cardano to ensure that Grace meets the stringent guidelines set out by the Health Insurance Portability and Accountability Act (HIPAA) and the General Data Protection Regulation (GDPR) framework.

Grace has been designed to interact with the elderly and others who have been isolated, whether because of the Covid-19 pandemic or for other reasons. She looks like a healthcare worker, speaks English and Korean, and takes patients’ temperatures using a thermal camera. She can also measure people’s responsiveness and mirror their emotions, helping her not just to come up with diagnoses but also to respond empathetically.

Apart from the inherent security and privacy that it will provide, the move to Cardano will dramatically improve Grace's performance and lead to lower, predictable, and stable costs. Cardano also solves the scalability challenge, meaning Grace’s brain can operate at the highest level and process biodata quicker.

Ben Goertzel, creator of the AI technology for Grace and CEO of SingularityNET, said: ‘While Covid-19 has had a huge impact on physical health, the mental health impacts will echo long after the lockdowns lift.

‘This is why solutions like Grace are so important, to combat loneliness and ease the burden on frontline workers. And with Cardano’s market-leading capabilities, she will be able to scale to meet this global challenge.

‘As we gradually ramp up Grace's general-intelligence capabilities over the next few years, she will be able to serve more and more valuable functions in the elder-care and medical space – learning more and more about humanity and absorbing human values as she goes.’

Ever since Satoshi Nakamoto published the Bitcoin whitepaper in 2008, Bitcoin has had its fair share of controversy. The cryptocurrency has often been in the limelight for the wrong reasons. The biggest criticism is how much the mining activities of Bitcoin – and other cryptos such as Ethereum based on proof-of-useless-work – protocols are damaging the environment. Turns out, well, a lot.

The University of Cambridge reckons that mining consumes 100 terawatt-hours (TWh) of electricity a year – that’s one trillion watts every hour. To put this figure into perspective, that's 0.55% of the electricity produced in the world each year, enough to run a country such as Malaysia or Sweden. Digiconomist shows the same energy problem plagues Ethereum. And the figures continue to rise.

In recent months, the environmental impact of proof-of-work mining has come to the forefront. Mining algorithms require massive amounts of energy. This issue was, up to recently, compounded by the fact that 70% of mining was concentrated in China, where electricity production relies on fossil fuels, particularly burning coal. A recent crackdown by the Chinese authorities has prompted an exodus of crypto miners, which will probably just move the problem to another country. And the issue affects other places anyway. Concerns about energy consumption led to the shutting down of a mining hub in Mongolia in March, for example.

Profiting from cryptocurrency mining is not restricted by geography or motivation. British police swooped on a building this year expecting to find a cannabis farm, for example. Instead, they found 100 computer boards mining Bitcoin with an illegal connection to the electricity grid. It was later reported that 'three nerds' had stolen power worth £16,000 a month to make £8,000 in crypto.

The greener crypto road

While fundamental to its function, the proof-of-work algorithms of Bitcoin and Ethereum are their Achilles heel. Powerful, state-of-the-art mining rigs produce better yields, but the faster the rigs are, the more electricity they require. This poses the question of long-term sustainability. A recent post on the Ethereum Foundation blog claimed that ‘Ethereum’s power-hungry days are numbered’ and that its long-awaited move to proof of stake would use 99.95% less energy, although exactly when this shift will take place remains unclear. (‘Early 2022’ has recently been suggested.)

But what makes proof of stake, as used by Cardano, a more environmentally friendly blockchain?

Proof of work is resource-intensive because miners need to solve ever-more-complex mathematical problems to create blocks. They are in an energy-intensive global race to solve meaningless, randomly generated puzzles. This massive amount of computational power could be used to map the stars, search for alien life, or speed up the search for Covid vaccines; but it is just wasted effort. This wasted digital effort leads to real world consequences as well.

The need for powerful hardware leads to a secondary problem: e-waste. Miners always need to keep up with rivals, which means buying more powerful mining rigs. The 'old' equipment – often suitable only for mining – quickly becomes obsolete. It is discarded, and according to the Digiconomist, Bitcoin's e-waste is shockingly high. Only 20% of the world's electronic waste is recycled, so the plastics and poisonous materials such as heavy metals in the rigs can end up in landfill. (According to predictions by the United Nations, the world will produce up to 120 million tonnes of e-waste a year by 2050.)

So why are commentators in newspapers and on investing blogs such as the Motley Fool calling Cardano the ‘green blockchain’? When it comes to sustainability and environment-friendly cryptocurrencies, Cardano has two clear advantages: far less energy consumption, and staking.

In proof of stake, network participants run nodes, and the chain selects a node to add the next block, based on the node's stake and other parameters. So the main difference between these two algorithms (and therefore, in their energy requirements) is that in proof of stake, block producers do not need to spend excessive amounts of time and computer power to solve random puzzles. IOHK chief Charles Hoskinson has estimated that Cardano’s energy use is just 0.01% of Bitcoin’s.

Proof-of-work cryptos need computer power to produce blocks in a pointless, energy-intensive arms race. A Cardano node, in contrast, can be run on a very low-powered processor, such as a Raspberry Pi. More than 40 million of these have been produced, many for schools in developing countries because they cost just $40-$70. This simplicity also reduces plastic and e-waste.

Carbon-neutral blockchains

The extreme weather events and forest fires of recent months, along with the UN’s landmark (and chilling) study into global warming and climate change, has thrown this into even-sharper relief. Deforestation, ice-shelf depletion, and global warming are all in the public eye. Heat waves in many parts of the world are damaging the environment, and forest fires are devastating many areas. Consequently, anything that contributes to the sustainability problem comes under scrutiny. This includes the growing cryptocurrency industry.

On December 12 2015, 196 countries signed up to the Paris Agreement, a legally binding treaty to limit global warming to 2C. A 'net-zero emissions' race is now underway, aiming to cut carbon dioxide emissions sharply by 2050. The next stage in this process is COP26, the United Nations conference in Glasgow in November.

When it comes to addressing environmental problems, there are no easy answers. Cardano is a decentralized platform that can replace the inefficiencies of older and legacy systems. With its sustainability credentials, Cardano, and other proof-of-stake protocols, are seen as part of the solution, rather than contributing to the problem caused by Bitcoin and Ethereum.

As we move closer to smart contracts on Cardano, fund activity is now accelerating. We spoke with David Roebuck, Principal at Wave Financial, to find out more about the fund and its goals.

What is the cFund?

The cFund is a crypto-native hedge fund managed by Wave Financial in partnership with IOG. The fund employs an early-stage venture strategy and invests in innovative technology companies developing applications, businesses, and products being deployed on Cardano and in other R&D projects IOG is working on.

And why the name cFund?

The “c” in the name is a reference to the mathematical term “coefficient” which refers to the multiplier of a variable. Leveraging both IOG’s and Wave Financial’s domain expertise and industry connections, cFund is positioned to create a multiplier effect for its portfolio companies in terms of growth and reach.

What was the rationale for the introduction of the cFund?

IOG is focused on accomplishing two objectives. One is enabling developers to build scalable, interoperable, and sustainable blockchain-based solutions. The other is to foster financial inclusion to the underserved populations of the world. Ultimately, IOG aims to create a new financial infrastructure for emerging economies by cultivating a community of DApps and protocols deployed on Cardano and other blockchains.

To help IOG achieve this vision, it partnered with Wave Financial, a digital asset manager with ~$500 million in assets under management across various different strategies and products, to create cFund.

How does the cFund fit in with the whole ecosystem (Cardano, Project Catalyst, etc)?

While the cFund, IOG, and the Cardano Foundation all operate independently, they look for opportunities to collaborate. cFund in particular evaluates and provides strategic advice to its portfolio companies wishing to deploy on the Cardano blockchain.

Tell us more about the investment approach

cFund is funded by third-party, high-net worth individuals, family offices, and institutional investors (including IOG). cFund looks to invest in, and partner with, leading early-stage projects and businesses that primarily have a focus on the Cardano ecosystem and associated technology. The fund is already actively deploying capital and creating partnerships across the Cardano ecosystem.

When analyzing investment opportunities, cFund takes a disciplined approach that considers a multitude of factors when evaluating an opportunity. Firstly, the fund evaluates whether there is a clear need in the market for the offering a company provides and determines if other competitors can out-execute. In venture, we call this timing the market. Next, the fund evaluates the background of the team to determine if the founders have the knowledge, skills, resources, and ability to scale their company or project. The fund also considers possible exit scenarios.

Since one of cFund’s primary objectives is to help Cardano build alliances across the blockchain space, one of the most important factors cFund considers during its due diligence process is whether or not the company can be a value-add to the Cardano ecosystem.

One market that cFund has been deploying capital into is Decentralized Finance (DeFi), or more broadly, what is called Open Finance. cFund’s first investment in this market was COTI, a decentralized and scalable payments network for the global e-commerce market. COTI is a value-add because it plans to provide a bridge for DeFi applications wishing to deploy on the Cardano blockchain. The company is now developing ADA Pay, a gateway solution that enables merchants to accept payments in ada (the native protocol token for Cardano) with near-instant settlement. The company is also developing a stablecoin that will run on Cardano.

Another DeFI investment in the portfolio is Blockswap, which is an automated liquidity protocol for proof of stake chains that allows users to re-stake their staked assets. Blockswap brings liquidity for staking activities, providing DeFi benefits to the network. Users will be able to re-stake their fully staked assets, earning yield without the use of a synthetic asset.

cFund’s most recent investment in this space is Occam.Fi, a suite of DeFi solutions tailored for Cardano. The company’s first product is a decentralized funding platform. Through this launchpad, the next generation of disruptive DeFi applications will be able to raise capital using the Cardano blockchain. Overall, DeFi is one of a number of markets cFund invests in, but ideally the portfolio companies must have the capability of building on the Cardano ecosystem in some capacity.

Aside from investment, what else do you offer?

cFund is both a capital provider, an advisor, and a partner to its portfolio companies and the broader Cardano ecosystem. Leveraging IOG and Wave Financial’s resources, reputation, expertise, and network, cFund provides unparalleled access and guidance to its portfolio. cFund firmly believes in being a value-added investor. cFund aspires to be a management team's first call.

If there are businesses reading this who might want to be considered for funding, what should they do?

Prospective projects and businesses can reach out to Wave Financial’s early-stage distribution email, or directly message and/or follow me on Twitter.

What is the long-term plan for the cFund?

cFund aims to be the leading early-stage venture firm that invests primarily in Cardano blockchain based technologies besides becoming an integral part of the Cardano ecosystem. In line with IOG’s founding principle of cascading disruption, the idea that most of the structures that form global financial, governance and social systems are inherently unstable and thus minor perturbations can cause a ripple effect that fundamentally re-configures the entire system. cFund's goal is to identify and back technologies that force these perturbations together to push to a fair and transparent order for all stakeholders.

Thanks for your time, David.

Additional resources

• cFund page
• Wave Financial website
• Cardano website

Yesterday we offered an overview of the Extended UTXO model employed by Cardano, explaining how it differs from the approaches taken by Bitcoin and Ethereum. Now let’s dive a little deeper into inputs and outputs, the component parts of a transaction.

We need to talk about transactions: Outputs and Inputs

The term transaction usually evokes financial echoes. While such meaning would apply to Bitcoin (since the Bitcoin blockchain is used to move funds between peers), many other blockchains (including Cardano) are far more versatile. In these cases, the term ‘transaction’ is much more nuanced. One can think of transactions as transfers of value.

In a blockchain environment, each transaction can have one or multiple inputs, and one or multiple outputs. The concepts of Inputs and Outputs must be understood, if one wants to understand how a transaction works, and how it relates to UTXO. In abstract terms, think of a transaction as the action that unlocks previous outputs, and creates new ones.

Transaction output

A transaction output includes an address (that you can think of as a lock) and a value. In keeping with this analogy, the signature that belongs to the address is the key to unlock the output. Once unlocked, an output can be used as input. New transactions spend outputs of previous transactions, and produce new outputs that can be consumed by future transactions. Each UTXO can only be consumed once, and as a whole. Each output can be spent by exactly one input, and one input only.

Transaction input

A transaction input is the output of a previous transaction. Transaction inputs include a pointer and a cryptographic signature that acts as the unlocking key. The pointer points back to a previous transaction output, and the key unlocks this output. When an output is unlocked by an input, the blockchain marks the unlocked output as “spent”. New outputs created by a given transaction can then be pointed to by new inputs, and so the chain continues. These new outputs (which have not yet been unlocked, i.e., spent) are the UTXOs. Unspent outputs are simply that, outputs that have not yet been spent.

How UTXO works, in a nutshell

In a UTXO accounting model, transactions consume unspent outputs from previous transactions, and produce new outputs that can be used as inputs for future transactions.

The users' wallets manage these UTXOs and initiate transactions involving the UTXOs owned by the user. Every blockchain node maintains a record of the subset of all UTXOs at all times. This is called the UTXO set. In technical terms, this is the chainstate, which is stored in the data directory of every node. When a new block is added to the chain, the chainstate is updated accordingly. This new block contains the list of latest transactions (including of course a record of spent UTXOs, and new ones created since the chainstate was last updated). Every node maintains an exact copy of the chainstate.

EUTXO: The rationale behind Cardano's choice

Bitcoin’s ‘vanilla’ UTXO accounting model would not suit Cardano, as Cardano is designed to do more than handle payments. Particularly, the need for more programming expressiveness for the upcoming smart contracts functionality in the Alonzo era required a novel (‘Extended’) solution.

The 'basic' UTXO model has a limited expressiveness of programmability. Ethereum's Account/Balance accounting model addressed this specific problem with the development of an account-based ledger and associated contract accounts. But by doing so, the semantics of the contract code became far more complex, which had the unwanted effect of forcing contract authors to fully grasp the nuances of the semantics to avoid the introduction of potentially very costly vulnerabilities in the code.

An ‘extended’ UTXO solution would require two pieces of additional functionality that the existing UTXO model could not provide:

1 - To be able to maintain the contract state

2 - To be able to enforce that the same contract code is used along the entire sequence of transactions. We call this continuity.

A powerful feature of the EUTXO model is that the fees required for a valid transaction can be predicted precisely prior to posting it. This is a unique feature not found in account-based models.

How does the EUTXO model extend UTXO?

By adding custom data to outputs (in addition to value), and by allowing for more "locks" and "keys" deciding under which condition an output can be unlocked for consumption by a transaction. In other words, instead of just having public keys (hashes) for locks and corresponding signatures serving as "keys", EUTXO enables arbitrary logic in the form of scripts. This arbitrary logic inspects the transaction and the data to decide whether the transaction is allowed to use an input or not.

Conclusion: What makes the EUTXO model innovative and relevant

Cardano's ledger model extends the UTXO model to support multi-assets and smart contracts without compromising the core advantages of a UTXO model. Our innovative research enables functionality beyond what is supported in any other UTXO ledger, making Cardano a unique competitor in the next-generation blockchain space.