Today at 21:44:51 GMT, block production on Cardano will be fully decentralized. That is a watershed. From a federated network of seven core nodes run by IOHK, Emurgo, and the Cardano Foundation, we’ll emerge into a decentralized landscape where the stake pool operator (SPOs) community will produce 100% of blocks.

Cardano is a proof-of-stake blockchain platform, founded on peer-reviewed research and delivered through evidence-based software development processes, by a team of world-leading researchers and engineers. From this technocratic core, Cardano exists to steadily redistribute power to the edges – to a community of individuals. And to empower them as an enabling force for change and progress.

Our SPO community has been instrumental in bringing Cardano to this point. When d, the decentralization parameter, reaches zero, SPOs will become responsible for creating all blocks on Cardano.

Why decentralization?

In everyday terms, decentralization is the delegation of power from a central authority to a wider group of bodies. But that definition only scrapes the surface in the context of cryptocurrencies and blockchain.

Cardano's technical journey to full decentralization continues through phased developments that include degrees of block-production from SPOs, peer-to-peer (P2P) network discovery, and ‘gossip’ with peers exchanging information among themselves. It involves the deployment of advanced community-led governance and decision-making frameworks, culminating in fully decentralized software and protocol updates. Ultimately, it will result in the creation of a platform wholly and democratically operated and controlled through a global community of SPOs, developers and ada holders.

Decentralization is a core value and driver for Cardano, and we are far from alone in this. The mainstream financial world has recognised that blockchain and the decentralized finance (DeFi) technology it enables has the potential to spawn a new financial system as revolutionary as the internet itself. And that is just part of a trend towards decentralization. Open protocols between renters and providers of data storage that anyone can use have the potential to disrupt the dominant centralized cloud server providers such as Amazon and Microsoft, and there are similar trends affecting video and communication networks and gaming. Cryptocurrencies first brought people into the blockchain world and now the buzz around non-fungible tokens (NFTs) is encouraging them to interact with blockchain in a new, fun way. These trends are introducing blockchain to the mass market.

Power to the edges

Centralization has shifted the balance of power, from the people to corporations such as Facebook and Google, creating a virtual information monopoly. Because of their unchallenged market positions, centralized authorities enjoy data hegemony over their consumers.

Decentralization is the antidote to this concentration of power and the risks that it brings. Decentralization empowers the individual to make choices and decisions, it returns ownership of personal information to where it belongs, it pushes power to the edges and enables every participant in the network (or ada holder) to have a stake.

There are three pillars to Cardano's decentralization: block production, networking, and governance. These are intrinsically linked to one another, and work synergistically to create a unified outcome: full decentralization, which lies at their confluence.

Pillar one: block production

Every blockchain relies on the addition of new blocks to grow and thrive. With the Byron era deployment, core nodes – managed by IOHK, Emurgo, and the Cardano Foundation – were wholly responsible for creating blocks and maintaining the network. The advent of Shelley and the Incentivized Testnet in 2019 served as testing ground for decentralized block production. The results demonstrated the viability of such an initiative. In other words, the Incentivized Testnet experiment proved that Cardano could be reliably sustained by a network of community-run stake pools. As of epoch 170 on June 3, 2020, there were 1,299 registered stake pools, 413 of which were creating blocks.

Today, we now have about 2,300 pools, with a healthy proportion creating blocks and rewarding delegates. Some are controlled by exchanges, others by single-pool community operators. All bring value to the network. The former through their ability to bring new ada holders into the ecosystem, the latter through their contribution to continuing decentralization and encouraging grassroots engagement. We are committed to encouraging decentralization, and adjustments this year to parameters such as k (maximum pool size) and pledge along with our community delegation strategy – and more on that later this week – will continue to propel this agenda forward.

Pillar two: networking

The second pillar of Cardano's decentralization is the implementation of peer-to-peer (P2P) networking, which has also been tested with Shelley. The aim here is to link together geographically distributed pools to provide a secure and robust blockchain platform.

On mainnet, this feature will use a set of mini-protocols and a classification of cold, warm, and hot peers so a given node can make the best decision when selecting connections. From a networking perspective, we are in a hybrid phase where manual processes are required from SPOs to maintain network connections. When d=0, all the core nodes will be retired as SPOs take over block production. IOHK will continue to maintain relays but, increasingly, the SPO network will also take on this role. To dig deeper into this, check out this segment of March’s Cardano360 show, where Cardano chief architect Duncan Coutts laid out the P2P roadmap.

Pillar three: governance

The Goguen roll-out has already introduced transaction metadata and native tokens to Cardano. Arguably, this has been the most apparent manifestation of growth and progress for Cardano since the Shelley launch.

Yet, at the same time, we have also seen the rise of something even more powerful: an engaged community of builders, creators, and entrepreneurs within Project Catalyst. At the time of writing, the Catalyst community includes 17,000+ worldwide members. This pool of decentralized talent includes entrepreneurs, experts, and specialists across many areas, and provides a vast reservoir of ingenuity to ensure the best and brightest ideas get the funding they deserve.

A layer of solid governance supports the very core of what Cardano is trying to ultimately achieve: a blockchain where a community of stakeholders makes practical decisions about the chain’s protocol and evolution. Catalyst is the precursor to Voltaire, the development theme that will introduce the third and final level of decentralization through the integration of governance and on-chain decision-making/voting.

Voltaire will introduce:

• Access to funding via a decentralized treasury (worth some $400m at the current ada price) within a governance framework where the community will have the power, through their ada stake, to influence Cardano's future direction
• Decentralized decision-making on enhancements, network improvements, and parameter updates
• Fully decentralized software updates: the process enabling decentralized, open participation for fair voting on decisions about system and protocol advancements

Conclusion: the fall of centralization

Decentralized block production – done. P2P networking – rolling out from April. Governance? Project Catalyst is on a roll and there is much more to come.

From a federated chain with centralized block production, to a chain with blocks wholly minted by the community. We are well on our way. When we have completed building all three pillars, we shall have created something truly unique. A network that is robust and resilient, yet flexible and adaptable to future growth. A platform that serves its users today, while empowering them to build fresh value and functionality for tomorrow. All within a democratic framework where the community makes the calls. True decentralization, standing atop those three pillars.

The security of proof-of-stake blockchains is provided by a mutually dependent relationship between its native token and the consensus mechanism that powers it: after all, electing nodes to issue blocks according to their stake requires a consistent global view of the stake distribution, while maintaining consistency itself requires a fair election mechanism. Indeed, the name Ouroboros – a classical symbol suggestive of mathematical recursion – was originally selected to draw attention to this relationship.

The Ouroboros protocol determines block producers via an evolving sequence of leadership nonces – each nonce runs the show for a 120-hour ‘epoch’, during which it contributes to determining which stake pools are chosen as the one-off leaders for block creation. Along with committing new transactions to the ledger, the blocks appearing in each epoch are additionally responsible for generating the leadership nonce for the following epoch – more recursion! All told, the leadership nonces and stake distributions evolve in concert to provide the fundamental ledger properties we demand of the system. 

The Cardano blockchain transitions to fully decentralized block production on March 31. Just afterwards, the running leadership nonce will be enhanced by adding in a ‘transition nonce’ that reflects entropy from a variety of external, unpredictable sources. Specifically, all transactions posted to the blockchain before Wednesday, April 7 at 15:44:51 UTC (slot 151200 of epoch 258) will play a distinguished role in the future of the blockchain: their accumulated hash value, reflected in the ‘previous-block hash’ from the first block on chain created on or after this time, will determine the transition nonce and hence directly contribute to the protocol’s perpetual cycle of randomness generation. 

IO Global scientists and engineers will contribute a number of specific, external, unpredictable sources of entropy. Additionally, to reflect the decentralized nature of Cardano we are asking the extended community, including stake pool operators and developers, to join us (on chain) for an event we’re calling the Cardano public assertion of randomness. This community exercise will establish the once-in-the-system’s-lifetime random 256-bit transition nonce that will herald the protocol’s official transition to decentralized operation.

We’re going to get more technical now so buckle up, or skip to the end.

Some background 

The Ouroboros protocol is organized into five-day (120-hour) periods called ‘epochs’. As described above, these coordinate two critical activities: updating the stake distribution and updating the leadership nonce. The proof of correctness of the protocol shows that it achieves an auspicious steady state: so long as an epoch begins with an unpredictable leadership nonce, it will deliver a fresh, unpredictable leadership nonce to the following epoch. To bootstrap the recursion, this public assertion event is designed to ensure this property of unpredictability. We remark that proof of work protocols are subject to similar randomness demands: famously, Nakamoto included the presumably unpredictable string ‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks’ in the genesis block of Bitcoin.

The entropy mechanism and the timeline 

Cardano’s implementation of the Ouroboros protocol provides an ‘entropy addition mechanism’ that can add a bitstring identified on the blockchain to subsequent leadership nonces; these are exactly the intended targets of the transition nonce. Naturally, this mechanism requires public declaration of the bitstring and explicit, cryptographically secure approval: specifically, only a collection of digitally signed votes from genesis delegates can complete the process. Furthermore, the process has a specific time horizon: votes must appear prior to the 48-hour mark in the epoch.

The epoch beginning on Monday, April 5 at 21:44:51 UTC (epoch 258) will invoke the entropy addition mechanism: in particular, the previous block hash appearing in the first block on or after Wednesday April 7 at 15:44:51 UTC (slot 151200 of epoch 258) will determine the transition nonce; this will take place roughly 42 hours after the epoch has begun and thus leave six hours for the genesis delegates to cast their votes. Recalling the hash chain structure of the Ouroboros blockchain, this hash value depends on the entire blockchain up to that point.

Closely examining the correctness proofs of the protocol paints a more precise picture of the essential properties of the transition nonce: it must rely on random values – introduced in our setting via Cardano blockchain transactions – that cannot be predicted accurately when the stake distribution for the April 10 epoch is settled. This places special emphasis on transactions appearing in the blockchain between the 12-hour mark, when the stake distribution is firmly settled, and the 42-hour mark, when the hash value will be lifted.

Entropy sources introduced by IO Global

While the Cardano community is bound to introduce a wide variety of random sources – see below! – IO Global scientists and engineers will inject transactions with metadata determined by several public sources of entropy: hashes of the closing prices of the New York Stock Exchange on April 6, and real-time seismic data from the US Geological Survey, the University of Athens, and the Japan Meteorological Society. Seismic data from these sources will cover the first 36 hours of the epoch. Further details, including the scripts to be used for harvesting the data and the exact sources, appear in this public github repository.

We’d also like the more technical members of the Cardano community to join in too, by adding their own contribution to the randomness. Here’s what we’d like you to do.

• Select some entertaining sources of randomness: a lottery drawing from your region, a new RSA public key generated using your standard tools, or the outcome of a number of rolls of a 20-sided die. 
• Paste the result of these sources into a text document, save it, and hash the file using your favorite hash function, such as SHA256. Post this hash on the blockchain using a transaction with metadata. (See this video.)
• To be most useful, your source of randomness should be determined after Tuesday, April 6 at 9:44:51 UTC (slot 43200 of epoch 258) and must be included in a blockchain transaction before Wednesday, April 7 at 15:44:51 UTC (slot 151200 of epoch 258).

If you are less technical, you can still join in. You might like to test out an interesting new community tool, Cardano Wall. This allows you to easily write to the Cardano blockchain. However you choose to get involved, please announce your act of community service on social media, by publishing both your (unhashed) source along with the hash value appearing in your transaction.

Thanks for your support and we’re looking forward to slot 151200 when we can convene, in spirit, for a ‘block party’ to watch the genesis delegates’ votes appear on-chain!

Africa and the topic of banking and the unbanked, the topic of economic identity, is something that's near and dear to my heart. More than 10 years ago, I was using Kiva, a microfinance lending platform, and it awoke a long journey of mine to read books like Muhammad Yunus’ Banker for the Poor and start having a discussion about the question: why does the world have fractured financial systems? And why is it the case that people for no fault of their own, if they lose the geographic lottery, are born into systems that will keep them perpetually poor, regardless of how hard they work or the quality of their character?

This led me to the cryptocurrency space. I didn't really care too much for arguments about proof-of-work or proof-of-stake or how Bitcoin transactions worked or any of these details. What mattered to me was the utility of the system for bringing economic identity to the billions who don't have it. And I knew that this concept of decentralization, this concept of having a blockchain that serves as a place to timestamp things, to audit things, a place to broker trust amongst people who don't trust each other, was truly something revolutionary and magical. But it was a great invention that came without a user manual, and without batteries included. In the 10 years since I joined the cryptocurrency space, it's been my life mission to build systems that have the capacity to act as a backbone for utilities and social structures that will enable a great merging of the markets of the world.

The aim is that those who are the poorest amongst us will enjoy the same financial systems as those who are the richest. It's a simple idea, but in practice, almost impossible to achieve with legacy systems. And the crown jewel of our labors has been the Cardano protocol. We started in 2015 building the Cardano protocol specifically to figure out how to accommodate this concept of economic identity, how to build applications that would be equally useful  to someone in a basement in the US as they are to a shepherd in Senegal.

Building capacity 

We also realized that in addition to doing great science and great engineering, it would take quite a bit of time for us to actually figure out how to deploy these systems within the developing world. That meant we physically had to move to those countries. And thus in 2017, after we were a bit more mature as a company, we opened up offices in Addis Ababa, Ethiopia. We built extensions into Rwanda and Uganda, and we found great partners. We also started exploring places like Mongolia, Georgia, and South American nations as well. We were all unified with a common cause and purpose. How do we enable a system to operate from the bottom up instead of the top down? How do we figure out how to give people self-sovereign identity and put them in control of their own money, control of their own future, and give them a platform to build upon? 

How could we allow them to secure credit and retain property? Then to protect and secure that through insurance and other products. Now, that four-year journey, since establishing that office in Ethiopia, has yielded some amazing fruit. First off, we've had the incredible opportunity to meet many world leaders who are aligned with many NGOs and charities that are directly aligned with our goal. We've also been able to train local talent and hire local people. They have made this their tireless life mission. In many cases they did this with few resources and, in many cases, exposed to uncaring bureaucracies or corruption, waste, fraud, and abuse, and just plain old-fashioned setbacks. 

Transforming lives

We've seen our own setbacks. Some of the countries we've chosen to be in have had unrest. Some of the countries we've chosen to work with have had regimes change. As a consequence, things that we thought would be happening sooner took a little bit longer. With that said, we are on the cusp of deals and initiatives, this year, which will bring millions of users through public private partnerships into the Cardano ecosystem. And what does that mean? Really? What does that mean? 

It means that a large group of people, for the first time in their lives, will have a digital identity that can be linked to a digital wallet. That also can be linked to payment systems, which also can be linked to property. These can then enjoy rich metadata and other such things. And this is the highest goal, because if we can achieve these things, then it means functionally a new economy built on the great liquification of trillions of dollars of wealth. You see, the reality is that Africa is not a poor continent and African nations collectively are not poor.

They are, rather, in a situation where they have tremendous potential and real wealth, but that wealth is inaccessible because of bad systems and a difficulty in globalizing the continent’s nation states. This is a tremendous opportunity. The reality is when you look to the future, you don't want to go to where the ball is now, you want to go to where the ball will be. In other words, you want to go where the economies are going to grow the fastest and see the greatest opportunity. 

China to Africa

We saw this in the 1980s with the surging of China. It was a common notion then, amongst people in Wall Street and London and Japan and other places, that China was a very poor nation with many systemic problems. But amongst the very specialized actors who truly understood where things were going, they realized that changes in those systems had built up to a position where China in just a few decades would become one of the richest and most powerful nations in the world.

Similarly, when you look at the demographics of Africa, you look at the generation that will take custodianship of the continent. You see that 70% of Ethiopians are at, or under, the age of 30. Many of these people are growing up with a cell phone in their hand, with access to the internet. They have access to education, thanks to MOOCs, thanks to YouTube and other free platforms. And so the bridge of human capital has occurred. And you have a group of people who are tremendously ambitious and impatient, and will not tolerate the bureaucracy of the past and will not tolerate the sins of the past. Whatever systems stand in the way of progress will soon come collapsing down. And in that wake, that vacuum is a marketplace for new systems.

A new generation

My country has trillions of dollars’ worth of social infrastructure. In the United States, for our financial markets, for our legal system, for every single thing, from how our healthcare works, to how we die, there's a law or regulation or some bureaucracy that stands in the way. In many cases, these things hold and stabilize our society, but they make us less resilient, less adaptable, and also they slow down progress. And they hinder the ability to chase the future when there is a potential for completely new systems, which in many cases are orders of magnitude more efficient at a much lower cost. That is going to result in a huge competitive advantage for the nations that adopt the new systems first. The first countries that hold national elections online that are credible, free, fair, and auditable are likely to be African nations. They will be first countries to have an end-to-end digital identity and economy.

This offers great potential for African nations – not Germany, not France, not Britain, not the United States, not China, not Japan. This is an all-you-can-eat buffet of innovation, progress and new systems, and my industry, the blockchain industry, is interconnected with this. ‘New’ is what we do. We find ways to build trust amongst people who don't trust each other. We find ways to change everything, from monetary policy to the concept of identity, to the concept of property. 

So we built infrastructure in Ethiopia, amongst other places on the continent. We did that knowing the infrastructure would be used to service large government deals. We adopted the push model, where we push these things to the citizens of countries, and began a systemic campaign of innovation across the continent. The other magic of Cardano is that it comes with a funding system called Catalyst. Today, right now at the current price of ada, over a quarter billion dollars, $250 million, is available for grants. For those who wish to build infrastructure, applications, and services and products in the Cardano ecosystem. 

Africa leading the way

It is our belief and hope that over the next five years, a meaningful percentage of the entrepreneurs who deploy infrastructure will come with a pan-African view. It could be a peer-to-peer lending system; it could be a remittance system; an ATM network; basic internet access; a micro ISP. It could be power generation. And this is not only a goal – it's something we're investing heavily in, with partners like ICE Addis, which gives us access to entrepreneurs. And in more than 25 countries in Africa over the next five years, our staff on the ground will likely scale from the dozens to the hundreds, if not the thousands. And, instead of having one headquarters, it's likely we'll have four or five headquarters covering the continent.

For example, we've started a campaign to build up resources and access and personnel in Ghana. I will also try to do the same in places such as Rwanda. And what we have found in every place we go is a welcoming attitude, and a lot of grace and intelligence. For example, the Prime Minister of Ethiopia is a cryptographer. My country is ruled by a president in his late seventies. Ethiopia is ruled by a person who can actually read the academic papers. This is a stark contrast in both age and outlook. The potential for Ethiopia reminds me of the early days of Singapore as an independent country and the wisdom and judgment that was going into the growth and management of that country. And I think the exact same thing can be done with a helping hand here and there in a way that benefits as many people as possible.

New frontiers

So, we're super excited and we've been investing in everything, like identity. The PRISM team is our entry point into identity and has over a dozen people. That team has expanded by 30 people and to our ability to tender and bid for contracts. We wanted to seal some flagship contracts first, and those are coming to a close, which will bring millions of people into Cardano. And then those will stabilize as a foundation from which we can do business with dozens of entities and countries, both public and private. And the people responsible for that are scaling up very rapidly to train far more developers, to train far more entrepreneurs, and then give those entrepreneurs access to marketplaces and capital so that they can liquify the wealth of Africa and benefit from it. You see, many people tend to look at this as a charity problem. I think that's both the wrong way and also fundamentally dehumanizing.

I look at this as ultimately a new market, a new frontier where we can find new partners to work with. It is not our goal to save people or to give anything away. It's our goal to build partners, collaborate and create wealth, and share that with our partners. I cannot imagine what it means to be born in Zambia or Zimbabwe or South Africa. It's not my life and it's not my experience, but there are millions who have that life and experience. What I can imagine, though, is how to build a great business with people born in those places and for us to build wealth together. That's the point of blockchain technology. It's a great unifier. It's a great engine of trust. It's a great engine of economic progress and creation. As blockchain entrepreneurs, without permission, government aid or centralized coordination, we have built an ecosystem worth $1 trillion, looking at the market capitalization of cryptocurrencies like Bitcoin and Ethereum and Cardano and others, and that's just 10 years into this game. 

Increasing opportunities

We've also spurred a movement with tens of millions of people all across the planet, from nomads and Mongolia to shepherds in Senegal. Each and every one of them can run their entire life from a cell phone without relying upon a central agency. And over the next 10 years, we could see growth of another order of magnitude and the totality of our ecosystem could be $10 trillion, $15 trillion, $20 trillion. And the majority of that could be owned by those in developing nations, such as Ethiopia, such as Uganda, such as Chile, That could be the greatest achievement of systems in the past century, bettering the lives of all and reducing the problems of all. So, it's very exciting to be here. It's great to be part of these events and to see the rollout in a very short period of time.

We're going to announce an Africa focus in our company, and we'll be able to show everybody all the different programs and pilots and projects and partners, and the vision of what we're going to invest in over the next three to five years. It is the privilege of a lifetime as an entrepreneur to be able to participate in these markets in this way. I literally get to wake up every single day and talk to the most ambitious, honest, and hardworking people I've ever met in my life and find ways to build systems with them that not only make their lives better, but produce wealth for all of us. And if I'm right in my hypothesis, I believe that Africa will make the Chinese miracle that we witnessed over the past three decades become the African miracle, which will dwarf anything China has accomplished and perhaps make Africa one of the most valuable continents in human history.

A seat at the table

It happened before with the great Mansa Musa, and I think it definitely can happen again, if we build the right systems. It would be a travesty if those systems allowed that wealth to aggregate only in one place. In my view, it is incredibly important that we remember the first principle of the cryptocurrency space, that we are all truly equal and there is no centralized power.

The magic of the systems that we build and engineer is that everybody has a say, no matter where they come from or who they are. And everybody has a seat at the table in being able to decide the trajectory of their life and to keep the fruits of their labors. So thank you so much for coming, and I hope you enjoy this conference as much as I do, and I hope you choose to invest in Africa as much as I have. I think it's the best investment any business can make. And I also believe it's the most rewarding work any person can do.

While their impact on Roman emperor Julius Caesar was less than favorable, the Ides of March have proved propitious for Cardano, as ada has this week been listed on Coinbase Pro and also added to the prestigious Bloomberg Terminal. These are both major developments, reinforcing Cardano's position in the cryptocurrency landscape. One brings ada to an entirely new customer base, while the other offers a whole new level of visibility for Cardano to the global finance industry. 

Coinbase – coming of age?

The Coinbase listing marks something of a coming of age for Cardano, with the potential to bring millions of new ada holders to the ecosystem at an exciting time. Coinbase Pro is designed for individual traders, providing direct access to Coinbase Markets, the company’s ‘single source of liquidity’, as an upgrade path for consumer Coinbase customers.

From the early success of the incentivized testnet in 2019, to the introduction of staking last summer, the momentum has been steadily building for Cardano. Now, as we continue our Goguen rollout, decentralization continues apace, with full responsibility for block production being assigned to stake pools at the end of this month, on D=0 day. Arguably 100x times more decentralized than the Bitcoin blockchain and, with 2,000+ registered stake pools, we can lay claim to being the most successful, most distributed Proof of Stake network in the world.

The timing is good. After years of research and development effort, the wider industry is now starting to properly recognize the potential that the incredible Cardano community has long believed in. Our network of stake pool operators has helped us create a blockchain that is provably secure, environmentally sustainable and scalable to the needs of a new generation of services.

The Goguen rollout is bringing a new level of utility to the platform – from metadata and native tokens, NFTs, DeFi and smart contracts. Our open innovation funding platform for development on Cardano, Project Catalyst, has already funded a number of proposals to enrich the Cardano ecosystem. Millions more dollars of funding will be made available for community innovation this year, drawn from a total Cardano treasury worth $400M+ today.

A technical achievement

As well as an important driver of future growth, the listing on Coinbase has been an important technical collaboration, carried out using the open-source Rosetta standard, which we are championing together with Coinbase. Rosetta is now an integral part of our integration armory, for future interoperability projects. Rosetta has the ability to seamlessly interlink numerous blockchains, allowing institutions to manage multiple assets, without spending months researching the various technical implementations.

Bloomberg goes live

Also, this week we received the news that financial data powerhouse Bloomberg has added Cardano to its informational roster. Since it was launched in 1982, Bloomberg Terminal has established a reputation among the finance industry as an essential source of real-time information for markets. As the company states, it helps “the world’s business and financial decision-makers surface relevant information in an ever-expanding ocean of data – and quickly act on it.”

So, what does this mean for Cardano & crypto

Bitcoin was added to the Bloomberg terminal back in 2014 and Cardano now joins a number of coins added to the roster since. More recently, cryptocurrencies, and digital assets in general, have seen a resurgence in interest from Bloomberg’s customers. Bitcoin recently hit an all-time high of $60,000. Meanwhile, non-fungible tokens (NFTs) have entered the mainstream, following the recent sale of artist Beeple’s entirely digital work, Everydays: the first 5000 days for $69m, just as Cardano has launched native tokens on the network.

The addition of ada to Bloomberg Terminal is the latest chapter in a year of continuing momentum and growing credibility in the eyes of the financial industry. It is important to place this news in perspective. Cardano’s mission remains clear and focused on bringing real utility and value to billions of people around the world – in particular, those currently without access to financial services and infrastructure. Our focus continues to be on delivering the enabling technology to achieve this while empowering the community which will ultimately deliver the platform’s growth. Nonetheless, it remains a validation of the work the whole community has done to get here and a powerful marker of our continuing momentum.

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.