High assurance is paramount when developing and working with smart contracts. You want to be confident that the source code is of a high quality, that the contract is secure and will behave as it should, and that it utilizes good properties and behaviors in the process. Certification ensures that security checks are performed prior to any deployment, and that smart contracts can be continually audited as they are updated. It provides benefits to both smart contract developers and end users, helping protect user funds and project reputations alike from coding errors or exploits.

At September’s Cardano Summit 2021, we laid out our plans on the introduction of new levels of certification for decentralized applications (DApps) running on Cardano. This certification program will provide levels of quality for DApps and their internal smart contacts.

This initiative has been led by Professor Simon Thompson, technical project director at IOG, and Shruti Appiah, head of product at IOG. It will help us comply with the best practices we’ve seen around the industry. We are working with Runtime Verification, Tweag, Well Typed, Certik, and others to roll out this new certification program that will link in with the new dAppStore, also unveiled in prototype form at the summit. This will be released in conjunction with the new light wallet.

What are the different certification levels?

There are three levels of certification, each of which is complementary to the others, rather than being progressive in terms of assurance and auditing purposes.

Level one: Automated tooling

This certification level gives continual assurance about a range of properties for smart contracts. It covers the discovery of different types of issues or bugs and is characterized as low cost, low effort, accessible to everyone while providing a substantial level of assurance.

It can be applied repeatedly and automatically, so each time there is a release or a sub-release of an application, we can test to ensure that the application still has the properties that we expect.

Level two: In-depth audit

This level involves looking at the technology and processes that led to it being produced. It is characterized by the fact that it involves a manual audit and verification of smart contracts within the DApp itself.

The testing is performed at a much more in-depth level and involves more manual effort that can address a DApp in its entirety, even if it is written in a variety of languages.

Level three: Formal verification

This level is more specialized where we aim to provide full assurance of critical aspects of applications through formal verification of smart contracts. Formal verification involves ensuring that a smart contract serves the specific business or technical requirements defined at the outset.

What kind of assurance can we expect?

Certification will ensure the correctness, compliance, and consistency of requirements by both application developers and auditors. It will also guarantee the absence of common security vulnerabilities and provide a level of robustness, reliability, and maintenance of DApps deployed on Cardano. While certification will be strongly encouraged and the store curated accordingly, it will not however be mandatory or act as any kind of ‘gatekeeper’ thus maintaining a balance between the need for user assurance and decentralized principles.

By auditing the specifications and design and ideation phases, you can present evidence to the community and guarantee that things will work as expected. This evidence includes documentation of requirements to a detailed level, thereby creating a reference point for the future.

Certification status in the dAppStore

We plan to integrate this certification with the new dAppStore that we are building to provide cryptographically secure non-fungible tokens (NFTs) that give evidence of the levels of certification that we will guarantee. The dAppStore will be part of a light wallet that IO is developing, and users will be able to access the light wallet and dAppStore using a web browser, and in the store to view the certification status of each DApp as they browse through the categories and individual applications. Making the relevant certification status visible to users during the selection process will offer reassurance on quality and safety for users in their choice of DApps.

To learn more about our dAppStore plans, you can watch a concept walkthrough on the dAppStore summit video.

What is next for certification?

Professor Thompson says:

We want to build support from the industry for emerging standards of certification. In the longer term, we will work with our partners and others to articulate best practices, which may involve forming an umbrella industry body to define new standards and practices for this domain.

We also plan to work with our ecosystem of partners to support certification of the first DApps on Cardano; one of a number of DEXs looking to launch on Cardano this year SundaeSwap also announced their plans at the summit to certify.

It is still early days. There are some technical challenges that we are busy working through about how we support versioning of DApps, how they will be packaged, and how to make them available to automated tooling. However, we are very excited about this journey with our partners and the general community to deliver a secure platform and applications built on top of it.

To learn even more about certification levels, and meet some of the partners on the program, make sure you watch the [https://summit.cardano.org/sessions/smart-contract-certification-the-why-and-how) from the Cardano summit.

Imagine buying a bottle of super premium spirits. Scan it with an app on your phone, and you know for certain that it is a genuine product, never opened or tampered with, and every ingredient can be traced to its source. All this without needing to trust the retailer or anyone in the supply chain.

That’s authentication security, and it will soon be a reality for customers of Strait Brands, an Australian producer of international award-winning spirits since 2006.

At the Cardano Summit 2021, IOG's Dan Friedman talked with Philip Ridyard, Strait Brands founder and MD, about using Atala SCAN for blockchain-based supply chain accreditation. Based in the Tamar Valley in Tasmania, Strait Brands is partnering with Input Output to embed Atala SCAN into their production and distribution processes. Watch the full interview.

Philip’s experience exporting to Asian countries has shown him the prevalence of counterfeiting and substitution in those markets. In the alcohol industry alone, counterfeited, mislabeled, substituted, or diluted products worth upwards of $40 billion a year are making their way to consumers. After ten years of searching, Philip has found the ideal solution in the immutability and auditability of blockchain technology, and ideal partners in the people of Input Output like Dan Friedman.

As Philip says, ‘For the launch of a super premium brand, to have super premium authentication and traceability is absolutely paramount.’ This authentication allows Strait Brands to offer not only the taste and texture of the product but the whole intellectual package that makes up the value offering. That includes the geographical location of Strait Brands in Tasmania, the pristine spring water, the agreements with local growers, the responsibly sourced ingredients, and the custom bottles. There will be four million bottles with Atala-compatible stoppers produced locally and distributed worldwide.

This partnership is timed to coincide with the coming release of a super-premium range to be known as Badger Head. The name comes from Badger Head Road, where the distillery is located, and from the term used by the British to describe the local wombats. The packaging includes a wombat motif.

Strait Brands is even planning a special Cardano-themed limited edition matched with CNFTs. More details of this will be announced soon!

Cardano is designed to serve millions of users in a globally distributed way. As with any other decentralized blockchain, this means that we need to produce a predictable and consistent supply of new blocks that collectively grow the chain and transparently record transactions between users. In order to ensure that new blocks are propagated across the network as a whole in an effective and secure way, it is important that the system consumes computation, memory, storage, and network resources efficiently.

Flexibility is key, so an important feature of the Cardano protocol is that it has been architected with true scalability in mind. This isn't just about the longer-term ability to provide the infrastructure into a truly global, fully decentralized operating system; its parameterization approach is also designed to flex and adjust to pricing fluctuations, network saturation, or increased demand, for example. A number of protocol parameters are provided that allow the system behavior to be tuned without the need for a hard fork. Even then, more significant upgrades that do require this can be deftly managed using our hard fork combinator technology (HFC). Together these are significant differentiators for Cardano which give us robustness and reliability today, and highly agile upgrade paths as the network grows and usage evolves.

Cardano’s roadmap was also conceived in a series of stages that would take us step by step toward our ultimate destination. Byron was about basic transactional capability within a federated network. This gave us the ability to start building a community and partnerships while working on the next stage. The Byron reboot gave us the firm foundations to build out further capability, while Shelley introduced stake pools, further expanding the community and introducing 100% decentralized block production.

This year, we have introduced a number of new, highly-anticipated features. Since early 2021, with the Mary era, Cardano has supported multi-assets and non-fungible token (NFT) creation on the ledger. With low fees and no need for smart contracts, we have seen an explosion of activity in this exciting area. September’s Alonzo upgrade has brought support for Plutus smart contracts that enable the development of a wide range of decentralized applications (DApps). It's relatively early days for smart contracts, but with dozens of projects working on DApps and a number getting close to the deployment stage, things will soon start to accelerate. These new capabilities influence how the ledger processes new scripts and transactions, and place new demands on the available resources. As activity grows, our architecture will allow us the agility to flex and adapt as required.

Network capacity

Networking lies at the heart of all Cardano operations. The Cardano network distributes transactions and blocks across globally distributed nodes that produce and verify the blockchain. This is called data diffusion, and it is essential to provide the needed information to nodes for the consensus algorithm to make its decisions. These decisions drive the chain forward, as a consensus between the nodes ensures that all transactions are verified, validated and thus can be transparently included in a new block.

Cardano is based on the decentralized Ouroboros Praos consensus protocol. Cardano smoothly transitioned to Praos from the previous federated Ouroboros Classic protocol via a series of changes to a protocol parameter d. Ouroboros Praos establishes enhanced security guarantees and has been delivered with peer-reviewed research papers presented in top-tier cybersecurity and cryptography conferences and journals.

Networking performance impacts how fast the system works as a whole. This includes such measures:

• throughput (volume of data transferred)
• timeliness (the block adoption time)

These two requirements are in tension with each other. We can maximize throughput when the generated blocks are most efficiently used. This, in turn, implies sufficient buffering to hide latency, which mitigates the consequences of a globally distributed system.

More buffering can often imply better block (and network) utilization, but it comes at the cost of increased delay (time to adoption in the chain) when the system is heavily saturated.

Block budget

To understand how fast transactions and scripts can be executed on Cardano, we should first define the notion of the block budget. The overall size of a block is currently limited to a maximum of 64 KB, representing a balance between ensuring good network utilization and minimizing transaction latencies. A single block may contain a mixture of transactions, including ones with Plutus scripts (smart contracts), native tokens, metadata, and simple ada transactions (payments). Similarly, a single transaction is currently limited to a maximum of 16KB. This ensures that a single block will always contain multiple transactions (at least 4, but generally many more), so improving the overall transaction throughput.

Block time budget is another property that is a fixed amount of time available to process all the transactions included in a single block. This is divided between the time that can be used for Plutus script execution and the time that is available for executing other transactions. This property ensures that transactions with Plutus scripts cannot monopolize the available time budget, and it will always be possible for the system to process simple payments in the same block that contains Plutus scripts. The total time budget for producing each block (including networking costs) is set to 1 second, with a budget of approximately 50 milliseconds available for Plutus script execution. In practice, this is a generous allowance – our benchmarking has shown that many real scripts will execute in 1 millisecond or less on a reference system.

The block time budget is currently set to 1 second. For security reasons, the Praos consensus protocol selects only a small fraction (one in 20) of the blocks that could potentially be added to the chain. For the current protocol parameters, the maximum transaction throughput (for simple transactions) is then approximately 11 transactions per second (TPS). Obviously, different transactions will vary in size and have different effective payloads. A single transaction could finalize an entire Catalyst voting round, for example, transferring millions of dollars of value.

As discussed above, each block is filled with a number of transactions that have been submitted by end users from wallets, the command-line interface (CLI), etc. These transactions are kept in a temporary in-memory holding area (the mempool) until they are ready to be processed and included in a block. Pending transactions are removed from the mempool as a block is minted, and new transactions can then be added to the mempool. By using a fixed-size mempool, we avoid the possibility of nodes being overloaded during high-demand periods, but this means that it may be necessary for a wallet or application to re-submit transactions. The mempool size is currently set to 128 KB: twice the current block size. This has been chosen based on queuing models.

Stretching the network

Ouroboros is designed to handle a large volume of data as well as transactions and scripts of different complexity and size. At present, and with current parameters, the Cardano network is utilizing on average only around 25% of its capacity. Of course, the most efficient scenario is that Cardano runs at or near 100% of its capacity (the network is saturated). While many networking solutions would suffer under such conditions, both Ouroboros and the Cardano network stack have been designed to be fair and highly resilient even under heavy saturation. Benchmarking analysis shows that under 200% saturation, the overall performance is still resilient and there are no network failures. Even while stress testing under 44x, the total available network capacity also shows no failures (though some transactions may be slightly delayed). The network is designed to work this way, using backpressure to manage the overall system load. So while some individual users taking part in a large NFT drop may experience longer wait times for their transactions, for example, or may need to resubmit the occasional transaction from a large batch (or spread the drops over a longer time period), this does not mean that the network is ‘struggling’. It actually means the network is performing as intended. We call it ‘graceful degradation’ and you can read more about it in the network design paper.

Wallets

Wallets act on behalf of end-users to submit payments and other transactions to the blockchain, and to track the blockchain status. One of the key services that a wallet provides is to submit transactions on the user’s behalf, confirm that they have been accepted onto the blockchain, and retry them on their behalf if the submission has not succeeded. That is, the wallet should take into account the effects of backpressure in the network as it becomes saturated, as well as other network effects (temporary disconnection, possible chain forks, etc). Wallets may be either:

• Full-node wallets (as Daedalus), which use local computing and network resources to run a node that connects directly to the Cardano network.
• Light wallets: these, in contrast, use shared computing and networking resources to serve a number of end users.

During periods of high demand (e.g., an NFT sale), both types of wallets may need to retry transactions. Since they share resources among many users, light wallets may need to temporarily scale the available computing and networking resources (including replicating endpoints) to ensure that user demand can be met. This demand-scaling is similar to the requirements that are placed when a company releases a popular new product, for example. In contrast, full node wallets may be essentially unaffected. Transactions may be slightly delayed, but each wallet will have the dedicated resources that are needed to retry the submission, including its own network connections. Similar principles apply to DApp providers – where specific network endpoints are provided, the system resources should be scaled to meet the demand.

Process optimization

We naturally welcome the innovation (and the dialog) that we are currently seeing in the NFT community. To improve the user experience, it is necessary to optimize development procedures so that the process of NFT creation, for example, works well even when causing system saturation. Many NFT creators are using batch minting for greater efficiency, for example.

We would encourage creators to look at how they can continue to optimize their own efforts in order to minimize network congestion. We’d also encourage everyone to join the Discord discussions as part of our Creator community and we’re making our engineers available in order to find the best matching solution to a particular case.

As well as the flexibility afforded by parameter adjustments – which can be made within an epoch if required – in the medium and longer term, further options will come into play. Hydra allows multiple operations to be run in parallel, which grants enhanced scalability. Its state-channel solutions increase the system throughput, also reducing the demand for on-chain execution. However, while Hydra helps with multiple scalability use cases, it doesn’t specifically address NFT creation efficiency. As Cardano continues to mature and grow, we will continue to look at how we optimize the network and manage the network capacity. As I recently talked about in our October mid-month update, as the network starts running at a higher capacity, we’ll be able to tune those Cardano parameters as needed. For example, reduce the block time budget, optimize the size and execution time of Plutus scripts or lower their execution cost and improve throughput.

Join our Discord community today to find out more and to discuss all things Cardano with our dedicated community.

Thanks to Neil Davies and Olga Hryniuk for their additional contributions and support in writing this post.

At first glance, the deal between Cardano and Oasis Pro Markets announced at the Cardano Summit may sound like a specialist application of blockchain technology to the rarefied world of finance – of interest to bankers, perhaps, but not to the person on the street. But it could turn out to be a game changer for millions of people throughout the world.

Many countries struggle to fund large infrastructure projects such as bridges, dams, and rail networks, while their best and brightest citizens go and live elsewhere, their only contribution to their home country now the monthly cheques they send back home.

If you know anyone who sends money to their family in another country, then you have encountered the world of remittances. Although made up of small sums, it amounts to a huge well of money. Whole nations are kept afloat in this way, with remittances accounting for well over 30% of GDP in some cases.

Since 2020, as countries such as the UK have cut back their aid budgets, global remittances have actually exceeded the value of foreign direct investment (excluding China) and government aid from richer countries combined. It is a situation that Nick Cafaro, IOHK product manager, describes as ‘pretty astonishing’.

‘This means, for the first time in the 21st century, foreign workers abroad are sending money back home in amounts greater than all the investment coming from countries and corporations into those lower and middle-income countries – as well as the total amount of official aid.’

Yet that huge sum of money, much needed as it is, can only do so much good back home. ‘The government is unable to pool all that capital and put it towards big infrastructure projects that might benefit wider sections of the population,’ Cafaro said. ‘And the money coming in is not distributed evenly and so can actually increase inequality within countries.’

A third downside to this situation, Cafaro added, was that for remittances to continue people had to keep moving abroad to work, abandoning their family and wider community, ‘something that none of us really want to happen’.

A better way

Imagine a way of harnessing these funds so that they make the biggest impact where they are needed. A way that could actually raise the standard of living in the target country, and potentially stem the ‘brain drain’ of talented people from poorer to richer countries. Imagine that your solution also provides a return on investment for the person working overseas.

Blockchain can make this possible.

Countries typically fund infrastructure projects by issuing debt – sovereign bonds, as they are known. Sovereign debt is one of the bigger, more intimidating beasts in the capital markets zoo, and it is not one that most retail investors would be comfortable approaching. When a bond is issued by a sovereign nation, banks often form syndicates to buy up the entire issue. They want it for themselves because sovereign debt provides a fixed income at a low risk. Also it’s a regulation-heavy area of investment, so you need a huge amount of expertise to take part. It’s nice work if you can get it.

In the increasingly decentralized financial future, this massive class of debt and the huge pot of remittance money will be brought together. The relationship between Cardano and Oasis Pro Markets is a big step in that direction.

Cardano had wanted to form such an alliance for some time, and chose Oasis Pro because of its blockchain-first platform and regulatory expertise, said Cafaro, announcing the deal at the Cardano Summit last month.

‘The networks that are run by these syndicates of banks... are not capable of handling that type of deal flow, so you need to figure out how to connect those tens of thousands of individuals to the issuer through a single platform. The good news is that the Cardano blockchain is a great tool to solve this type of problem.

As Nick Cafaro, Product Manager at IOHK said:

We just had to find a partner to bring this “real fi” product to the Cardano blockchain. It had to be a company with expertise in capital markets and blockchain, and with all the right regulatory permissions in place.

Enter Oasis Pro Markets, Pat Lavecchia, the financial company’s chief executive, said: ‘We’re very much looking forward to a long-term partnership with Cardano and IOHK, providing democratization of financial services to a variety of countries utilizing our best-in-class technology – our matching engine or exchange, depending on the country and regulatory environment.’

He added that as well as providing greater access to the sovereign bond market for small investors – ‘the citizenry and diaspora of these countries’ – the initiative would provide ‘efficiencies and cost savings’ to the issuing governments.

Lavecchia described the Oasis Pro approach as ‘digital cash for digital securities’, which in effect meant using stablecoins and also potentially CBDCs, depending on different countries’ regulations.

‘Sovereign debt is a security that in the blockchain area could actually be fractionalized, and that fractionalization is tied very much to its democratization. It helps risk management for the issuer [and] increases the investor base, which in turn should improve liquidity as well, seamlessly. The digital exchange trading systems and order-matching engines that we’ve developed are the transition point from the legacy solutions . . . to the blockchain, and the benefits are enormous.’

According to Lavecchia, the issuer benefits in several ways. Because of anti-money laundering provisions, the issuer can ‘know at any time what institutions or individuals own their sovereign debt’. Governments no longer have to track down investors’ addresses and mail out their interest payments. ‘All that asset servicing is a tremendous time waste and unnecessary. The blockchain solves that issue. We estimate that the savings are anywhere between 25 and 50 basis points [0.25-.5%] of the issue amount.’

The issuing country can also benefit from smart contract innovations. ‘The smart contracts are embedded in the security itself and contain the terms of the security – for instance the principal and interest payments, the default provisions, if any, or any other actions or protections that are incorporated, not only for the investor but also for the issuer, the sovereign nation. It eliminates poor documentation and also reduces settlement times, which are currently between two and 10 days. Utilizing the blockchain and digital cash, that settlement time is reduced to almost zero.’

Once a country is set up with the Cardano/Oasis Pro system, it can expand its financial dealings to other asset classes such as equities, asset-backed securities, and other kinds of project finance, said Lavecchia. ‘This technology is available today and we have it with IOG ready to launch across the spectrum. In five to ten years this is going to be ubiquitous, so the sovereign nations that work with us today are going to be significantly ahead of the curve.’

At the Cardano Summit, IOHK announced a collaboration with Ergo, Nervos, and Topl to create the UTXO alliance. Today, we’re delighted to welcome a new alliance partner – Komodo.

Komodo is an open-source technology provider that offers all-in-one blockchain solutions for developers and enterprises. Komodo works closely with organizations that want to launch branded decentralized exchanges, cross-protocol financial applications, and independent blockchains. Komodo's flagship end-user application AtomicDEX is a non-custodial multi-coin software wallet and atomic swap-powered decentralized exchange rolled into one app. AtomicDEX and its underlying technology – Komodo AtomicDEX API – is compatible with 99% of cryptocurrencies in existence and offers the widest cross-chain, cross-protocol trading support in the entire blockchain industry.

“UTXO blockchains lay the basis and undisputed foundations of today’s blockchain industry. UTXO technology reflects Satoshi Nakamoto’s core vision of ultimate (financial) liberty,” said Komodo business development leader, Kadan Stadelman. “On behalf of Komodo Platform and the AtomicDEX team, I am honored to join the UTXO alliance to uphold and advance this vision. I am certain that together with other alliance members, we will bring this technology to the next level. All for one and one for all.”

The UTXO alliance will facilitate cross-ecosystem initiatives to extend the capabilities of UTXO in terms of smart contract functionality. Teaming up with other blockchain industry projects, the shared objective is to foster and support further research, development, and education across the entire space.

The goal of the UTXO alliance is to drive continuous innovation of the UTXO model in terms of interoperability, scalability (sharding, state channels), and smart contract solutions. Enhancing these solutions and driving key initiatives to build bridges between blockchains powers fair and accessible global finance for everyone. This also establishes a collective effort to enforce the development and functionality of UTXO-based ledgers. Other projects using this model include NEO, Bitcoin, and its derivatives like Bitcoin Cash, Litecoin, and Zcash.

Why UTXO matters

The unspent transaction output (UTXO) accounting model guarantees security, data privacy, and scalability at the core of financial activities. UTXO models foster scalability, as multiple UTXOs can be handled simultaneously, and ensure enhanced security as the overall stake is not aggregated into a single account.

UTXO is a more secure alternative to account-based models (used by Ethereum, for example). Unlike UTXO-based ledgers, account-based blockchains track the overall balance, and the same address is used every time a transaction is made. This is vulnerable to hacks and hinders scalability, as transactions are processed sequentially, rather than in parallel.

Cardano’s extended UTXO (EUTXO) model, for example, supports multi-assets and smart contracts and enables arbitrary logic in the form of scripts. These scripts can be split across different branches enforcing more parallelism and higher scalability.

Alliance member Nervos is developing a permissionless, layer 1, open-source, proof-of-work blockchain protocol focused on creating the foundations for an interoperable universal public network.

“Implementing the ‘separation of duties’ principle, Bitcoin’s visionary UTXO model is naturally more scalable and prone to attacks than the account model,” said Ren Zhang, lead researcher at Nervos. “Many projects sharing this vision provide unique perspectives to extend UTXO’s possibilities. The UTXO alliance enables interoperability and coevolution of its members, providing the world a superset of our advantages.”

Manuel Chakravarty, Lambda scientist and Plutus architect at IOHK added:

The UTXO ledger model, battle-tested by Bitcoin, remains the gold standard for security and scalability. The UTXO alliance is an important step towards ensuring that it will be the gold standard for interoperability, too.

Focusing on interoperability, programmability, and scalability

Centralized finance has been the centerpiece for financial operations for decades. While such a system has served us well enough in general, it still suffers from a reliance on a central authority, exorbitant transaction fees, and unnecessary delays, complexity, and costs in making international payments because of regulatory restrictions. It’s time for change.

Interoperability

Blockchain technology addresses the challenges of centralization by enabling reliable peer-to-peer transactions based on cryptographic proof rather than relying on costly intermediaries. Many blockchain projects have emerged to provide a secure and decentralized environment for financial transactions. These projects vary in terms of consensus algorithms, accounting models, or smart contract applicability focusing on particular use cases (such as finance, data traceability, supply chain management, etc).

Growth is inevitable. However, the speed at which the blockchain landscape matures is challenged by siloed ecosystems and disparate governance rules, technology versions, or functionality support.

As Romain Pellerin, IOHK CTO, said at the Summit:

Mainstream blockchain adoption will pass only through the interconnection of networks, similar to how the Internet was built by the interconnection of intranets and extranets.

So, today, it is important to ensure that the whole industry is driving towards interoperability. Users should be able to transact with each other without being limited to a certain ledger, smart contracts should be supported within different environments, and decentralized applications (DApps) should have cross-platform compatibility. Only such an approach will allow the blockchain industry to reach the full potential of its capabilities, driving further adoption.

Programmability

The UTXO alliance is also focused on blockchain programmability for the creation of DApps and smart contracts. In fact, the design of new languages is required in order to adapt to the specific transaction and data storage management (Ergo’s and Cardano’s EUTXO, or Nervos’ cell model, for example) of the UTXO model. The founding members of the alliance have developed Antara, CKB-VM, ErgoScript, and Plutus as their smart contract languages. Alliance members are sharing knowledge and collaborating in the development of those technologies to rapidly scale the number of use cases that can be run on UTXO-based blockchains.

Also, those languages are built as domain-specific languages (DSLs) on top of common programming languages including Scala, Haskell, C, JavaScript, Go, Rust, etc. However, in certain cases, those common languages do not offer the security or ease of use that smart contract developers require.

To ensure enhanced security and code verifiability, IOHK has chosen Haskell as the programming language for Plutus smart contracts. It is the most widely used functional programming language for application development. Haskell is simple, secure, and formally verified. In terms of adoption, it is suitable for a wide range of financial use cases, while allowing to move funds rapidly, get the right results, and ensure scalability. This programming style fits well within the UTXO model with regard to state distribution and parallelization for enhanced scalability.

Nervos is also working on alternative provably secure programming options that use RISK-V compilers to support common programming languages with CKB-VM. Topl, on the other hand, has been working on a chain program engine proof of concept, which is basically an abstraction layer on top of the UTXO model that allows working with shared state execution environments. It uses a pointer registry and a series of UTXOs (represented as atomic data elements in ledger state -i.e., boxes-) to reconstruct an execution context for evaluating program method call transactions.

Taking into consideration different development efforts, the UTXO alliance will be exploring the best-case scenarios to create a unified smart contract ecosystem where a variety of programming languages can be compiled and used on different blockchain platforms. This will be instrumental in ensuring better interoperability between blockchains.

Scalability

As a network grows, it is also important to take into account its scalability capability in terms of transaction processing and throughput. The UTXO model is different from the account-based one, as it functions based on the local state, and thus requires a different programming approach.

These two models have different properties and offer a different set of trade-offs, different pros and cons. The UTXO model ensures determinism, predictability and scalability by managing local states (the local portions of the overall graph of transactions) while the account model facilitates the development of use cases that rely on the global state (the whole graph of transactions needs to be processed before validation).

Hence, the UTXO model offers valuable properties of ensuring the execution of transactions and contracts prior to their submission on the chain with no surprises in terms of fees or validation. Also, the UTXO model can provide better scalability as it is simpler to shard a graph of transactions by definition by dividing into a set of sub-graphs.

It is also easier to detach a particular transaction or set of transactions (that transport data, scripts and assets) to continue activity off-chain before coming back with a result on-chain which ensures scalability by off-loading activities from the mainchain. IOHK, for example, has developed Hydra state channel solutions that increase the system throughput and allow running multiple operations in parallel without compromising scalability. You can find out more about scalability by reading about concurrency on Cardano and the Hydra approach.

Combining forces for the common goal

The UTXO alliance collaborates to advance the UTXO model while developing a universal UTXO standard. It aims to provide ada holders, cryptocurrency users, enterprises, and the developer community with a range of solutions that do not lock them into a single standard. For this, the alliance will be conducting academic research and releasing a number of papers that underpin secure and scalable smart contract development based on the UTXO model.

While interoperability is key, it is also crucial to provide blockchain solutions for increased funds security, scalability of transaction processing, and, of course, extended functionality granted by smart contracts.

Alliance member Topl has developed a blockchain built to be an impact monetization engine. James Aman, Topl founder and CTO said: “Extended UTXOs enable novel methods of computation in DLT systems that bridge the gap between hard-coded protocol behavior and smart contracts. EUTXOs enable users to engage in complex interactions while retaining full local verifiability even from light clients.”

To enable the possibility of utilizing various features in a blockchain-agnostic way, the alliance is committed to addressing such instrumental questions as:

• how to seamlessly transfer data between different blockchain environments
• what is the ideal size of data to be used in transactions
• what should be the speed of data processing
• the transaction cost, etc.

Thus, the alliance focuses on the mechanism that enables seamless and secure transactions between different blockchains to foster the greater adoption of blockchain technology. This will also drive the development of solid DApps and DeFi solutions.

Alex Chepurnoy, the co-founder of alliance member Ergo, added: “While it is well-known that UTXOs are better for blockchain scalability and simpler off-chain protocols, the extended UTXO model also allows for novel on-chain DeFi constructions with interesting properties.”

This is only the beginning, and we are currently looking into collaborations with more ecosystems to pioneer improvements of the UTXO model, investigate how the common knowledge and technology stack can improve scalability properties, and contribute to open-source research. We’ll keep you posted as the alliance grows.

Visit the UTXO alliance website to find out more, join the alliance or contribute to the research.