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Parameters and decentralization: the way ahead

On December 6 we'll be making adjustments to the k-parameter in Cardano. Here’s why

5 November 2020 Tim Harrison 10 mins read

Parameters and decentralization: the way ahead

Shelley continues to evolve and, as it does, IOHK is committed to supporting the healthy development of the Cardano ecosystem. There are many factors at play in this regard: everything from the wallet experience for ada delegators to network tools for stake pool operators; from governance and funding frameworks like Project Catalyst and Voltaire to community-led initiatives. Central to the health of Cardano as a vibrant proof-of-stake network is the manner in which delegators and stake operators are rewarded for running it, and how those rewards are shared to maximize decentralization and secure the network.

The system is still transitioning towards full decentralization and community ownership. Very shortly, the majority of blocks will be minted by community pools as the influence of the genesis nodes supporting the network is gradually reduced. The steady reduction of d (the parameter governing this process) will see it reach zero by the end of March 2021. This will mark the full decentralization of all block production on Cardano.

Some four months on from the deployment of Shelley, it is time to adjust the parameters of the rewards mechanism so that the next phase of the network’s growth is fueled. Since launch, we have been monitoring network behavior, while seeing how the community and ecosystem are developing. We have also been carefully modeling various scenarios based on data as it emerges. We have now finished a full review and have aligned – from a philosophical, scientific, technical and practical perspective – the next steps. Before we make further adjustments to the parameters of the rewards scheme, we wanted to share with the community what we hope to achieve with the underlying mechanism and associated parameter adjustments.

Encouraging sustainability through pool diversity

First and foremost, the rewards-sharing mechanism of Cardano aims to reward people fairly for supporting the platform in a sustainable way, not as a short-term windfall. One of the goals of staking has always been to encourage long-term holders of ada: the people who are committed to the success of the ecosystem.

In the longer term, the system can be successful only if it is widely decentralized. Philosophically, the design of the rewards scheme aims to encourage a wide and diverse set of stake pool operators. This secures the platform against attacks, spreads any available rewards evenly across the community, and makes the system more resilient to change.

Many economic systems have a tendency towards consolidation and a smaller number of strong players. On the other hand, blockchains can only be successful when control is decentralized. The rewards-sharing scheme ensures that smaller and medium pools can contribute meaningfully to the ecosystem without becoming subsumed into larger operators and consortia, as has happened with other blockchain systems, particularly Bitcoin.

One way to discourage a trend towards a few large pools that collectively control the system is to introduce a counter-incentive to a pool's growth. The rewards-sharing scheme we designed is an example of this novel (in the cryptocurrency space) concept. As soon as stake delegation to a single pool increases above a threshold, the rewards automatically diminish, encouraging ada holders delegating to that pool to find a new home to improve their rewards. This mechanism limits the delegation that can be rationally made to any pool and spreads delegated stake more evenly across a larger number of pools.

All about k

The parameter of the rewards scheme that sets this 'soft-cap' on the pool size is called k. The mechanism is designed so that, at equilibrium, assuming rational participants and no external factors, the stakeholders' best response behavior converges to k pools of equal size delivering the same level of rewards per unit of stake to their delegates.

For the deployment of Shelley on mainnet, we started with k=150, which limits pool size to 210 million ada. This was a modest increase from the parameter choice used in the incentivized testnet (ITN), which had a value of k=100. At the time, this was considered to be a relatively conservative choice, made to ensure the ITN environment would smoothly move to the mainnet. The launch of Shelley has seen enormous interest from the community and a large number of pools. Over the past few months, we have observed the way the staking pools are operating, and recognize that k needs to be adjusted upwards.

It is worth noting that the k-parameter is not amenable to small, gradual increases (unlike, for example, the d-parameter, which lends itself to a gradual reduction). Each increase in k requires pools and delegators to take action. For pool operators, this means a careful adjustment of their parameters and in particular their margin; for delegators, it means choosing new pools to delegate their ada to, especially if their current choice becomes oversaturated.

Therefore, the best strategy for an upwards adjustment of k is to move in larger, less frequent increments – and to move it as far and as fast as practical network dynamics and economics will allow. The ‘how much’ and ‘how soon’ has been a topic of intense debate and discussion within the team, made more complex by a number of technical factors. The best solution is one that minimizes disruption for successful pools and their delegators, while maximizing the opportunity for medium and smaller pools to mint blocks and attract more stake. Equally, it is crucial to be always focused on the longer-term strategic goal as a community to broaden decentralization as widely as possible.

Moving to k=500 in December

We are committed to a measured and deliberate set of changes and will be using the data we gather to inform subsequent decisions. Therefore, we plan to implement the k change in a staged manner. First, we shall move to k=500 at epoch 234 (21:44 UTC Sunday, December 6, 2020). The move to k=500 will give small- to medium-sized pools that are struggling an improved opportunity to attract delegation. It will also have the effect of limiting pool size to 64 million ada, which means more than 100 of the largest pools will become saturated.

Ada holders can redelegate at any point between now and the change. If you are currently delegating to one of the largest pools, and wish to continue receiving optimal staking rewards, you may need to move your ada before or during epoch 233, before the new epoch boundary at 21:44 UTC on December 6. We certainly encourage delegators to keep an eye on their favorite pools in the saturation meter in the Daedalus wallet a day or two before December 6. If it shows significantly more than 64 million ada at this point, you should certainly consider redelegating. It is important to note that rewards will still be payable from slightly saturated pools, but these steadily diminish the greater the saturation over 64 million ada in the pool. To be clear, though, no one delegating to an over-saturated pool will lose any of their stake. It is simply that the return on their stake will be reduced if they stay delegated to a saturated pool. We always encourage the community to keep an eye on their delegation choices, and this will be especially important around this time.

Modeling the long-term viability of stake pools, we found that k values of 1,000 were stable in the long term. As a result, our aim is to move to k=1,000 during March 2021. We recognize the importance of economic factors that also strongly influence pool profitability and will continue to consult widely with the community on the plan; the social dynamics of the network should also not be underestimated. A number of opportunities will be presented (including community panels and seminars) for further discussion, while helping the community understand more about the changes and contribute their perspectives.

From a strategic and philosophical perspective, we believe this is the correct approach for Cardano. We wish to encourage decentralization across a large number of stake pools that are independently operated, while recognizing the positive contribution of the pools currently leading in the rankings. We shall also pay heed to the practical dynamics of the evolving ecosystem. By the end of March, d, the decentralization parameter, will also be set to zero, meaning that Cardano block production will be fully decentralized, and responsibility shared across nearly all the pools currently running the network (and hopefully, some new entrants too).

No silver bullet

We believe that changing k to 500 will benefit the ecosystem, despite a period of disruption and change. However, it is not the whole solution. We are continuing to develop our thinking in other areas that will tangibly contribute to Cardano’s decentralization. Hardware wallet delegation support (coming very soon) should help open up ada supply, to the benefit of all. We shall soon add the ability to delegate to several pools from a hardware wallet, which will help Trezor (initially) and subsequently Ledger owners spread their stake across a range of pools. Improvements to stake pool servers will in time allow community members to start curating their own pool lists to help shape and steer delegation choices. We shall also be retiring all but one of our public IOG pools and encouraging delegators to switch their ada to community pools, while developing our own delegation strategy. On the parameter side, we are now finalizing some modeling around pledging by pool operators, another factor that will help shift network dynamics in favor of a broader spread of ada. Expect more news on all these topics soon.

We recognize that in the short term, the move to k=500 will mean significant change for some. If delegators to larger pools do not react, some pools will become oversaturated and rewards will be unclaimed (note that no rewards are lost; everything goes back to the system’s reserves for the community to draw upon in the future). As a result, pool operators will need to adjust their margin and cost in the short term to stay profitable and incentivize delegators to take action. While this will require some effort from the community, it is an essential step for the Cardano ecosystem to maximize its decentralization. As smart contracts and multi-currency support will be coming soon to Cardano, a high level of decentralization will be the jewel of the ecosystem, and a strong competitive advantage over other blockchains.

The increase in k will be a significant step forward in delivering Cardano’s mission. Because this change will bring some disruption, we want to give the community plenty of time to absorb the changes and adjust their strategy. Moreover, we would like to help the community make the right decisions for the long-term sustainability of Cardano. We will be publishing more content over the next few weeks and months to support this approach (including a guide to making good delegation choices) as we continue to improve the experience.

Achieving the highest level of decentralization is the ultimate objective of any blockchain system. Decentralization is the solid foundation over which the Cardano ecosystem will thrive. True decentralization cannot be conjured purely out of mathematical theorems, and the tweaking of parameters and formulas will never be enough by itself – even though with Cardano we have taken huge strides compared to any other blockchain. Nevertheless, in the end, true decentralization will emanate from the collective will and actions of the Cardano community. We will continue in this path together, investigating additional approaches to allow stake pools to build their brand, communicate with their delegators, and highlight their own contributions and mission more directly.

Thanks to Aggelos Kiayias, Colin Edwards, Olga Hryniuk and Francisco Landino for their input to this piece. Thanks also to researchers Aikaterini-Panagiota Stouka and Elias Koutsoupias.

We’ll be posting throughout the next month to support delegators and stake pool operators as we approach the December 6 deadline. Please be sure to follow us on Twitter and subscribe on YouTube for all the latest updates.

Cardano Virtual Summit 2020: Shelley Edition

Bringing the global community together under one virtual roof.

3 July 2020 Tim Harrison 5 mins read

Cardano Virtual Summit 2020: Shelley Edition

Day One of the Cardano Virtual Summit 2020: Shelley Edition started with a splash. IOHK CEO, Charles Hoskinson, took the stage to welcome almost 10k registered attendees from around the world to the digital conference space. Each participant was met with exhibition areas, lots of virtual hangout space, and most importantly, session programming across five digital stages, covering everything from governance and community, to science and enterprise. With so much content to enjoy, we can’t hope to summarize it all here. So take a look for yourself. Register now to enjoy all of today’s sessions either live or on-demand right after the summit closes this evening.

To bring you up to speed, here are the key take-outs from Thursday.

Shelley is here

The summit comes right after a significant milestone in the Shelley rollout. The pace of delivery has been ramping up considerably over the last couple of months, leading to the June 30th deployment of the first Shelley-complete node. The stage is now set for the continued rollout, with a high degree of confidence in the dates we have laid out, with delegation and staking due on mainnet in August. However, the confirmation of Shelley’s successful deployment was just the first of many announcements at the summit.

Goguen and Voltaire are coming

Within 120 days, we’ll be rolling out the native asset standard for Cardano. Within 150 days, we’ll see the roll-out of Plutus Foundations, the first point of entry for smart contracts on Cardano. Sustaining a decentralized project means more than simply allowing users to run the protocol and build on the platform. They must also decide what the platform does and where it goes. Project Catalyst and Voltaire seek to give that power to the community through decentralized democracy. A pool of funds and a voting protocol will allow the Cardano community to make their voices heard on proposed advancements to the blockchain. Ada holders will also be able to submit improvement proposals to help shape the direction of the ecosystem. Improvement proposals might include software updates, technical development options, funding decisions, and choices about the long-term plans of the ecosystem. Once delivered, the Cardano network will become a self-governed and user-run platform.

Atala PRISM

Day One continued on a successful note with the announcement of PRISM, a decentralized identity solution that enables people to own their personal data and interact with organizations seamlessly, privately, and securely. It will encourage better practice in consumer data privacy and security by offering users ‘self-sovereign’ digital identities, without Big Tech intermediaries accessing, storing or sharing personal data.

PRISM also promises to open up access to a blockchain marketplace of financial and social services for millions of users who might not previously have had access to banking and financial services. This will enable low-income populations to store and share personal information like credentials, land deeds, and health records. Through PRISM, users can also access financial products like loans and insurance.

Atala PRISM is built for compatibility with other blockchains and legacy systems to make it accessible worldwide. A pilot currently underway in Georgia will give employers the ability to verify graduate qualifications instantly. But PRISM is only one part of a suite of enterprise-grade ‘layer 2’ software solutions designed to bring advanced, highly flexible functionality to blockchains. Other elements of the evolving Atala suite of products include traceability for supply chains and the ability to monitor the movement of goods globally.

In an impressive demo, the team showcased the platform and mobile app with a smart city walkthrough. The app will work with Android and iOS devices, while the platform also supports paper wallets and smart cards.

cFund

Last but not least, we announced a landmark partnership with Wave Financial Group. The $10 million dollars pledged to the development of Cardano’s ecosystem represents the first venture capital to support IOHK. Together, the two companies will generate a $20 million dollar incubator fund to help startups who want to build on the blockchain. This provides several years of financial runway to target seed and early-stage opportunities. Wave Financial is looking to invest in global companies created on Cardano by giving funding of up to $500k. The move aligns both firms’ interests in driving Wave to become the industry’s leading digital asset management group while ensuring IOHK becomes the vanguard technology provider in the space.

We’ll revisit all these stories over the weeks ahead to give you a deeper dive into our plans and what they mean. But, as excited as we are by these opportunities for future adoption and growth, Day One was also a day of reflection.

Because we would not be where we are without the incredible support of the Cardano community, which helped to bring us here and joined from all around the world to celebrate Shelley. Connections were made between companies, platforms... and people. Day One was full of big announcements, and boosted by some fascinating speaker sessions with world-class scientists, technologists, and thought leaders sharing their vision of the future. It was also full of optimism, of ideas, buzzing with community contribution and opportunity. Thanks to everyone who helped make it such a special day. And see you back at the summit later today!

Documenting Cardano: a single source of developer truth, fit for the future

1 July 2020 Tim Harrison 3 mins read

Documenting Cardano: a single source of developer truth, fit for the future

With yesterday’s release of the first Shelley-complete node on the Cardano mainnet, a new era has begun. Between this, the launch today of a brand new Cardano website and brand identity, and tomorrow’s Cardano Virtual Summit, the dawn of Shelley is casting fresh light on IOHK's future. It has also highlighted the need for a documentation framework fit for our rapidly growing ecosystem.

We have written and gathered a substantial amount of technical material on Cardano over the years. Inevitably, this has developed organically and has been of variable quality and utility. Not all of it remains accurate or useful. The deployment of Shelley, the growth in developer interest, and the evolution of Cardano has moved us from project into product. So this has created the need to take a fresh look at how we explain Cardano.

Users and consumers of Cardano need to have clear, concise, and relevant material that matches the quality of the code on which the blockchain is built. Documentation needs to be correct and useful, and well organised and focused. In addition, we have identified the need to map categories of information to each user group, or persona. We're building a best-in-class blockchain, and this necessitates high-quality supporting documentation. The old Cardano docs site was in serious need of re-organization and updating, and our technical writers have been busy doing just that. Welcome to the new Cardano docs.

Documentation for the future

Cardano is a complex product with complex technological underpinnings. However, for the developer community and wider audience to embrace it, we need them to understand how it can provide rewarding experiences. They need to know what Cardano can do and how it can solve problems. To ensure that we have the right information for all users, we are reorganising the documentation suite and mapping what each audience needs.

Over the past few months, IOHK has been engaged in a company-wide effort to revamp all the content about the Cardano project. Our technical writing team has been immersed in transforming our previous repository, working closely with our developer teams to create a single source of technical truth, A resource of effective, informative, and up-to-date information that provides value to a broad set of audiences: exchange partners, stake pools, experienced blockchain developers, as well as people who want to understand Cardano. That also caters for skilled crypto enthusiasts and those who simply want to learn about Cardano from a technical perspective.

So today, we’re launching a new documentation site. Instead of a static repository, the site is now a living, breathing source of information on Cardano, plugged into the heart of our development methodology. Just like Cardano, this is an ever-evolving entity. Components are added regularly as we strive to improve on the content we are delivering. New functionality is implemented all the time. We also intend to publish a lot more documentation based on our plans and community feedback. We need to build this out based on what works for our users, whether they sit in the technology or commercial space.

With the virtual summit and our continuing momentum bringing a host of new faces into the ecosystem, we now have a jumping-off point for a single source of developer truth that we can build on.

What the Byron reboot means for Cardano

New code delivers big benefits for the network and Daedalus users as we prepare for Shelley

30 March 2020 Tim Harrison 5 mins read

What the Byron reboot means for Cardano

The Byron reboot is a series of updates to multiple components of the Cardano network. Namely the Cardano node, but also the Cardano explorer, the wallet backend, and the Daedalus wallet itself. The first part of the Byron reboot – a totally new node implementation – has already been deployed to some relay nodes on the network, and the next few weeks will see core network nodes and more relays being incrementally upgraded to the new system. Soon, users will be able to experience the node improvements directly via a new version of the Daedalus wallet.

Why do we need a reboot?

To prepare for the future, and for Shelley. The node that launched at the start of the Byron era was only ever going to take us so far. The new node implementation has been designed from the ground up to support not only imminent Shelley features, such as delegation and decentralization, but anything else that the future has in store. The improved design is modular, separating the ledger, consensus, and network components of the node, allowing any one of them to be changed, tweaked, and upgraded without affecting the others.

The reboot has also been an opportunity to apply evidence-based formal methods and testing to every single aspect of the node. Rather than try and make these substantial improvements to the existing code, it was more effective to work from scratch. All critical elements of the new node have been formally specified, and the final implementation tested against those specifications. Basic code quality and performance are now significantly higher and more robust across the board, as well as being easier to test and verify going forward.

What’s involved?

Improvements to the Cardano node, of course, but work has also been underway to improve the Cardano explorer, the wallet backend, and Daedalus itself. The new explorer has been redesigned to make it easier to use, as well as having an updated visual design and more information available. The improved wallet backend and associated services, collectively known as Adrestia, will allow exchanges and third-party developers to engage with the Cardano network using a collection of independent, self-contained libraries. The newly extended APIs have been explicitly designed to meet the needs of larger exchanges, enabling ada to be supported on even more platforms. And finally, a new and improved Daedalus release will see Yoroi wallet support, transaction filtering, parallel wallet restoration – not to mention some significant performance improvements.

How will it impact the Cardano network?

At the most fundamental level, the Byron reboot will improve the performance of the entire Cardano network. Transaction throughput capacity will increase, and the network will be able to handle much higher demand and transactions per second. The node improvements also make the node more efficient and reliable in terms of memory usage, increasing the viability of running a Cardano node on a low-spec machine or in poor network conditions, which, in turn, enables more users to participate in the Cardano network across the world.

What does it mean for Daedalus users?

First, there’ll be a new rolling release of Daedalus that is designed to allow users to test the new node functionality and wallet backend, and to provide us with feedback. We’ll be sharing more about how that will work in our monthly product update on Tuesday, March 31. Once the wallet has been user tested, feedback will be implemented in a new production version of Daedalus. Many of the issues users have experienced with Daedalus in the past were due to the underlying node, rather than Daedalus itself. The new node will go a long way to improving performance, and users should see Daedalus syncing and restoring wallets at significantly improved speeds.

What’s next?

The reboot commences with the deployment of a CLI and associated APIs to exchanges and wallet partners. The new node update will then be rolled out to more core and relay nodes on the Cardano mainnet within the next few weeks, followed by other reboot and continuing Daedalus improvements in the months ahead. The goal is to gradually and sustainably migrate the entire Cardano blockchain to working on the new node implementation, without any disruption or loss of service. After that comes the Haskell Shelley testnet, which will include onboarding stake pool operators from the Incentivized Testnet to help them set up and prepare for running their pools on the Shelley mainnet.

The Byron reboot is the culmination of over 18 months of work by several IOHK development teams and represents a significant investment in the network-critical infrastructure required to support the Shelley era of Cardano. For more details on the reboot and how it will all roll out, tune in to March’s product update on the IOHK Crowdcast stream on March 31. Cardano product director Aparna Jue and members of her team will join me to discuss the latest on the reboot and the next steps for the project.

New Cardano node, explorer backend, and web API released

We’ve refreshed Cardano’s architecture – with more yet to come

12 February 2020 Tim Harrison 4 mins read

New Cardano node, explorer backend, and web API released

Today marks the culmination of considerable effort by the Cardano team: the release of a new Cardano Haskell implementation. This implementation consists of two main components: the Cardano Node and the Cardano Explorer Backend and Web API. Over the past 18 months, we’ve been building a new architectural foundation that will not only prepare us for the upcoming releases for Shelley – and, thereafter, Goguen – but open the door to third-party developers and enterprise adoption.

The changes will begin with the Ouroboros update to Ouroboros BFT (Byzantine Fault Tolerance), which is tentatively scheduled for February 20. For now, Cardano’s blockchain production remains on the old implementation. After the update to Ouroboros BFT, we will be able to migrate the core nodes that create blocks, while Daedalus users will be able to upgrade later, once the compatible wallet backend is available.

Why now?

The original implementation of the network node – launched in September 2017 – has taken us as far as it could. We’ve known for a long time that a new architecture is needed to achieve our roadmap, ready the system for Shelley, and provide a foundation for Goguen, as well as other future releases.

This update is about radically improving Cardano’s design, and is the first to take advantage of our work on formal methods. While the old node was monolithic – with components like the wallet backend and explorer built in – the new version is modular. This makes future integrations easier and allows the node to be more readily incorporated into other systems, such as those used by exchanges. In the new architecture, the node, wallet, and explorer exist as separate components (a new wallet backend will soon be released).

What’s involved?

A significant achievement of this new implementation is the separation of the consensus layer and ledger rules. This decoupling means we are able to change the ledger rules without making changes to (or risk breaking) consensus. Following from this, when we transition into Shelley to Goguen, only the ledger rules will change. This will allow us to execute deployments more efficiently and add new features more frequently. We’ll have less to validate and test, while supporting more efficient development.

Some benefits will be immediate, and others will be realized over time. The direct benefits are that IOHK engineers will be able to innovate more easily and make changes to specific components without necessarily impacting others. The new implementation, coupled with the update to Ouroboros BFT, will also lead to significant TPS (transactions per second) performance improvements. For end-users, the benefits of this update will be cumulative, as the Cardano network profits from greater developmental support and system adaptability and portability.

This new implementation is the result of a lot of hard work. Now, we start to see the benefits of our commitment to formal methods, delivering a network that can not only scale, but remain stable while doing so. The new codebase has had substantial – and ongoing – testing, and we’ve been able to make a number of fundamental improvements without inheriting the shortcomings of the old codebase.

The new Cardano node also features an IPC interface that can be used by multiple client components, including wallets, explorers, CLI tools, and custom integration APIs and tools. This isn’t only about us being able to develop better-performing systems and applications, but others being able to as well.

Cardano Explorer Backend and Web API

The Cardano Explorer Backend and Web API is the new explorer backend and web API for the Cardano Node. It has been completely rewritten compared to the previous cardano-sl explorer. It has a new modular design and consists of the following components: Cardano Explorer Node, PostgreSQL database, and Cardano Explorer Web API.

  • The cardano-explorer-node is a client of the Cardano node. It synchronizes Byron chain data into the PostgreSQL database. The PostgreSQL database schema is a stable public interface and can be used directly for queries.
  • The cardano-explorer web API is a REST API server that reads data from the PostgreSQL database. It is compatible with the old cardano-sl explorer HTTP API and old web frontend.

For more information, see the release notes and documentation linked therein.

This release is about preparing Cardano for what’s to come, and ensuring we have the architecture and network apparatus in place to scale, remain agile, and allow for the necessary interoperability, interactivity, and ease-of-use that industry use-cases require.

For the latest Cardano updates, visit the Cardano forum or follow us on Twitter – and stay tuned for more information on the new wallet backend.