Stake delegation is facilitated by a delegation certificate, assigned by the ada holder on delegation and recorded on the blockchain. The ada holder can later change their delegation settings at will by issuing a newer delegation certificate. Note that even while delegating, the ada holder retains the sole right and ability to spend their ada.

Key to decentralization is the ability of stakeholders to delegate stake. In a proof-of-stake system such as Cardano, stakeholders have an obligation to take part in the protocol. Since this may not always be practical for some users, stakeholders are able to delegate their obligations to others — so-called stake pools — which are able to fulfill the obligations. Stake pools operate core nodes that are online at all times to take part in the protocol and produce blocks in the blockchain. Our researchers have published a research paper outlining how this can be achieved: Reward Sharing Schemes for Stake Pools.

Not every ada stakeholder has the resources, knowledge, or desire to operate a Cardano node full-time. To address this and motivate reliable and performant network nodes, Cardano enables holders of ada to delegate staking rights to Cardano stake pools. Stake pools are Cardano nodes run by network participants who have committed to ensuring full-time availability and appropriate hardware environments to support the response time, security, and liveness of the Cardano network. A stake pool operator earns a reward for supporting the network when ada holders delegate their stake to that operator’s pool. The incentive and reward model has been designed to motivate delegation to a large number of stake pools, ensuring the ongoing decentralization of the network. The optimal number of stake pools motivated by the incentives model is a parameter that can be adjusted to fine-tune network performance.

As Cardano grows, it is essential that we maintain security. Ouroboros Praos improves upon Ouroboros, our proof-of-stake protocol. Presented at the leading cryptography conference Eurocrypt, Praos provides security against adaptive attackers, tolerating harsher network conditions while also bringing efficiency (and hence scalability) improvements.

Through private leader selection and forward-secure, key evolving signatures, Praos ensures that a strong adversary cannot predict who is going to be the next slot leader and launch a focused attack (such as a DDoS attack). The protocol also tolerates adversarially-controlled message delivery delays and a gradual corruption of individual participants in an evolving stakeholder population, provided that stakeholder distribution maintains an honest majority of stake.

Ouroboros Genesis is the next evolution of the Ouroboros protocol. It achieves security under dynamic availability, a formal model introduced to capture situations when nodes go offline and rejoin the protocol execution in an uncoordinated manner. 

Presented at a flagship security conference, the protocol also introduces a novel chain-selection rule that enables parties to ‘bootstrap from the genesis’, to rejoin the execution chain based only from the genesis block, without requiring any trusted third-party or checkpoint or checkpoint. Genesis ensures that each stakeholder, either newly joined or re-joined, can obtain an up-to-date version of the blockchain, protecting against long-range attacks. 

Significantly, through Ouroboros Genesis, Cardano and other proof-of-stake blockchains can provably match the security guarantees of proof-of-work blockchains.

Successfully implementing Ouroboros-BFT (OBFT) is a major development milestone ahead of the Shelley era. With the release of Cardano 1.5 and OBFT, the process of preparing the network for gradual decentralization can begin. This update won't affect the functionality currently available to users, but is a necessary technical step in preparing for full decentralization with Shelley.

Daedalus will enable users to delegate their stake from within the application, using a simple and intuitive UI. Ada holders will be able to review all available stake pools and associated information, including projected rewards, before selecting a stake pool to delegate to. Users will also be able to change their delegation settings at any time from within the wallet.

The redesigned Daedalus wallet backend is based on the Cardano formal wallet specification created by IOHK researchers, making it the first cryptocurrency wallet to be built from a formal specification and tested using formal verification. Both regular and exchange users will benefit from the resulting improved performance, as well as the unparalleled security of a wallet created via such rigorous methods.

The wallet functionality has been decoupled and removed from the node implementation for better functional separation and less dependence.

To improve security, the new version of paper wallets will allow the offline creation of paper wallets and will not require Daedalus to be synchronized with the blockchain. A new single-address scheme will be used, but the restoration of paper wallets will retain compatibility with the initial version of paper wallet certificates. The process will be easier and more intuitive by linking paper wallets with normal ada wallets. Daedalus will also support the restoration of paper wallets in read-only mode for audit purposes, which will keep the private key stored safely offline.

Hardware wallet support was initially added to the Yoroi and AdaLite light wallets and will also be added to the Daedalus wallet, so that users can secure their ada in hardware wallets such as the Ledger Nano, Ledger X, and Trezor.

The process of wallet restoration has been improved: wallet balances will display immediately upon restoration, while transaction history will be restored in the background. While this particular piece of work is complete, the wallet restoration process is continuously being improved.

Wallets are prone to user error. Better wallet recovery allows us to improve the user experience – and reduce user error – by linking BIP39 mnemonic codes to a unique hash key. This will enable users to identify whether a mnemonic code has been entered correctly, as well as allow for easier backup and restoration. Hash keys can be printed or stored alongside paper or regular wallets and are displayed both in code and as a vector image. Once a mnemonic code is entered, a hash key will appear; the user only has to compare the key shown with the key stored.

Traditionally, cold wallets provide security at the expense of readability. The hot and cold wallet implementation will enable the changing of hot wallets to cold wallets, and vice versa, by removing the private keys from any hot wallet, in effect turning it into a cold wallet, while retaining its readability. Through this, cold wallets become readable, provide evidence of transactions and funds, and can be sent to third parties, but are unable to execute new transactions.

A new interface will be added to graphically display the status of the blockchain and communication between components, showing the health of the system so that any problems can be identified.

Cardano is adding hierarchical deterministic (HD) wallets. These were introduced in BIP32 (Bitcoin improvement proposal) and later improved on in BIP44. This key derivation method uses hierarchical deterministic keys to derive key pairs from a single master pair. HD wallets start with the master key and generate a new child key by hashing the master key with an index. By changing the index, different keys are created which can be deterministically reproduced by providing the index with the master key. With HD wallets, users don’t need to store and generate new keys for each use: only the master key needs to be stored and all other keys can be derived.

A wallet consists of a set of addresses, with ada at each address. Currently, wallet addresses are a long string of numbers and letters, which cannot easily be distinguished from each other at a glance. Cardano addresses are currently a lot longer than Bitcoin addresses. This feature will make it possible to have shorter wallet addresses that will be easier to communicate. The goal of this work is to have addresses that are much closer in length to those of bitcoin, which will be done by minimizing the information represented in the addresses and improving the way that stake delegation information is represented.

Key evolving signatures is a security feature whereby the keys of slot leaders change regularly to avoid the possibility of malicious future use, making it impossible to use stolen or illicitly purchased keys from past slot leaders to introduce changes to the chain in previous slots.

Multisignature transactions in Cardano will allow Daedalus to support wallets that are shared between people who have joint control of the funds. For example, it allows a simple joint wallet held by two people, where both people are required to sign for all transactions. It also allows for more complex arrangements such as a wallet held by three people where any two of them can sign transactions. This can be a very useful security feature to protect against one person's keys being compromised, or a helpful feature to enable joint control of funds where agreement is needed for spending.

After BIP44 wallet addresses have been implemented, some ada may remain in legacy wallet addresses. Cardano will continue to support legacy wallet addresses indefinitely, so there is no requirement to move ada following the introduction of the new wallet address scheme.

The wallet backend has been decoupled from the node, abstracting out the communication interfaces. This allows functionally equivalent node implementations to be written in different code bases based on the technical specification, one in Haskell and one in Rust.

Rather than fall victim to the hard fork issues that have affected other blockchains, Cardano ensures smooth code updates. Instead of transitioning from old to new code in a single update, new code is included alongside old code, with nodes continuing to use the old code until a sufficient majority of the network has been updated. Only then is the code transition triggered.

A redesigned and rearchitected storage system provides improved I/O efficiency in the Shelley era, and better Cardano node and wallet performance as a result. The wallet will also be better able to handle more common forms of data corruption, such as those caused by incomplete or aborted shutdown, where the problem affects the most recent blockchain data.

The design of the network layer has been fundamentally reworked for the Shelley era with a focus on performance and making effective use of available resources. All the networking protocols have been redesigned to support pipelining, allowing multiple requests to be sent without having to wait for a reply each time, significantly improving the efficiency of network usage.

A fully decentralized cryptocurrency needs a fully decentralized network layer, which is the part of the system that allows nodes to join the network and to send and receive transactions and blocks. To be fully decentralized, this will work in a peer-to-peer (P2P) way without relying on any central authority. It will also work, as now, without requiring any special firewall or home internet settings. The network must be open to allow anyone to join, but existing large open P2P networks have been vulnerable to relatively small numbers of hostile nodes. Other researchers have learned the lessons of these existing P2P networks, and we are following the best practices they now recommend. Finally, the new network layer is designed to give a degree of protection to large scale distributed denial of service (DDoS) attacks.

NETWORKING PROTOCOLS

To accomplish the above, Cardano has a fully custom bespoke network layer, consisting of the following mini protocols:

• Node-to-node protocol bundle
• Node-to-client protocol bundle
• Handshake version negotiation
• Bearer topology configuration and management – peer discovery and selection
• Chain sync protocol
• Block fetching protocol
• Transaction submission protocol
• Multiplexing layer

The Byron-Shelley transition framework provides the means to move safely from the Byron era to the Shelley era. The old nodes from the federated network will gradually hand over responsibility for creating blocks to stake pools, while our DevOps team will monitor health metrics such as chain growth and the amount of properly delegated stake. This mechanism is key to de-risking this critical phase in Cardano.

This is a piece of network infrastructure which will enable continued communication between old and new Cardano nodes after the initial Shelley upgrade. Using the proxy, while still in the Byron compatibility era, Shelley nodes will still be able to validate blocks created in the Byron era, ensuring network operability with legacy nodes.

The mempool stores in-process transactions that have not yet been written to a block. For the Shelley era, the Cardano mempool has been reimplemented in a more efficient way, resulting in better performance. It has also been designed to be especially resistant to distributed denial of service (DDoS) attacks.

In the Shelley code base, the transaction creation and submission processes will be separated into two phases. This will allow for the offline creation and signing of transactions, a requirement for hardware wallets and many exchanges.

Chain generator and validator components are used to randomly generate and validate chains for testing purposes, enabling thorough testing of consensus and network functionality in a wide variety of scenarios. With these, the team performs property-based testing on the system, catching and fixing deficiencies that only occur in rare edge cases, and which are next to undiscoverable using more conventional testing methods.

An improved logging and monitoring system has been implemented with additional details and granularity for the tracking of operational performance and diagnosing problems. A structured machine- and human-readable format is used for searchability and ease of use. The improved logging system allows for live monitoring and metrics, and can be activated and adjusted at the component level during run-time, enabling logging configuration changes without restarting.

Following the initial launch of the Cardano network, significant effort has gone into enhancing the entire code base. The fundamental structure and efficiency of the code has been improved, involving complete rewrites in some cases. Core network elements such as storage and synchronization have also been redesigned and reimplemented, resulting in better performance, reliability, and maintainability throughout the codebase.