Welcome to This Week In Cardano

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Okay, now let’s dive into today's topics. This is what we have for you today:

• 💡How decentralized and scalable is Tezos compared to Cardano

• 🔥 Full technical breakdown of Tezos scaling solution

• 💎 Gem of the Week

L1 Assessment Framework applied to Tezos

Crypto is an emerging asset class of the 21st century. And when making investment decisions in this particular asset class, it is important not to base them on hype or ever-changing narratives.

Especially in light of recent events, it becomes more & more evident that fundamental and metrics-based decision-making is key for a profound project assessment.

So here is the Blockchain Trilemma as Assessment Framework

Let's take a look at certain metrics of Tezos that determine its degree of

• Security

• Scalability &

• Decentralization

and how does it compare to Cardano?

General Decentralization Metrics:

Initial Token Distribution:

• Tezos had a fair coin distribution from the very beginning. Moreover, this equitable initial token distribution has set the tone for the decentralization of Tezos from the beginning onwards, which is a rare feat when we look at the current public blockchain landscape.

The number of individual staked wallets & staking ratio

• Tezos has over 190,322 staked wallets with a staking ratio of 72.81%, which reflects a high degree of decentralization.

• Cardano has around 1.3 million unique staked wallets, which is high.

• These are not an exact representation of individuals staking on both of these blockchains, but it gives a relative idea about the participation of individuals in staking.

Source

Permissioned vs. Permissionless Node (Yes/No):

Like Cardano, Tezos is also a permissionless public blockchain

The total number of active validator nodes/relay nodes/stake pools

• As of 15.04.2023, Tezos has 432 validator nodes/bakers.

• Compared with Cardano, which has more than 3180 validator nodes, Tezos has a relatively low number of validators.

Factors Enabling Decentralization:

Size of a full node: 

Tezos has three history modes of a node:

• Archive mode: a node in archive mode stores the entire blockchain state.

• Full mode (default mode): a node storing the entire blockchain without storing the ‘context’ (the blockchain state containing information such as: "Alice's account owns 5") below a certain level called savepoint. It is possible to rebuild an Archive Node from a full snapshot.

• Rolling Mode: the lightest existing node mode, which stores a fragment of the chain and removes anything before that fragment (blocks, operations, archived contexts)

Minimum hardware & connectivity requirements for running a validator node/relay nodes/stake pool:

• CPU: Running with at least 2 cores is recommended

• Memory: Recommended RAM for running a Tezos Node is 8GB

• Disk: 100 GB SSD (SSD is highly recommended over HDD)

• Monetary requirements: A validator on Tezos, a full node, stores the record of the chain and can inject transactions but requires a roll of Tezos (8,000 XTZ = USD 9360) staked to begin validating

Source

Here are the requirements for running a Cardano validator node.

General Security Metrics:

Cost of 51% attacks

• For an attacker to control 51% of the Tezos network, it will cost over USD 552 million, not factoring in the price appreciation that will occur with a buyer trying to purchase that much XTZ.

Vulnerability to denial-of-service (DoS) and distributed denial-of-service (DDoS) attacks:

• Tezos has a low vulnerability to such attacks.

Propagation network types (a peer-to-peer propagation network or a relay propagation)

• Tezos has a peer-to-peer propagation network

Source

Factors Enabling Security:

Full Node/Partial Node Ratio:

• The three different history modes of a Tezos node allow for a high Full node/partial node ratio

Client Diversity:

• Currently, Tezos has no client diversity.

Cardano has a high full node-to-partial-node ratio and no client diversity.

General Scalability Metrics:

This is where Tezos overtakes Cardano.

Transaction throughput:

The Tezos network on the Lima upgrade could process around 170 TPS (transactions per second).

We could not find any reliable sources about the current TPS metrics after the Mumbai upgrade.

But this metric should be theoretically very high, as the protocol enables easy deployment of smart optimistic rollups (SCORUs)/ enshrined rollups.

On the other hand, Cardano has a TPS of 20-30 TPS.

Transaction latency & finality time:

It takes around 30 seconds to achieve transaction finality.

Tenderbake, the consensus algorithm of Tezos, guarantees transaction finality after one confirmation and blocks finality after two confirmations. Tenderbake adds one block every 15 seconds now.

Mumbai, the 13th Tezos protocol upgrade, was activated on March 29th, 2023.

The new upgrade has lowered the block creation time to 15 seconds, improving finality.

Cardano has a transaction finality time of 5-10 minutes.

Active Layer 2s (rollups/state channels):

On 28 June 2022, the Tezos blockchain was successfully upgraded by activating the Jakarta proposal. 

Jakarta enabled the implementation of Transaction optimistic rollup (TORU) on Tezos. They can handle account-to-account transactions of assets but won’t be able to run smart contracts 

As of March 29th 2023, Tezos enables smart contract rollups (SCORUs). We were unable to find the current number of rollups deployed.

Factors Enabling Scalability:

Status of data availability that enables rollups:

Tezos allows for data availability (DA) that enables the deployment of rollups.

Now, let’s take a deep dive into this scaling solution that enables immense scalability on Tezos 👇

Tezos Rollups: A Scalable and Trustless Solution for the Next Generation of Decentralized Applications

Smart Rollups, also known as SCORUs (Smart Optimistic Rollups), are an innovative solution for scaling blockchains such as Tezos. By increasing the throughput of the blockchain, SCORUs offer a permissionless, efficient, and secure method for processing and interpreting messages.

Here we will break down the complex concept of SCORUs into simple, engaging explanations to help you understand this groundbreaking technology.

SCORUs : The fundamentals components explained

Rollups are processing units that interact with the Tezos blockchain. SCORUs are Layer 2 solutions that sit on top of Layer 1, allowing anyone to originate and operate one or more rollups for increased scalability. This optimistic integration means that published claims about the rollup's state are initially trusted, but can be refuted and economically punished if proven invalid.

The Building Blocks of SCORUs

SCORUs are made up of several components, including:

1. Address: A unique identifier for each Smart Rollup.

2. Inputs: Channels of communication that allow interaction with the rollup.

3. Processing: The reactive process that takes place each time a Tezos block is finalized.

4. Commitments: Claims about the rollup's state, based on interpreting messages during specific periods.

5. Refutation: The process of challenging invalid commitments and ensuring honest operation.

The People Behind Smart Rollups

Smart Rollups involve three main roles:

1. Operators: These individuals deploy and maintain the rollup node, ensuring its progress.

2. Kernel Developers: They create the kernel, which processes input messages and updates the rollup's state.

3. End-Users: Users who interact with the rollup through Layer 1 operations or Layer 2 input messages.

Tezos Rollups: Scaling and Trust

Tezos addresses the trust issue in optimistic rollups by allowing anyone to register a rollup into the Layer 1 by posting a 10,000 XTZ bond. The rollup creator must also attach a kernel, which acts as an execution environment for their rollup.

The kernel serves as a rule book, dictating the permissible actions within the rollup, such as how blocks must be stacked and ensuring that transactions follow the rules.

Optimistic rollups in Tezos trust that submitted messages represent valid state transitions according to the kernel. However, the possibility of invalid commitments remains. To address this, Tezos uses a refutation game mechanism.

Refutation Game: The Key to Trust

The refutation game comes into play when a rollup node operator submits an invalid commitment. If this occurs, anyone can challenge the commitment by submitting proof.

This process is crucial because Tezos L1 is a high-security, low-throughput environment, and escalating every execution to L1 could overwhelm the system. The refutation game offers a selective approach to maintaining trust and security in the rollup ecosystem.

If a commitment is found to be invalid, a refutation game begins between two concurrent stakers.

This game involves identifying the point of disagreement and providing proof of correct interpretation. The winning staker is rewarded, and the losing staker's deposit is forfeited.

Tezos Rollups vs. Ethereum Rollups

Tezos rollups differ fundamentally from Ethereum rollups in the way they handle trust. Ethereum rollups often work under a multisig system, where a set of actors vouch for block validity. This approach may not be entirely trustless, as it relies on these actors to maintain the system's integrity.

In contrast, Tezos rollups introduce a trustless mechanism through the kernel and refutation game. This process allows anyone to challenge invalid commitments, making the rollup environment more secure and reliable.

So let’s take a look at the main differences:

Tezos Rollups: Enshrined in the Protocol

Tezos rollups are enshrined, meaning they receive special treatment from the L1 Tezos blockchain.

This distinction provides better security guarantees than Ethereum rollups, built into specific smart contracts with no L1 guarantees.

The enshrinement of Tezos rollups leads to improvements in gas fees, performance, and interoperability compared to Ethereum smart contract (SC) rollups.

• Security: Designing secure rollup bridges is easier with native code than in a smart contract execution environment.

• Performance: Native code allows for better computing per operation and lower fees.

• Governance: Tezos rollups are governed by the Tezos governance process, which has a proven track record.

In contrast, Ethereum core rollup technology is limited by the Solidity language. Tezos rollups can support multiple languages and can be upgraded to integrate new features as needed.

Interoperability with Tickets

Tezos rollups use tickets for extreme interoperability across different rollups. A generic wrapping service will likely enable any token to be converted into a standard ticket that can be used on any rollup. Rollup creators can leverage this service to minimize the need for users to wrap and unwrap assets constantly.

Rollups as Common Goods

Tezos rollups can be designed as common goods, such as an EVM kernel for hosting Solidity contracts, or as private, specific-purpose rollups, like a custom game kernel. This flexibility allows Tezos rollups to accommodate various use cases while maintaining compatibility with multiple programming languages.

In Tezos, rollups are less likely to have their own tokens, although it is possible; instead, they typically utilize ctez, a derivative of XTZ, as their primary unit of accounting.

Updating and Scaling Rollups

Tezos rollups can be updated either through a Layer 1 protocol update or by deploying a new rollup and asking users to migrate. This process ensures that rollups can be improved and adapted over time. In contrast, while Ethereum smart contract code is immutable, it can still be upgraded with admin help.

Decentralized Sequencing

Critics have argued that Ethereum-based rollups like Arbitrum are centralized sequencers. However, Tezos rollups can be designed as decentralized sequencing systems, making it cheap and easy for any honest party to spin up a rollup node and check proofs.

This approach ensures that the incentives are well-aligned for decentralization.

Scaling and Decentralizing Rollup Nodes

To scale and decentralize Tezos rollup nodes, developers can increase their infrastructure to read from the blockchain faster, compute commitments more quickly, and index the balance sheet for a more responsive user interface.

Decentralization can be achieved by getting third parties to commit to running and posting checks on rollup computations.

Data Availability Sharding for Further Scaling

To further scale Tezos rollups beyond Layer 2 (L2) message storage limits, data availability sharding (DAS) can be implemented. DAS involves splitting the blockchain store across different nodes, providing horizontal scaling, and reducing the storage burden on each node.

Decentralization: moderate-high

Security: High

Scalability: High

• Tezos is also a rapidly evolving blockchain that has undergone more than thirteen updates.

• The Tezos network shows a high degree of decentralization & security.

• Tezos is one of those blockchains that has solved the scalability problem to a large extent without compromising decentralization or security.

• Tezos has an ambitious rollup-centric scaling approach with data sharding which enables rollups ranging from transaction rollups, and smart contract rollups to zk-rollups.

• Tezos is definitely a solid L1 with a clear scaling strategy.

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