Cardano Layer 2 Scaling Solution — Hydra

The Ethereum-killer network — Cardano now has smart contracts thanks to the Alonzo update. Cardano’s creators expected a surge in network traffic following the debut of smart contracts and this made them consider the idea of adding a layer-2 solution, Hydra, to the ADA network’s scalability.

The Ethereum network has been plagued by high transaction costs, forcing developers and consumers to other blockchains, including Cardano. In order to ensure the blockchain wouldn’t face similar issues to Etherum, the Cardano team developed Hydra. Hydra aims to govern the Cardano blockchain’s fee rate and combat the threat of exorbitant fees.

Hydra and how it works

One of the most interesting of the new advancements offered by the new updates has been Hydra, a major layer 2 solution to further increase Cardano’s scalability by stacking a new protocol on top of the current layer 1 blockchain.

A consensus algorithm usually ensures consensus on a ledger in a blockchain network, resulting in a safe and trustless environment. For this, Cardano employs Ouroboros, an effective proof-of-stake consensus mechanism. However, Cardano, like any blockchain network, has scaling issues when attempting to attain the throughput necessary to support practical applications such as payment, identity, gaming, and mobile services.

Cardano transactions are also subject to fees. The participants who manage the network need to be compensated fairly for their contributions, therefore fees must be set at a level that is sustainable and users themselves would also like to pay costs that they think are reasonable.

Furthermore, the blockchain must be safeguarded against assaults like as Denial-of-Service (DoS). Fees must not be set too low to expose the system to unnecessary risk — DoS attacks must be prohibitively expensive for a potential attacker. Storage is also an issue, as an ever-growing transaction history might cause issues. The most successful blockchains, in effect, risk becoming “victims” of their own success.

Hydra is a layer 2 scaling solution that tries to address all of these issues by maximizing throughput, minimizing latency, incurring minimal to no expenses, and significantly lowering storage requirements.

Hydra accomplishes this by maintaining security assurances while being loosely tied to the main chain by enabling more efficient ways of processing transactions off-chain for a group of users and using the main-chain ledger as the safe settlement layer. It can adapt to a wide range of applications since it does not require global consensus.

Perhaps most crucially, Hydra develops the notion of isomorphic state channels, which entails reusing the same ledger representation to produce uniform, off-chain ledger counterparts, which we refer to as Heads. In the case of Cardano, this implies that each Hydra Head has native assets, Plutus scripting, and non-fungible tokens (NFTs). Isomorphism allows for a natural progression of the system instead of a bolted-on addition. Hydra may directly benefit many of the transactions now processed by the main chain or applications operating on the main chain since it recognizes the same transaction forms and signatures. Existing and prospective users may now leverage Cardano’s tried-and-true infrastructure to develop wallets and apps that communicate with the layer 2 system, drastically lowering the entry barrier to Hydra. A Hydra Head may also be built without the need for any initial cash from the receiving party, ensuring a seamless user experience.

Hydra’s overall aim is to provide a cutting-edge layer 2 scaling solution for Cardano. Hydra will save expenses while boosting throughput and ensuring security. Hydra mimics the main chain’s capabilities while reducing user friction, but still allowing the second layer to have a separate charge/pricing structure and time limits.

Hydra and Cardano’s future

Even after the Alonzo Hard Fork, Cardano’s technological growth hasn’t stopped gaining speed. The launch of the Hydra layer-2 scaling mechanism is essential for the Cardano blockchain because it will allow transactions and smart contracts to be processed in tandem. Hydra’s integration into the Cardano ecosystem might provide effects akin to sharding or parallel blockchains. Thus ensuring it can scale effectively and efficiently.

Disclaimer: This post is for educational purposes only, the authors do not endorse or promote any products discussed herein.

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