The Heartbeat of Cardano.

Midnight: A New Dawn or the Last Sunset?

Midnight was announced for the first time during the Scotfest which took place in Edinburgh in November 2022 right before the Cardano Summit. During the first pitch of what Midnight would be, IOG stated that the purpose is to offer a data protection solution for sensitive commercial and personal data.  Safeguarding users’ fundamental freedoms to speak, interact and share information securely. The platform will be designed for developers to build and deploy rule-based confidentiality dApps using a variety of programming languages, starting with Typescript. 

At this time it was also announced that IOG had hired Dr. Vanishree Rao for the position of Head of Applied Cryptography. Dr Rao has extensive experience in the field of zero knowledge proofs and has worked and advised several privacy focused protocols and projects in the blockchain industry, like Mina Protocol the first zero-knowledge proof blockchain.

More recently, in March 2023, Eran Barak was named CEO of Midnight. A big departure from Cardano’s path which doesn’t have one, although some people still confuse Charles Hoskinson as the CEO of Cardano. This decision to have the development of a new layer 1 blockchain under a subsidiary of IOG led by its own CEO will provide the opportunity to attract more businesses to this new chain, which is one of the main objectives. The reason being for a big corporation to adopt a new technology they need to have someone to talk to, answer their questions and more importantly, sell the product.
Minotaur is the name given to the multi-resource blockchain consensus algorithm described in the academic paper presented by IOG in October 2022. In the abstract  the paper is summarized as follows: “a multi-resource blockchain consensus protocol that combines proof of work (PoW) and proof-of-stake (PoS), and we prove it optimally fungible.”

Community concerns

The community concerns regarding Midnight can be summarized into two categories: lack of information and misinterpretation. Both could have been prevented and can be resolved with more communication and transparency from IOG/Midnight.

The main concern started because back in November 2022, when it was initially announced, most people understood that Midnight was going to be either a sidechain or a layer 2 of Cardano. So you can understand the commotion that generated the news that actually it’s a completely brand new layer 1 and that’s when the speculation started. 

To be fair, there’s still no whitepaper or tokenomics published explaining exactly how it’s going to work. So far, we have the presentation from Scotfest, the presentation in the Cardano Summit 2023 and more recently the Midnight Special video from Charles. Which helped clarify some things but the majority it’s still up in the air for interpretation and speculation.

One point of concern is the decentralization that Midnight will have. This is a very important topic, at least to some portion of the Cardano community, and it should be because Cardano has one, if not the highest, MAV in the industry. Corporations don’t really care about decentralization, and why should they? Their mandate to stakeholders is to provide the highest value possible and unless the value creation is directly linked to decentralization, they will opt out for another alternative. 

Corporations will want to use a blockchain that is fast and has near instant finality. To achieve this the hardware requirements will probably be elevated, like in Solana, thus sacrificing decentralization because only a few wealthy individuals or corporations will be able to afford it. On this topic there’s still a lot of unknown regarding how Minotaur will be implemented.

Charles’ Midnight Special

On November 16th, Charles Hoskinson streamed for 46 minutes explaining the overall idea of how Midnight and Cardano will work together.

Currently Cardano is designed with a separation of the Cardano Settlement Layer (CSL) from the Cardano Computation Layer (CCL). This separation of the modules is based on the idea that the accounting of value should be separated from the story behind why the value was moved. In other words, separation of value from computation. By making the separation explicit, it permits significantly more flexibility in the design, use, privacy and execution of smart contracts. 

Charles mentioned that his goal with Midnight is to take as much of the computation and processing that a dApp requires from the centralized off-chain service providers to a decentralized ecosystem of service providers on-chain. Each of them with their own logics and tokenomics but under a common set of rules in partnership with Cardano.

This ecosystem of service chains that form can provide different capabilities to dApp developers. Will they be a layer 2 or a sidechain? Charles proposes, why not both? Meaning they inherit the security of Cardano SPOs from the Ouroboros consensus algorithm and with the application of Minotaur, add another consensus algorithm that secures another part of the network internally.

These Cardano SPOs that will secure the Cardano blockchain and at the same time provide security to other partnerchains, Charles proposes to call them Supernodes, similar to Hyperledger Firefly Supernode. But instead of having to host a full node for each of the partnerchains, SPOs will be able to run light nodes as containers for the services of their choosing. Partnerchains will be able to be created from a default template that includes the security provided by Cardano SPOs but then the enterprise developing this chain can add other security mechanisms, like connecting it to Bitcoin Proof-of-Work or Ethereum Proof-of-Stake. 

This architecture will allow splitting the tokenomics of the partnerchain accordingly with a dual token model. Issuing a deflationary asset on Cardano as a Cardano Native Asset (CNA) that functions as the control, governance or ownership token and then you have another token that lives on the service layer, that functions as a fuel token with a different monetary policy that provides predictable pricing.

Cardano will provide a mechanism to sort out a distribution of the service ownership and resource, regardless of the particular service the partnerchain provides. Thanks to Babel fees the end user will be able to pay for the transactions with the token of their choice, without having to worry about all the different fuel and governance tokens from potentially dozens of different partnerchains. 

Charles also stated that we need to accept that we live in a multi-chain world, regardless of what maxis might think. Therefore interoperability is king and Midnight will make other networks our partners that care about the Cardano Settlement Layer (CSL) as it is the foundation of the service layer model. This will provide the capacity and ability to bring many users from the systems that have millions or billions of users. Minotaur, therefore, is the skeleton key that binds all of this together.

https://twitter.com/JaromirTesar/status/1727239782437113995

A nation-state, for example, will be able to create a service layer for voting that is a hybrid system, meaning it’s not completely decentralized. With a dual check system, Cardano SPOs will be able to secure one part of the system and the other part of the system is secured by a permissioned or private blockchain.

Charles ended the live stream making the analogy that Cardano is an island and Midnight is like opening an airport so people from other islands can come visit. This way, Cardano will stop having competitors to start having partners that use our underlying technology. Other blockchain projects will stop criticizing Cardano and start asking to connect. Charles also recognized that this is a complicated concept and people usually have a fear of the unknown.

Conclusion

Building things takes time, and building complex things takes even longer. Midnight was originally announced in November 2022 and we got a recent update in November 2023. It’s still very early in the development process, as shown with the release of the devnet, and there are still a lot of unanswered questions.  

ADA holders worry about the potential loss their bags might experience based on the fact that IOG seems to be completely focused on developing Midnight now, to the detriment of Cardano. Charles Hoskinson has come out to calm the waters and bring peace of mind to the community claiming that the Cardano Settlement Layer (CSL) will be used for every partnerchain developed, including Midnight. Whenever Charles’ strategy of making the CSL the base layer for all future fourth generation blockchains pays off or not, only time will tell. At the end of the day what will determine the success of Midnight is the willingness of corporations to adopt this implementation of zero-knowledge proof based blockchain over every other enterprise solution on the market.

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