In a recent FLUX overview I took a quick look at the Kadena blockchain, a small cap with tremendous speed and potential for growth, that was running nodes on the Flux network. Kadena is a braided layer 1 Proof of Work protocol built for scalability, usability, and security. Developed for enterprise level blockchain application and interoperability- I decided I needed to take a closer look at the Kadena project and see what it was all about. Now, let's dive in...
Note: special thanks to Kadena Operations Analyst @JeffreyKadenaIO for answering some inquiries as well as Telegram users @mightybyte and @floppieD for their contributions regarding KDA mining/hash.
Solving PoW Scalability
Blockchain scalability is one of the major obstacles to overcome for mass adoption of decentralized systems. A majority of systems using Proof of Work consensus are slower, have fewer features, and less throughput than their Proof of Stake cousins. In 2019 the Kadena blockchain introduced their fix for PoW scalability issues by leveraging graph theory and braiding multiple chains (currently 20, but theoretically infinite) to allow for a mind-warping 480,000 transactions per second (TPS). Watch this video from Kadena's YT page for a better understanding of braiding.
Components of Kadena
Kadena is comprised of several key components making up their blockchain:
Chainweb- Kadena's public blockchain
Kuro- an integrated private blockchain
Pact- its smart contract language; human readable syntax accessible as SQL or Excel; facilitates smart contract changes without needing a hard fork
Kadena consists of a self described hybrid public-private blockchain to offer a "public and permissioned blockchain that can interact seamlessly [through its Pact smart contracts] to make a more secure digital marketplace." (Romero) The intent behind having a public and private blockchain is to provide the benefits of each while alleviating their individual constraints.
A hybrid blockchain takes the best of public and permissioned blockchain and allows participants to seamlessly leverage decentralization while also gaining management of sensitive personal data and improved performance. With hybrid blockchain, the benefits include the liquidity and market access of public blockchain alongside the privacy and security benefits of permissioned blockchain.
Initially the idea of the Kuro private blockchain made me question the decentralized aspect of Kadena. However after looking at the project there are legitimate uses/reasons for integrating a private blockchain. Business Integration such as payment portals, Personally Identifiable Information (PII), and Protected Health Information (PHI) are a few examples where the security provided by a private blockchain would limit access based on ownership and need-to-know while simultaneously offering the benefit of portioned data access to the public chain.
What is Kadena Trying to Solve?
Kadena has several inherent blockchain problems and real world use cases it is attempting to provide solutions for, however I will focus on what I perceive to be the Big Two.
1. Kadena wants to provide enterprise level blockchain commerce solutions. They started with a robust and fast blockchain that would offer the ability to scale. They combined centralized and decentralized network architecture to provide privacy, data security, speed, and interconnectivity. They understand that businesses want to protect their IP and are legally compelled to protect certain personal information, while simultaneously reduce costs, gain market access, as well as liquidity. Additionally they have made a strategic partnership with the Flux network, which runs hundreds of Kadena ChainWeb nodes, allowing them to offer their enterprise customers an option for decentralized Infrastructure as a Service and are key in their interoperability bridges.
2. They want to provide an interoperable blockchain ecosystem. Kadena partnered with Cosmos (ATOM) and provided their open source Pact smart contracts to the platform. Known as Kadenamint (because Cosmos runs on Tindermint BFT) it allows for a quick, safe implementation of dApps. It offers developers the benefit of a open source and configuration-less smart contract language for business applications. Kadenamint brings the power of user-code Formal Verification, proper multi-signature features and full capabilities to Tendermint. (Source)
I would be remiss if I did not mention the recent live beta release of Kaddex, that user @masterguard1234 initially put me onto. "It is the first Defi application to launch on the Kadena ecosystem. It is the first and only multi-protocol, multi-chain, and multi-platform DEX that will lead to a future where users will not even have to think about platforms and protocols but just access value wherever it is." (KC) Kadena has partnered with Terra and could foreseeably have (LUNA) transactions on KADDEX and then bridge them to Ethereum in the near future. Terra's stable coin on KADDEX increases usage of their currency and makes cross-platform payments easier.
Polkadot and Kusama integration: Kadena has plans to add Kuro as a parachain to both networks and the design has been publicly opened for comment; you can check the status of the RFC process at your convenience. In the short term Kadena is adding bridges to allow Kaddex access to value locked in the chains.
Fee comparison with other protocols
Team
The founding team originally worked on the internal JPMorgan Juno blockchain along with their JPMcoin. Kuro is a successor of Juno, which is why it is heavily focused toward enterprise business applications. Will Martino and Kadena's first employee and now Network advisor, Monica Quaintance, also worked on the SEC blockchain initiatives.
Founders LinkedIn profiles: Stuart Popejoy and Will Martino
I won't go into great detail on the Team outside of them all being real people, technically qualified, doxxed and linked for public scrutiny.
Boast-Worthy Advisor
All too often crypto projects will place social media personalities, investment 'gurus', and other non-technical advisors to their Advisement Board to gain exposure and funding. In this realm, Kadena has taken the right approach by seeking direction from one of the most influential and notable blockchain developers in the history of... EVER. Dr. Stuart Haber is a cryptographer regarded as the co-inventor of blockchain technology in the early 1990s and is the most cited co-author, along with partner Dr. Scott Stornetta, in the Bitcoin whitepaper. "Their work in cryptographic time-stamping was adopted by Satoshi Nakamoto as the basic mechanism for data integrity in Bitcoin." (Stancel)
KDA
KDA is the native token of Kadena. It is used to pay transaction fees on the network and rewards miners for their Proof of Work. The total supply of KDA is fixed at 1 Billion to be mined over 120 years with a circulating supply of ~140 Million. KDA can be mined with ASICs or purchased on KuCoin, BitTrex, Hotbit, CoinEx, and CoinMetro (staking available). Available wallets include ZelCore, ChainWeaver, and Bag of Holding.
Click this link for an in-depth view of their Token Economics Model. The pie chart below breaks down their initial token allocation.
What's Not to Like?
As I began looking into Kadena a few key aspects initially gave me pause, so I reached out to Kadena for comment:
Their close affiliation to JPMorgan, Fidelity Investments (Devonshire), and the SEC
They are a private LLC which includes a President and CEO
The inclusion of a private blockchain in their network structure (addressed earlier and no Request For Information)
Obscure decentralization
Close Ties: The project does not try to hide their JPMorgan roots- in fact they embrace it... you can find information regarding their origin story embedded throughout their official website. The SEC not so much, however a quick look at some of the Team's LinkedIn pages that are weblinked on the site show their previous work histories, so I see no subterfuge in attempting to conceal their association. This is understandable as regulation is a controversial topic in the crypto-space. It could also be seen as a net positive from a potential legacy finance/technology customer point-of-view, if said customer has reservations or ignorance to blockchain technology, as Kadena "playing by the rules" and separating itself from untoward actors/projects within the sector.
Now, I am going to speculate a bit on the chain of events that I believe occurred historically. First you must understand that there is a revolving door within the U.S. Public/Private sectors where individuals work for the USG and are subsequently recruited to corporate America and vice-versa. Please note this speaks more to the culture and incestuous nature of Corporations and Government than Kadena taking advantage of marketing opportunities.
JPMorgan wanted a foothold in blockchain technology but was afraid of future ramifications/conflict with the SEC
As one of the largest financial institutions in the world, JPM poached a few blockchain-savvy individuals from the SEC that would be able to circumnavigate potential known issues (and possibly personal connections giving a heads-up notice) that could initiate a blockchain-based SEC investigation;
These individuals helped build out JPM's internal blockchain and then remained in the Blockchain Center of Excellence development program to gain funding and research tools in order to launch their own project
Kadena gets to leverage the JPM & SEC names and is legitimized in the eyes of traditional companies and a blockchain-hostile New York
Less notable in my opinion is that one of their investors is Devonshire, Fidelity Investments private investment firm. After looking at the rest of their seed investors this doesn't really stand out, except that it speaks to their legacy finance roots and the attractiveness of the project from various investment groups.
Corporate structure: Kadena is a Limited Liability Company, based in New York, USA. I asked the Kadena representative why the company chose an LLC as their structure.
BussTechno: What is the corporate structure of Kadena? eg corporation, LLC, Nonprofit, etc. Why was this structure chosen?
Jeffrey (Kadena Operations Analyst): The corporate structure is a LLC.
I would have liked to get a more in-depth answer here. My belief is the negative bias some potential customers may have towards blockchain and cryptocurrencies in general helped drive the decision. Remember, New York is the legacy finance capital of the world and Kadena's largest customer is USCF Investments. It would make sense that these antiquated-thinking companies would feel more comfortable dealing with a traditional registered company than with a decentralized company. I believe this also has to do with the stringent financial regulations in their locality. New York has the strictest laws and regulations regarding cryptocurrencies, financial entities, and securities within the United States. An LLC can help limit the liability on an individual because it is subject to to its own legal proceedings/action; the individual owners would receive protection in the event of litigation or negative regulatory action.
However, I believe instead of a single entity structure they should have chosen a different model such as Polkadot or Cardano's Non-Profit blockchain and for-profit background companies. This structure at least gives the appearance of separation between the for-profit company and their network. Because... marketing. Also, as a business owner myself I can attest there is great benefit in segregating your structure for liability, tax, and governance reasons.
Decentralization: This is where I believe Kadena needs to greatly improve. I understand that Kadena is still a relatively new chain and functionality takes time to build out, so hopefully improvements will continue and clarity will be provided.
When I look at projects to invest or participate in I want transparency, visual metrics, and data that at any moment I can click a link and understand. I want to see the number of miners, hash control/dominance by location, and proof of clear separation between the network and the for-profit company.
Kadena seems to be building the hashing portion out with their network explorer, however at this time it is not intuitive or understandable from an outsider's point of view.
Having a CEO and President runs counter to traditional decentralization characteristics because it implies that there is a leader(s) that controls the network instead of the participants. The company is a for profit LLC and explicitly NOT a decentralized entity.
However, the ChainWeb blockchain appears to be decentralized in the sense that it is well distributed, Proof of Work, and open source.
BussTechno: Any information regarding the decentralized nature of Kadena that you feel would be beneficial to readers[?]
Jeffrey: We're as decentralized as you can get with POW, but with the ultimate added benefits of scalability and security. In fact, as we scale and add more chains to our network, our network becomes more secure as proven in the Gauntlet research paper.
BussTechno: Does the LLC or any subsidiary run miners?
Jeffrey: No
I like that there is a clear policy in place that disallows the company to run miners. In this aspect we can reasonably presume there is a certain level of network decentralization in that the company is not in control of the hashrate.
Where it falters is in the centralized portion of Kuro and a single entity LLC structure. Also, the number of active nodes mining Kadena was difficult for me to discern as there is no easily digestible source to quantify the number and distribution of miners.
In order to do so, I had to leverage Kadena's official Telegram channel and the power of individual users to glean the information I was looking for- giving an estimated 600-1500 active ASIC miners.
Mightybyte: The current network hash rate is ~11 PH/s (which can be seen at [chainweb]). The most powerful Kadena miner mines at ~18 TH/s via [asicminervalue]. That means that there are at least 600 miners running right now. The real number of individual mining devices is probably a good bit higher because I imagine there are a decent number of the less powerful miners.
FloppieD: I’m estimating there are close to 1500 miners active. The KD box is 1.6th, KD2 is 5th, kd5 is 18th and bm-k1 is 5 th. 11ph / Average 7.25 th = 1517. Poolflare has 600 workers with 5ph so i guess i’m close.
Graph created by user MightyByte
In early May their partnership with $Flux created over 700 nodes running ChainWeb over the Flux Network, which I believe is closer to 1000 nodes at this point. The graphic below also does a good job of showing where those nodes are concentrated.
There is definite progress in spreading hashrate and decentralizing the network, however finding the information proved onerous. In Kadena's defense, their roadmap and actions do seem to be moving towards decentralized goals. My hope with this project is that they continue to work away from their legacy centralized finance origin as evidenced by: their release of Kaddex, open sourcing of Pact, and work with Flux, Cosmos, Polkadot, Celo, Luna, and Kusama.
This small cap has so much going for it technologically that I found it difficult to parse through and only highlight certain portions of the project. I am drawn to interoperability networks as they are the future of crypto and Kadena delivers from a technical standpoint. Certain aspects of their origin story and close ties to big banking can be initially disconcerting, but I think the project has moved forward enough to take advantage of past relationships, while continuing to strike their own path. They definitely need to be more transparent with data regarding decentralization of the blockchain, but given more time for the network to mature- I believe they will get there. Considering what they are buidling though, this project seems extremely undervalued and deserves a closer look.
Give me your take on Kadena in the comments and thank you for reading.
Authors Notes: I gave the Kadena team an opportunity to fact check all Kadena technology-specific statements made in this article. Originally published 20Aug2021 on Publish0x.com. Cover photo was originally published on Kadena Medium page; photo and all Kadena owned material posted/linked with express written permission. I own positions in Polkadot and Cosmos discussed in this article. Follow me on Twitter.
Sources:
https://medium.com/kadena-io/how-to-scale-a-proof-of-work-blockchain-9233e5b4b62
https://medium.com/coin-story/coin-perspective-11-stuart-haber-d1445257dc98
https://medium.com/kadena-io/hybrid-blockchain-101-714827d0e77b
https://kadenacommunity.medium.com/kadenas-interoperability-story-part-i-5fb5e998676c
https://medium.com/gauntlet-networks/analysis-of-kadenas-public-blockchain-protocol-31c66347e32e