Cardano is addressing issues of limited transaction speed through a new solution called Hydra. Hydra is a layer 2 solution that aims to increase transaction speed with low latency and high throughput while minimizing transaction costs. Hydra Head is the first protocol in the Hydra family, providing a foundation for advanced deployment scenarios based on isomorphic multiparty state channels. Each Hydra Head operates as an off-chain mini ledger shared among a small group of participants.
Developers Can Utilize Hydra Heads for Advanced Protocols
Developers can use Hydra Heads to add specialized and complex protocols on top of Cardano. In blockchain networks, consensus algorithms ensure a secure and trustworthy environment by ensuring agreement on transaction history. Cardano uses Ouroboros, an efficient proof-of-stake consensus algorithm for this purpose. However, like any other blockchain, Cardano faces challenges in scaling and achieving the throughput needed to support real-world applications, including payment, identification, gaming, or mobile services. Transactions on Cardano have fees, and those who operate the network (in Cardano's case, the community of stake pool operators) must be adequately rewarded for their role. Therefore, fees must be set at a sustainable level. Users want to pay fees they consider acceptable. Additionally, blockchains must be protected against Denial-of-Service (DoS) attacks. Fees cannot be set too low, as this increases the risk of DoS events being very costly for potential attackers. Storage is also crucial since the ever-growing transaction history can lead to storage issues.
Successful Blockchains Can Be Victims of Their Own Success
The most successful blockchains can become "victims" of their own success. Hydra is a layer 2 solution that seeks to address all these problems, aiming to maximize throughput, minimize latency and transaction costs, and significantly reduce storage requirements. How does it achieve this? By providing a more efficient way of processing transactions off-chain for specific user groups and using the main chain ledger as a secure settlement layer, Hydra maintains security guarantees and remains loosely tied to the main chain. It does not require global consensus, so it can adapt to a wide range of applications. For example, Hydra allows configuring Tx fees and minimum UTXO value to 1 or 2 lovelace, critical for microtransactions and use case scenarios. Most importantly, Hydra introduces the concept of isomorphic state channels: reusing the same ledger representation to create uniform off-chain ledger siblings called Heads (hence the name Hydra, referring to the mythical multi-headed creature). Specifically for Cardano, this means that native assets, non-fungible tokens (NFTs), and Plutus scripting are available in every Hydra Head. Isomorphism allows for a natural extension of the system rather than a bolted-on addition.
Short-term and Medium-term Goals for Hydra
In the short term, development efforts will continue on the hydra-node and Hydra Head protocol until it becomes a solid and stable foundation for the community (and us!) to build real-world applications. In the medium term, say 6-12 months, progress will depend heavily on our research outcomes and experimentation results, as well as feedback from the developer community. We are working on ways to connect multiple Hydra Heads to increase the "reach" of our layer 2 solution and testing various methods to facilitate integration and usage of Hydra.