Cardano Facing Scalability Issue With new Smart Contract Upgrade

Days ago, Input Output, the developer behind Cardano, the third-largest asset in market cap, launched its Plutus smart contract on testnet. However, feedback on its functionality has not been favourable, as Minswap, the first DEX to use it, encountered severe scaling issues questioning Cardano’s ability to run smart contracts.

Minswap shared it in a tweet on Sunday that, “It’s unfortunate that we have to shut down our testnet temporarily. We have gathered enough data from our testers to improve the fundamental of our DEX. In the next few days, we’ll publish our post-mortem, our scaling solution, and when the testnet will be open up again.”

Minswap founder and engineering lead Long Nguyen explained that “After we launched, some users took screenshots related to locked UTXOs on Twitter, and the rest is history.” He added that Minswap chose Cardano for “it’s the most decentralized Proof-of-Stake chain, with more than 3,000 nodes being run by the community, and 66% being run by single node operators.”

This means that it would be more difficult for users to build scalable, fully on-chain decentralized applications on the blockchain than the community expectation. While competing blockchains such as Ethereum and Solana running smart contract utilize account-based models to compute transactions, Cardano uses a Bitcoin UTXO model called Extended UTXO.

Comparing the two models, the Account-based enables multiple users to interact with a smart contract, unlike the Extended UTXO. However, any attempt to go against its function results in a concurrency issue that can only be resolved by building dApps to allow states’ segmentation. Aggregating multiple interactions to settle on the same state or fragmenting liquidity into various pools will be suitable for DEX. However, the latter is better than the former.

Speaking on the possible effect of employing sequencers to mitigate concurrency, Jarek, Maladex DEX CEO, said

Other than, depending on the way it’s implemented, degree of centralization bottleneck, [there are] none. Off-chain is a natural part of the ecosystem and just prepares transactions for the blockchain where then they’re validated and executed.

In the opinion of Cardano vocal critic, Chief Investment Officer at Arcane Assets, Eric Wall, he said First of all, the sequencer can extract MEV by choosing to include one transaction (his own) but censor another. Secondly, the miner/validator on the Cardano base layer can look at a sequencer’s batch of transactions and reject parts of it or the whole batch if he’d rather make some of those transactions himself when he’s putting the block together.”

The current situation questions the capability of Cardano to manage smart contracts. However, the community already lauds the Alonzo Purple, yet, they believe it could take time before the blockchain lives up to expectations in the space.

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