Analyzing the Open Letter to the Cardano Community from IOHK and Emurgo

Introduction

On October 12th, seemingly unexpectedly, Charles Hoskinson posted a letter on his Twitter account that was addressed to the entire Cardano community.

The pretense of the letter became immediately more apparent in the second paragraph when it states,

“As with all movements, occasionally issues occur that require careful and rational discussion.”

This statement is then followed up by,

“ When the Cardano movement began in 2015, instead of launching an all-powerful foundation that would raise funds, manage development, encourage adoption and address the concerns of the community, we diligently split the governance of Cardano into three legal entities: IOHK, Emurgo and the Cardano Foundation. This separation of powers was to ensure that the failure of one legal entity, if any, could not jeopardise or destroy the Cardano project.”

So What is This Letter About?

In a nutshell, the letter voices the frustrations of Charles Hoskinson and supposedly the co-author, Ken Kodama, with IOHK’s governance and role in relation to the Cardano cryptocurrency.

However, before getting into the letter, its important to first get some background information on the organizations that Charles Hoskinson is referring to.

What is IOHK?

IOHK is officially listed as a software company.

According to its LinkedIn,

“ Input Output HK is a research and development company and industry leader in the fields of cryptography and distributed systems. Since the company was founded in 2014 it has pioneered new territory in blockchain research, advancing industry knowledge with the work produced by its global team of cryptographers and researchers. A growing network of academic partnerships supports its research and the Blockchain Technology Laboratory at the University of Edinburgh serves as the global headquarters for its university collaborations.”

In the community, IOHK has long since been known as the organization that is primarily responsible for the creation and launch of Cardano.

IOHK Launches Cardano Blockchain; Ada Now Trading on Bittrex

So far, Ethereum has been the lead player in the smart contract platform space. Now a new competitor is steadily creeping into the game. And, in an interesting twist, the effort is being led by a former Ethereum CEO.Last week, blockchain development firm IOHK, led by Charles Hoskinson, launched Cardano, a new …

In addition, Charles Hoskinson has long since been asserted as the leader of IOHK.

In fact, the organization itself states that Charles Hoskinson is the CEO of IOHK and so does Charles Hoskinson himself in this YouTube video posted by none other than IOHK:

Now, if you’re wondering how it all began between Charles Hoskinson and IOHK, let’s scroll back a little bit further into the annals of time to 2014.

BitcoinMagazine Summarizes it Best

Source: https://bitcoinmagazine.com/articles/iohk-launches-cardano-blockchain-ada-now-trading-bittrex/

 

So, in one fell swoop, we can see how Cardano Foundation and Emurgo emerged from the relationship between Charles Hoskinson and IOHK.

Getting to the Actual Letter Itself

In general, the letter that Charles Hoskinson wrote regarding the Cardano Foundation is a bit confusing (and unclear) in some parts for the following reasons:

  1. Charles fails to provide sufficient evidence of the Cardano Foundation attempting the alleged hostile takeover of Cardano that Charles claims has occurred. Since Charles is accusing these individuals of failing to be transparent, it should be incumbent upon him to provide more evidence to validate such a claim.
  2. In terms of the issue of the public wallet address, this seems to be information that could be deduced fairly easily. In fact, other users have already done so: https://forum.cardano.org/t/cardano-foundation-and-emurgo-ada-holdings/15991

There are truly only 3 wallet addresses (one of the addresses have been confirmed to belong to IOHK) that CF’s wallet could be, according to the Cardano whitepaper. And given the fact that Cardano has not applied this pressure to Emurgo, we are assuming that the public address of Emurgo is also known (although wehave no clue where one would find it).

For more information regarding those holdings, please see the link below:

Cardano Foundation and Emurgo ADA holdings

What are the ADA addresses of CF and Emurgo? Do these holdings belong to the organizations collectively? Does some of it belong to specific people? Maybe there’s a perfectly good reason for not publishing the addresses. If so, what is it?

It Appears the Tension Between Charles Hoskinson and the Cardano Foundation Has Been Brewing For Quite Some Time Now

For what it’s worth, it seems as though this conflict between Charles and the Cardano Foundation has been brewing for quite some time at this point.

Here was the Cardano Foundation’s response to the (manufactured) dissent in the community against Cardano Foundation back on September 14th, 2018:

14.09.18 – Statement from Cardano Foundation

Statement from Cardano Foundation Cardano Foundation (CF) is aware of the concerns of some in the community via comments on social channels. In light of this we would like provide some further context on the issues raised around the audit and also about the work of the Foundation.

Let’s Dig Into Charles Hoskinson For a Second

Charles Hoskinson is the Founder and the CEO of IOHK. IOHK is responsible for the development of Cardano.

The following pictures from BitcoinMagazine should provide the best summary on how these three entities were initially established:

There is a considerable amount of controversy that appears to follow Charles Hoskinson everywhere he goes.

This article (that doesn’t get brought up anymore interestingly) is worth reading:

View story at Medium.com

tl;dr — The article states that:

  1. Charles Hoskinson left Ethereum after working on it w Vitalik
  2. Charles found a home on $ETC
  3. Charles started bankrolling development + community managers on the Ethereum Classic protocol (also frontrun by Barry Silbert/DCG/Grayscale)
  4. $ETC community didn’t take kindly to a leaked proposal by Charles Hoskinson that would’ve created a governance system that appears to be almost identical to what ZCash has right now (i.e., taking away miner rewards to pay the ‘employees’ of the chain + developers; protip: if your spidey senses are telling you that, that sounds super centralized, you’re right)
  5. Proposal was summarily rejected by the $ETC community
  6. Apparently, a great deal of the bankrolling for the hiring of devs + community managers etc., by Charles Hoskinson was done by the Japanese investors that were simultaneously buying Cardano during their two year long ICO (January 2015 — January 2017)
  7. As mentioned in the bitcoinmagazine article and admitted by Charles Hoskinson himself, he funded the $ADA ICO with Japanese investor money in order to usurp the SEC as Charles Hoskinson would have put himself in the crosshairs of the SEC for hosting an unregulated securities offering.
  8. Japanese investors were given ‘vouchers’ instead of actual $ADA coins. It remains to be seen whether the Japanese investors ever received actual $ADA coins. I haven’t seen this confirmed, so I don’t want to speak with authority on that. However, Charles Hoskinson mentioning the Japanese investors with vouchers in his press release against Cardano Foundation leads me to believe that those investors may not be getting paid to this day.

What’s Concerning About Charles Hoskinson Attempting to Depose Cardano Foundation:

There will be no legitimate entity to audit the Cardano protocol and Cardano needs auditing. Badly. The codebase for the protocol needs serious work and its been well-documented that the wallet is laden with issues.

Charles Hoskinson and other members of the Cardano community have repeatedly insisted that there is no need for an audit because the ‘product isn’t finished’. However, this strikes us as curious because, ultimately, nothing is ever really ‘finished’ when it comes to developing. There are always software updates, modifications, and other tweaks that must be constantly fine tuned in order to improve the product.

Thus, under Charles’ logic, a software audit is never necessary, despite the fact that some of the audit suggestions that the Cardano Foundation was making pertained specifically to flaws in the execution of the software itself and Charles Hoskinson himself had agreed to these audits several months ago.

Charles Hoskinson Does Get One Thing Right About This Situation Though

It is nowhere close to implementing any of its goals and visions — as Charles stated in that letter.

However, that’s not Cardano Foundation’s fault. It’s his.

There is enough awareness about the protocol at this point. It’s not being used because it is not a safe, stable and reliable cryptocurrency at this point in time.

And NONE of the audits issued by Cardano Foundation have been addressed.

Audit report on Cardano from the month of February — https://www.cardano.org/wp-content/uploads/2018/04/FP-Complete-Cardano-Report-12-April-2018.pdf (Nothing addressed by the team, so just consider this to be a comprehensive list of actual problems on the protocol to date)

Link to the Haskell Code Audits: https://www.cardano.org/en/haskell-library-reports/

Cardano weekly audit reports: https://www.cardano.org/en/weekly-technical-reports/

Here’s a pdf upload of the April’s audit as well:

FP-Complete-Cardano-Report-12-April-2018.pdf

No Description

Conclusion

It remains to be seen how exactly this saga will play out for Charles Hoskinson, the Cardano Foundation, and $ADA investors in general.

More than likely, Charles Hoskinson will get his way in this situation since he is the thought leader in the $ADA community. It remains to be seen how this will impact the contract that is active with the Cardano Foundation until 2020. Perhaps there is a clause in that contract that allows $ADA to completely absolve any ties with the Cardano Foundation and move forward, or perhaps there isn’t.

In either case, this is a situation that is worth monitoring if you are an $ADA holder.

 

 

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