Hydra Q&A
What is Hydra?
Hydra is a Layer 2 (L2) solution for Cardano. It was developed to solve the blockchain trilemma (the challenge of simultaneously improving decentralization, security, and throughput) and to enhance the performance of Cardano L1. Hydra is an off-chain type of L2, where most processing occurs off-chain, and only the final results are securely reflected on L1. The name comes from the Hydra, a multi-headed serpent with remarkable regenerative abilities in Greek mythology.
What is the blockchain trilemma?
The blockchain trilemma refers to the technical challenge of improving all three of "decentralization," "security," and "throughput" at the same time. In traditional blockchains, improving one of these elements often leads to trade-offs with the others.
What is the difference between 'Hydra', 'Hydra Head', and 'Hydra Head Protocol'?
Hydra: The general term for Cardano's L2 off-chain solution.
Hydra Head: The first and primary solution of Hydra, referring to the network composed of Hydra nodes.
Hydra Head Protocol: The architecture and transaction processing rules of Hydra Head.
What are the phases of a Hydra Head?
Hydra Head has the following phases:
Initialization phase: L1 wallets of Hydra Head participants are locked, and the Hydra Head enters the OPEN state, allowing L2 processing to begin.
During OPEN: Transactions can be executed between L2 wallets, and results are processed instantly and asynchronously from L1.
On CLOSE: L2 processing results are verified and finalized, then reflected on L1.
It is also possible to abort transactions between initialization and OPEN.
Why is transaction processing on Hydra so fast?
The main reason is that Hydra does not have the L1 "block production waiting time," which averages about 20 seconds. Transactions on Hydra are processed instantly in milliseconds. Also, since a small number of nodes form a closed network called a Hydra Head, physical distance and network congestion between Cardano nodes worldwide do not affect it, making it easier to achieve a stable environment compared to L1.
Why is Hydra secure?
Hydra is implemented using the same EUTXO model as Cardano L1. This means Hydra can handle the same functions as Cardano and inherits Cardano's high security. Therefore, much of the off-chain processing in Hydra shares proven security models with on-chain processing.
Why can Hydra reduce transaction fees (GAS)?
Hydra does not always guarantee lower fees. The correct expression is "Hydra enables use cases where fees can be reduced." Cardano determines fees based on transaction size, so the fee is almost fixed regardless of the amount of ADA sent. For example, sending "10,000 ADA in one transaction" and "100 ADA in 100 transactions" results in the same total amount, but the latter incurs higher fees. If you perform the 100 small transactions on Hydra instead of L1, the fee can be reduced to nearly the same as a single transaction. Hydra is especially suitable for microtransactions (small, high-frequency transactions).
How much is the transaction fee on Hydra?
Transaction fees are incurred when synchronizing with L1. The more participants in a Hydra Head, the higher the fee; currently, at least 2–3 ADA is required from start to finish. On the other hand, transaction fees on Hydra itself can be set arbitrarily from 0 ADA, as determined by the participants/operators of the Hydra Head.
What is the unit of tokens on Hydra?
It is ADA lovelace, the same as Cardano L1. Since Hydra is implemented with the same EUTXO model as Cardano and is compatible, ADA used on L1 and L2 can be considered essentially the same. However, ADA settled on L2 in Hydra cannot be used on L1 until synchronization is complete.
How can I obtain ADA on Hydra?
Unlike other L2 public chains, ADA on Hydra cannot be obtained from cryptocurrency exchanges. ADA in L2 wallets can only be handled among participants of the Hydra Head. In the current Hydra mechanism, the balance of the L1 wallet used for Hydra is reflected as the L2 wallet balance at the start of Hydra.
ADA received on L2 in Hydra Head will be received as L1 ADA when the results are reflected on L1.
What is the maximum number of nodes in a Hydra Head?
Development is underway to support up to 100 nodes. For example, blockchain-enabled games with up to 100 simultaneous players may become possible in the future.
The maximum number of nodes in a Hydra Head is also the maximum number of L1 wallets that can be used for L2 transactions at the same time.
What systems and use cases are suitable for Hydra?
Especially suitable systems:
• Systems requiring real-time settlement
• Systems with frequent settlements in a short period
Specific use case examples:
• Online auctions
• Blockchain online games
• Smart gacha
• Smart IoT devices
What is the current development status of Hydra?
Hydra is still under development and has some limitations, but it has reached a level where basic operation can be confirmed on the mainnet. The development cycle progresses in 4–6 week intervals.
Current Hydra (Ver0.20.0) limitations:
• Hydra Head may stop and funds may be locked when certain UTXOs are committed
• There is a limit to the maximum number of participants in a Hydra Head (the target of 100 simultaneous nodes is not yet possible)
For more details, please refer to the official documentation "Head protocol limits."
How can I try Hydra?
Hydra is developed as open-source software on GitHub and can be tried freely by anyone. Various documents, including a startup manual, are available, and you can try it immediately if you have an x86 Linux environment.
To try Hydra on the testnet or mainnet, you need an L1 wallet, but for local development, you can use the devnet, which does not require an L1 wallet.
What environment is required to use Hydra? (including hardware)
Required software:
• cardano-node
• cardano-cli
Recommended environment:
• Linux x86-64, Mac OS aarch64 (Hydra official test environment)
• 16GB or more memory (if running hydra-node and cardano-node on the same environment)
What can be done within a group of multiple Hydra nodes?
On a Hydra Head composed of multiple Hydra nodes, participants can execute fast transactions between L2 wallets.
Main tasks of each Hydra node:
• Verification and signing of all Hydra transactions
• Session maintenance and synchronization between Hydra nodes
• Recording to the L2 ledger managed by each Hydra node
Does performance improve as the number of nodes in a Hydra Head increases?
No, it does not. In Hydra, each node in a Hydra Head sequentially verifies and agrees on each transaction. As the number of nodes increases, synchronization and communication overhead also increase, so performance actually decreases in principle.
In other words, Hydra is not a solution that speeds up processing by dividing and distributing a single transaction among participants.
What is the validity period of a Hydra Head?
Currently, there is no upper limit on the validity period from OPEN to CLOSE in the Hydra Head Protocol. In principle, a single Hydra Head can remain OPEN for months or years.
Notes:
• L1 wallets used for Hydra are partially locked while Hydra is OPEN
• L1 UTXOs committed to Hydra cannot be used on L1 while Hydra is OPEN
• Currently, if a single UTXO contains more than 80 assets, there is a technical limitation that prevents L2 results from being synchronized to L1
Can Plutus (smart contracts) be executed on Hydra?
Yes, it is possible. Since Hydra is implemented with the same EUTXO model as Cardano, smart contracts on L1 can also be executed on L2 off-chain.
How do you become a participant in a Hydra Head?
- Register the public key of the L1 wallet linked to Hydra Head
- Register the L2 public key for signing within Hydra Head
After all participants have completed these settings, Hydra can be started.
Relationship among participants:
It is suitable for situations where participants know each other well enough to agree on building a Hydra Head, but not enough to entrust asset management without protection.
What are the risks of Hydra?
Hydra inherits Cardano's high security and has mechanisms such as verification (Contest) of all L2 transaction results by all participants and the ability to abort transactions before reflecting them on L1, so it is considered a very low-risk solution.
However, please note:
• Proper operation requires participants who do not maliciously use Abort or Contest
• Hydra is still under development, and there are known limitations, including the possibility of L1 assets being locked semi-permanently in some cases
Recommendations:
If you use Hydra for development, be sure to check for version updates, read the developer documentation thoroughly, and conduct sufficient testing on the Cardano testnet.
What rights do Hydra Head participants have to terminate?
Hydra participants have the right to terminate in two ways:
Abort: Before UTXOs are collected, any participant can abort the process and retrieve their funds at any time. However, fees for already executed L1 transactions are not refunded.
Close: After the Hydra Head is open, any participant can close it. The official documentation states, "Any Head member can always create a certificate to close the Head without interaction at any time."
Both aborting during initialization and closing while open can be performed by any participant.