# BTC, ADA, and Cardano Hydra Heads as Paperless Digital Cash  Cryptocurrencies already enable offline digital cash. Hydra Heads, a feature of Cardano[^Cardano], behave like cash: - offline - off-chain - fee-less - instant - peer to peer - private - invisible to non-participants [^Cardano]: https://cardano.org/ is a commodity cryptocurrency with token ADA, a top-10 cryptocurrency by market capitalization.  Want to try it? See the instructions at the end of the article. ## Coins vs. account balance There are two broad families of cryptocurrencies: - **coins**, like Bitcoin, and, - **bank accounts**, like Ethereum In both cases, “the bank” is the blockchain (L1). In **coin-type** systems, like Bitcoin, your wallet holds discrete spendable objects, "coins", or UTxOs, After a transaction is made (you give or receive coins), you can also "receive change", or new coins, or the "spendable output of the transaction". Once a coin is spent, it cannot be spent again. This is cryptographically (which is to say "math") ensured. In **account-type** systems, like Ethereum, you do not hold coins but instead have an "account balance". Before any value can be used, L1 (or a proxy) has to be consulted to avoid double spending. This requires consulting the main ledger (either directly or through a "trusted" proxy) Also, **offline spending** is not possible because balances are global and mutable (somebody else could have already executed a claim on your values, in the ledger, after you took a snapshot of available balance). This clearing of accounts is what makes current global financial system such a nightmare. Because of this, offline, off-chain, peer-to-peer settlement is **only** possible in coin-type cryptocurrencies. ## Bitcoin-like, not Ethereum-like Most prominently Ethereum uses an account-based model. Also, by extension, all the other ERC-20–based systems and account-model chains, including: - Ethereum - Binance Smart Chain - Solana - Tron Discarding these for true digital cash (which requires coin / UTxO semantics), and excluding stablecoins such as: - Tether - USDC leaves a much smaller competitive field. ### Cardano’s actual competitors For bearer-style, UTxO-based, cash-capable cryptocurrencies, Cardano competes primarily with: - Bitcoin - Litecoin - Bitcoin Cash - Dogecoin - XRP Among these, Cardano is the only system that natively supports offline, fee-less, peer-to-peer cash-like settlement via Hydra Heads, while remaining anchored to a secure L1. ## Hydra Head properties A Hydra Head provides: - **Fully offline operation** Once opened, a head can operate offline indefinitely. Transactions require only peer connectivity. - **Off-chain settlement** Transactions are never broadcast globally. - **Instant finality** Payment and settlement are the same event. - **Minerless and fee-less** No miners, sequencers, or leaders. Participants validate and finalize their own transactions at zero marginal cost. - **Double-spend resistance** Enforced by the UTxO model and co-signed state transitions. - **Privacy by default** No external observers exist. ## A working mental model  Cardano L1 acts like an abstract bank where cryptocurrency is held. Value is locked on L1 to fund a Hydra Head. Inside the hydra head, that value behaves like cryptographic cash. This mirrors physical cash: value is withdrawn from a bank and then circulates peer to peer. Only some participants need to interact with L1. Others can remain fully offline forever. ## A "cul-de-sac" monetary system  A Hydra Head is like a monetary "cul-de-sac". Value enters and exits from Cardano L1, but value does not need to circulate through L1 to function. Inside the head, money moves peer to peer **without miners**, **fees**, or global visibility. There is no routing, no settlement layer beneath it, and no external dependency. Like cash withdrawn from a bank, value can circulate indefinitely in a closed loop. Only when participants choose to settle does L1 become relevant again. Hydra Heads are self-contained monetary systems, anchored to L1 but not mediated by it. ## Privacy  On Cardano L1, only two events are visible: - the head is opened - the head is closed There is no on-chain record of: - intermediate payments - who paid whom - when payments happened - internal transaction structure It's like a "no log policy". Just like cash. If the head is private, nothing exists externally to reconstruct. Privacy comes from the absence of observers. ## Offline does not weaken security Offline Hydra does not rely on trust. - value cannot be double-spent - invalid histories cannot be finalized on L1 - final settlement is always available if participants choose to exit Security properties hold without continuous connectivity. ## Paper, QR codes, and cash without paper A Hydra transaction is data. It can be exchanged via: - QR codes - printed strings - NFC - Bluetooth - copy/paste - any ad-hoc channel A signed transaction can be printed on paper and handed to someone. When scanned and submitted, settlement is immediate. This is **cash without paper**. ### What if the same paper is printed twice?  This is analogous to photocopying a banknote. - only the first settlement can succeed - later attempts are rejected automatically - no double spending occurs The risk exists at acceptance time, as with physical cash. The ledger remains consistent. Hydra prevents fraud from succeeding, not from being attempted. ## World cash  Hydra Heads are purely peer to peer and offline-capable. They work the same across frontiers: - no jurisdiction - no clearing system - no geographic boundary They are effectively **paperless, world cash**. ## Why this matters  Hydra Heads provide a cash-like monetary mode: - cryptographically secure - double-spend resistant - fee-less - instant - minerless - independent of continuous connectivity This mode exists in parallel to Cardano L1 and to traditional monetary systems, with L1 acting only as a value anchor. Hydra Heads are not merely a scaling technique, they implement *offline digital cash*. ## Try it for yourself Two cheat sheets follow: 1. Running a funded offline Hydra Head on Android 2. Building and submitting an offline transaction and observing state changes Hydra Heads are not merely a scaling technique. They implement a cash-like settlement layer. Part 1: ``` ############################################################ # GLOBAL CONSTANTS (EDIT ONCE IF NEEDED) ############################################################ PHONE_IP=192.168.1.208 TERMUX_USER=u0_aXXX TERMUX_PORT=8022 PHONE_HOME=/data/data/com.termux/files/home HYDRA_BIN=$PHONE_HOME/hydra-node PC_HOME=$HOME/src/hydra KEYS_DIR=$PC_HOME/cardano-keys OFFLINE_SEED=0000000000000000000000000000000000000000000000000000000000000000 ############################################################ # 1) PHONE SETUP (ANDROID) ############################################################ # Install Termux from F-Droid (manual) # Open Termux pkg update -y pkg install -y openssh proot-distro passwd # set: aaaa sshd # SSH on port 8022 # Check user (note it!) whoami ############################################################ # 2) CONNECT FROM PC / WSL2 ############################################################ ssh -p 8022 ${TERMUX_USER}@${PHONE_IP} ############################################################ # 3) CREATE DEBIAN (GLIBC) ON PHONE ############################################################ proot-distro install debian proot-distro login debian uname -m # must be: aarch64 ############################################################ # 4) INSTALL RUNTIME LIBS (PHONE / DEBIAN) ############################################################ apt update apt install -y \ ca-certificates curl jq \ libgmp10 libsodium23 libssl3 zlib1g libnuma1 libsnappy1v5 \ liblmdb0 libsecp256k1-2 \ etcd-server ############################################################ # 5) GET HYDRA-NODE ARM64 (ON PC) ############################################################ mkdir -p $PC_HOME cd $PC_HOME docker pull --platform=linux/arm64 blinklabs/hydra-node:main-arm64v8 cid=$(docker create --platform=linux/arm64 blinklabs/hydra-node:main-arm64v8) docker cp "$cid":/usr/local/bin/hydra-node ./hydra-node docker rm "$cid" file hydra-node # ELF 64-bit ARM aarch64 ############################################################ # 6) COPY HYDRA-NODE TO PHONE ############################################################ scp -P 8022 ./hydra-node \ ${TERMUX_USER}@${PHONE_IP}:${PHONE_HOME}/hydra-node ############################################################ # 7) PHONE: MAKE EXECUTABLE ############################################################ chmod +x $HYDRA_BIN $HYDRA_BIN --version ############################################################ # 8) PHONE: PROTOCOL PARAMETERS (CONWAY) ############################################################ cd $PHONE_HOME curl -fsSL https://preprod.koios.rest/api/v1/cli_protocol_params \ -o protocol-parameters.json grep -n '"poolVotingThresholds"' protocol-parameters.json ############################################################ # 9) PHONE: SHELLEY GENESIS (PREPROD) ############################################################ # Copy from known config tree or scp from PC if you have it # Must end up exactly here: ls -l $PHONE_HOME/shelley-genesis.json ############################################################ # 10) PHONE: FAKE ADA (INITIAL UTXO) ############################################################ cat > $PHONE_HOME/utxo.json <<'EOF' { "0000000000000000000000000000000000000000000000000000000000000000#0": { "address": "addr_test1vpgu5cghta2ydahksr55z88gsz6pjjp43zcatfefw3drw6sut9jxj", "value": { "lovelace": 20000000 } } } EOF ############################################################ # 11) PHONE: HYDRA KEYS (NODE A) ############################################################ mkdir -p /root/hydra-a/keys $HYDRA_BIN gen-hydra-key --output-file /root/hydra-a/keys/hydra ############################################################ # 12) PHONE: RUN HYDRA NODE A ############################################################ $HYDRA_BIN \ -n A \ --hydra-signing-key /root/hydra-a/keys/hydra.sk \ --offline-head-seed $OFFLINE_SEED \ --ledger-genesis $PHONE_HOME/shelley-genesis.json \ --initial-utxo $PHONE_HOME/utxo.json \ --ledger-protocol-parameters $PHONE_HOME/protocol-parameters.json \ --listen 0.0.0.0:5001 \ --advertise ${PHONE_IP}:5001 \ --api-host 0.0.0.0 \ --api-port 4001 \ --persistence-dir /root/hydra-a/state \ --use-system-etcd ############################################################ # 13) VERIFY PHONE NODE ############################################################ curl http://127.0.0.1:4001/head curl http://${PHONE_IP}:4001/head ############################################################ # 14) VERIFY FAKE FUNDS LOADED ############################################################ curl -s http://127.0.0.1:4001/head \ | jq '.contents.coordinatedHeadState.confirmedSnapshot.initialUTxO' ############################################################ # 15) IF UTXO EMPTY → WIPE STATE & RESTART ############################################################ rm -rf /root/hydra-a/state mkdir -p /root/hydra-a/state # rerun step 12 ############################################################ # 16) PC SIDE (NODE B – OFFLINE, FOR TX BUILD) ############################################################ # Use Docker cardano-cli only (no hydra-node needed on PC) cd $KEYS_DIR mkdir -p pay docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest address key-gen \ --verification-key-file /w/pay/b.vkey \ --signing-key-file /w/pay/b.skey docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest address build \ --payment-verification-key-file /w/pay/b.vkey \ --testnet-magic 1 \ --out-file /w/pay/b.addr ############################################################ # NEXT STEP (FOR NEXT ASSISTANT) ############################################################ # Build + sign a tx spending: # 0000...000#0 # Submit via Hydra WebSocket (NewTx) # Observe /head changing on phone ############################################################ ``` Part 2: ``` ############################################################ # CHEAT SHEET #2 — OFFLINE TX INSIDE HYDRA HEAD ############################################################ # Assumptions (same as sheet #1) PHONE_IP=192.168.1.208 PHONE_API=4001 PC_HOME=$HOME/src/hydra KEYS_DIR=$PC_HOME/cardano-keys TX_IN=0000000000000000000000000000000000000000000000000000000000000000#0 ############################################################ # 1) PC: PREPARE ADDRESSES (A = receiver, B = sender) ############################################################ cd $KEYS_DIR mkdir -p pay # Generate keys for A (receiver) docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest address key-gen \ --verification-key-file /w/pay/a.vkey \ --signing-key-file /w/pay/a.skey docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest address build \ --payment-verification-key-file /w/pay/a.vkey \ --testnet-magic 1 \ --out-file /w/pay/a.addr # (Sender B keys already exist from sheet #1) cat pay/a.addr cat pay/b.addr ############################################################ # 2) PC: BUILD RAW TX (FEE = 0 FIRST) ############################################################ A_ADDR=$(cat pay/a.addr) B_ADDR=$(cat pay/b.addr) docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest transaction build-raw \ --tx-in $TX_IN \ --tx-out "$A_ADDR+1000000" \ --tx-out "$B_ADDR+19000000" \ --fee 0 \ --protocol-params-file /w/protocol-parameters.json \ --out-file /w/tx.draft ############################################################ # 3) PC: CALCULATE MIN FEE ############################################################ FEE=$(docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest transaction calculate-min-fee \ --tx-body-file /w/tx.draft \ --protocol-params-file /w/protocol-parameters.json \ --witness-count 1 | awk '{print $1}') CHANGE=$((19000000 - FEE)) echo "FEE=$FEE" echo "CHANGE=$CHANGE" ############################################################ # 4) PC: BUILD FINAL TX ############################################################ docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest transaction build-raw \ --tx-in $TX_IN \ --tx-out "$A_ADDR+1000000" \ --tx-out "$B_ADDR+$CHANGE" \ --fee "$FEE" \ --protocol-params-file /w/protocol-parameters.json \ --out-file /w/tx.raw ############################################################ # 5) PC: SIGN TX (B SIGNS) ############################################################ docker run --rm -v "$PWD":/w ghcr.io/intersectmbo/cardano-node:10.6.1 \ cli latest transaction sign \ --tx-body-file /w/tx.raw \ --signing-key-file /w/pay/b.skey \ --out-file /w/tx.signed ls -l tx.signed jq -r '.cborHex | length' tx.signed # must be > 0 ############################################################ # 6) PC: SUBMIT TX TO HYDRA (WEBSOCKET) ############################################################ # Install websocat once if missing sudo curl -L \ https://github.com/vi/websocat/releases/download/v1.12.0/websocat.x86_64-unknown-linux-musl \ -o /usr/local/bin/websocat sudo chmod +x /usr/local/bin/websocat # Submit NewTx jq -c '{tag:"NewTx", transaction:.}' tx.signed \ | websocat ws://${PHONE_IP}:${PHONE_API}/ ############################################################ # 7) VERIFY TX EFFECT (PHONE) ############################################################ curl -s http://${PHONE_IP}:${PHONE_API}/head \ | jq '.contents.coordinatedHeadState.version' curl -s http://${PHONE_IP}:${PHONE_API}/head \ | jq '.contents.coordinatedHeadState.confirmedSnapshot.initialUTxO' ############################################################ # EXPECTED RESULT ############################################################ # - version increments (e.g. 0 -> 1) # - original TX_IN disappears # - new UTxOs appear for A and B ############################################################ ``` DOI: https://writing.preferredframe.com/doi/10.5281/zenodo.18203888