Cardano

Cardano is home to the ADA cryptocurrency, which can be used to send and receive digital funds. This digital cash represents the future of money, making possible fast, direct transfers that are guaranteed to be secure through the use of cryptography.

Cardano is more than just a cryptocurrency, however, it is a technological platform that will be capable of running financial applications currently used every day by individuals, organisations and governments all around the world. The platform is being constructed in layers, which gives the system the flexibility to be more easily maintained and allow for upgrades by way of soft forks. After the settlement layer that will run Ada is complete, a separate computing layer will be built to handle smart contracts, the digital legal agreements that will underpin future commerce and business. Cardano will also run decentralised applications, or dapps, services not controlled by any single party but instead operate on a blockchain.

Addresses

Todo... There are four types of addresses in Cardano:

Base addresses:

Pointer addresses:

Reward addresses:

Enterprise addresses:

Staking

Cardano uses the Ouroborus Proof of Stake algorithm to secure the network. During each epoch, random numbers are written to the blockchain; those numbers provide a mechanism to randomly select future slot leaders. In essence, this mechanism signifies the symbology behind the Ouroboros name: a snake eating its own tail.

The Cardano staking system fundamentally works to incentivize two primary activities. The first is making sure that stakeholders are online. The second is participation in the protocol, i.e., block creation. Because there are many people who are either unable to run their own servers with 24/7 uptime or who don't want to create a stake pool, they will be able to delegate their stake to a pool of their choice. Delegation addresses are different from standard ADA addresses.

Unlike Ethereum, or other staking protocols, users funds are not at risk of being "slashed" or destroyed in case they attempt to participate in the protocol in an inappropriate fashion; the design of the system makes that unnecessary.

Staking pools: To stake your ADA coin, you can either set up your own staking pool or delegate your stake to an existing public pool which can be done from within a supporting wallet such as Daedalus or Yoroi. The person who maintains, controls the pool, and sets its parameters is called the pool operator. Pools can charge a percentage (profit margin) and/or a fixed amount (pool cost) per epoch. These costs can be changed by the pool operator any time and will take effect at the start of the next epoch, staking wallets will notify users of changes in their pools costs. Each pool has a chance of being the slot winner every twenty seconds and gaining the right to create the block for that slot, their chance of winning is proportional to the total amount the pool holds for staking which is called the controlled stake. Rewards are distributed among all stake holders every epoch (which is 24hr in the testnet and 5 days in the mainnet). Rewards automatically contribute to your stake, but stake is not locked up, so any amount of stake can be spent at any time.

Delegation: You delegate your stake to a pool with a special type of transaction which supporting wallets will do for you. This transaction will not take effect until the end of the next epoch, and then you will start receiving rewards from that pool after another two epochs. Question: I'm not quite sure currently if that means there is two epochs of reward-downtime when you change your delegation.

Pledge: The pledge variable makes the separation of operator and owner(s) possible. It's an elegant solution that enables Cardano to reach its k target of 1,000 public pools while encouraging those with limited Ada to pool their holdings and pledge to a pool operator, thus maximizing the diversification of pool owners while maintaining network efficiency. The Incentivised Testnet has the concept of pledging, whereby stake pool operators delegate their personal stake to their pool and register a pledge address when they register the stake pool with the Cardano Foundation. Pledging is not currently enforced by the network protocol (although it may be in the future) and functions to increase the attractiveness of a pool, meaning that other delegators are more likely to delegate to that pool. The person(s) who pledges to the pool is called the pool owner. Pledging follows the same process as delegation. Question: How does pledged stake make members get more rewards? Does this mean the owner of the pledge gets less, or is it simply meaning that the chances of the pool winning are increased?

Saturation: To help prevent any single stake pool from growing too large, the Incentivised Testnet has a mechanism to ensure pools saturate at a certain percentage. If any stake pool exceeds this percentage (of total stake in the network), then the rewards for that stake pool will no longer increase but will continue to be shared among delegators, making the pool less desirable. This saturation point is configurable and may be increased as the number of healthy pools grows. This limit I think is 1/k (k being the number of pools) and is discussed in this incentives paper.

Desirability This is the most important metric for choosing a pool and reflects the real rewards you're likely to receive. The wallet orders pools by desirability. Desirability is composed of reliability (mainly up time), pool costs, profit margin, saturation and pledge. See this video for details about how desirability works.

k: The k variable maintains equilibrium between efficiency and decentralization, by limiting the desirable number of pools appearing to ADA holders for delegation selection. K will start at around 100 and will ideally aim to be around 1000. As far as Cardano's framework is concerned, the majority of delegated ADA must go to those competitive stake pool owners that make it into k. Desirable Cardano stake pools will be the only ones displayed to ADA holders in their wallets, those that don't make it into the top k are called dead pools.

Even if every user were to run a node that was online all the time, it would be hard to keep all those nodes well enough in sync to avoid forks and still keep a short slot length. Our delegation design is aimed at keeping the number of nodes that produce a significant amount of blocks reasonably small (about 100 or 1000 nodes), so that effective communication between them is feasible.

Private pools: In section 4.1 (Stake Pool Registration) of the Staking Design Specification, it says that publicly announcing a stake pool for other people to delegate to requires two steps: posting a stake pool registration certificate to the blockchain, and providing pool metadata, additional information about the pool. The certificate contains all the information that is relevant for the execution of the protocol (public key hashes, cost, margin, and pledge) as well as the content hash of the metadata, while the metadata will be displayed to end users by their wallet. For specifics about the metadata, see Section 4.2. If no metadata is provided, the stake pool is considered a private pool, and will not be displayed in wallets.

Also in Section 3.4.5 it says that usually, the stake pool operator and owner will be the same person, but a stake pool can also have multiple owners. This is to allow people to coordinate and form a stake pool even if none of them had enough stake on their own to make a pledge that would make the stake pool competitive.

And finally in Section 4.6 (Individual Staking) is says stakeholders should not be forced to delegate their stake to a pool. Instead, they should have the option of running their own node, using their own stake. Technically, such stakeholders will create a private pool, which is just a stake pool with margin m = 1 (i.e. operators take 100% of the profit), and without providing metadata. Such pools will pay all rewards to the pool operator (which is not a special rule, but just the effect of having a margin of 1), and they will not be shown in the stake pool directory in Daedalus (although even if they were, they would always be listed at the very bottom, since they would not promise any rewards to their members).

We had looked at other options that would not require individual stakeholders to register a pool, but they either complicated the design, or made it possible for free riders to contribute stake and get a share of the rewards by using suitably chosen addresses. The mechanism of private pools adds no additional complexity to the delegation system (the only added work is to suppress their listing in Daedalus). Optionally, the front-end could even set up (and retire) a private pool at the press of a button, but this is not a must-have feature for the initial release.

Staking resources

• staking.cardano.org
• Staking Design Specification
• IOHK blog: Stake pools in Cardano
• Emurgo blog: Features of Cardano staking
• 7 part lecture series on the Cardano incentives and staking mechanism
• ADApools.org

Wallets supporting ADA

• Daedalaus - the official Cardano wallet
• Yoroi light wallet - by Emurgo, Cardano's commercial arm
• Atomic - multi-asset wallet supporting Cardano

Token distribution

As of December 2019, there are four ADA billionaires, thirteen addresses hold over 100M ADA, 157 addresses hold over 10M, and there are about 3000 ADA millionaires. There are about 290K addresses in all with just over a third holding under 1K ADA, just over a third holding 1-10K and about 20% holding 10-100K, 7.5% with 100K-1M and 1% are the millionaires.

Official sites

• Official site
• WhyCardano.com
• CardanoRoadmap.com
• staking.cardano.org
• ADA Scan - Cardano block explorer, stats and charts
• Cardano block explorer
• Shelley testnet explorer
• Building cardano-sl from source

See also

• Rich list
• How secure is Cardano?
• Running a Cardano node using Docker
• Cardano on the Rocks - a self-hosted stake pool running on a Rock Pi