Cardano Staking

What is staking

Decentralization is about distributing power between entities to avoid single points of failure. Staking is a way how to distribute consensus power proportionally based on ADA holdings. You can consider it as an improvement of PoW where only pools and miners are responsible for making consensus. While in PoW, the distribution of consensus power is based on external resources like electricity, in PoS, the distribution of ADA coin is used. Thus the Cardano network consumes less energy than PoW networks achieving a similar result.

Every consensus must economically motivate users to participate in making the network consensus and discourage them from dishonest behavior. Users must be rewarded only for honest behavior to ensure the honesty of the whole network. In the open distributed network everybody can take a part of the consensus power by buying ADA. It can be a dishonest person preparing some fraud. The goal is to economically encourage the majority of entities to behave honestly and distribute the power to as many entities as possible. If more than 50% of participants behave honestly then the network will be secure.

ADA coins are the stake — kind of skin in the game. There is no slashing in Cardano so the protocol does not take any ADA from owners in case of dishonest behavior. Only the chance to earn new ADA coins is sufficient to ensure honesty.

Cardano Ouroboros PoS provides the right to create a block to a node that must be running and connected to the network 24/7. The node operated by a pool operator has to inform a network that it wants to participate in the consensus. It is technically done by the creation of a pool certificate that is sent to the network. Thus pool ID is assigned to the pool and users can find the pool in wallets supporting staking.

The right to produce a block is provided based on a lottery. Every single ADA can be a ticket in the lottery. The lottery mechanism takes into account all staked ADA coins and gives the right to produce a block to a selected ADA in every slot (round). The owner of ADA can be either the pool operator and his node produces the block or it can be a user that has delegated ADA to the pool. In this case, the block is created by the same node on behalf of the ADA owner. Pool poses own coins and coins that are delegated by users…