What is Cardano?
Cardano is an cryptographic blockchain platform. It uses a proof-of-stake algorithm to generate blocks. It does not need heavy calculations for verifying new blocks and therefore it does not need much electricity. Cardano has its own token called ADA.
Cardano is not using much energy to forge new blocks.
Inbuilt ecological friendlyness
Cardanos energy footprint is really low
This is a tough topic, but let’s start with the bad news: Yes, the Cardano blockchain is a digital asset and therefore it needs energy. Not much more to say here.
But, yes there is a huge but, generating a new block for the blockchain Cardano does not rely on an Proof-of-Work (PoW) algorithm like Bitcoin and Ethereum are. It uses Proof-of-Stake (PoS).
So what is the difference?
PoW algorithms simply need to solve heavy complicated mathematical hashing problems. This takes computation time and accordingly the more of these hashing values can be calculated in a given timeslot, the more computational power the underlying computer has, the more electricity is used. Furthermore the difficulty of the hashing maths raises over time, the more participants are joining.
Cardano does’t need all this: It simply uses Proof-of-Stake (PoS). Proof-of-Stake doesn’t rely on solving heavy complicated maths. Instead it is using something similar to a share holder system with a factor called random selection.
The share holder part is everyones used ADA. The more ADA you have, the more influence you have. This is something we can call a user based factor. The random selection is done by the network of all Cardano pools. Everytime a new block needs to be produced a randomly selected amount of Cardano pools pick randomly a “winner”, who is obliged to produce the block. Sounds like a lottery.
This Proof-of-Stake algorithm is robust against a pretty fair number of hacking attacks like a 51% attack. But this later more in the section about stability of the blockchain.
The random selection is something out scope of everyones influence, or not? Well, it is not, but this is explained later in the staking area.
Cardano uses Proof-of-Stake (PoS) which is something similar to a share holder system with a factor of random selection.
PoS doesn’t need vast energy, therefore it has a really small energy footprint.
A full Cardano node can run on some of the smallest and low-energy profile PCs like a Raspberry Pi.
Ada can be delegated or pledged to earn rewards.
Every blockchain needs a token
Ada ist the native token of Cardano.
Named by a 19th century mathematician Ada Lovelace, Ada is the financial value of Cardano. In other words, Ada is a digital currency. But Ada is more than just a currency: If you hold some Ada in your wallet, you are automatically a “stake holder” of Cardano. There are two ways to earn rewards with your Ada: Delegating to a stake pool or pledging to a stake pool. This process is called staking.
Earning rewards with staking
Staking is a process to delegate your share holder rights to a trust party.
Staking is a process to earn rewards with your Ada in that way that you stake your Ada to a staking pool. There are two main processes, how you can do it: Delegation or Pledging.
Delegation is an easy process for every user, who has not the skills about administrating an own node. The rewards are calculated in proportion of the delegated Ada to the pool.
Pledging is a bit more complex and needs some skills of running a pool. A pledge is a personal commitment of the owner of a stake pool. The pledge of a stake pool shows how serious the operator is with supporting the Cardano network. A stake pool should always meet the registered pledge. Look out for this number.
What does delegating your stake to a pool do?
This is an easy answer: Every stake delegated to a stake pool is raising the probability to forge the next block of the Cardano blockchain.
Why supporting of smaller pools is so important
With your delegated stake you should always consider to support a smaller pool out of 2 reasons: Decentralization of the network and personal value.
The decentralization of the Blockchain is the most important value of a working blockhain. The better the blochain is decentralized, the better it is protected against several attack vectors. Without going too deep in knowledge at this point, you have simply to understand: The more active staking pools, the better for the value of Cardano.
The personal value is going with the tune of the decentralization. Everybody with some decent administration knowledge can be a pool operator. The knowledge is one hurdle, the second is the available personal pledge and the third is the cold start problem. Every stake pool basically starts with their pledge only. Then the pool operator is trying to convice others, like friends and even you, while you read this text, to support the pool.
By pledging to a smaller pool, you raise the probability that the smaller pool will forge some block every now and then. The pool of course takes some small part of the rewards to pay their bills, like servers, internet connection, security of the pool and so on. So while you delegate a smaller pool, the pool owner is not sitting alone at its costs and the more likely it is, that he is still willed to run the pool in long terms. Which is also helping you, since the pool will generate rewards for all that time.
But you should always watch the numbers of a smaller pool. Usually a high pledge of several 10000 Ada is a good condition to start with. The community of stake pool operators recommends every stake pool operator to pledge at least 100000 Ada.
This means small pools with low saturation and a low pledge are lacking a bit of trustworthyness.
But I want to have rewards every epoch!
Oh you are concerned about your interest over time? Well this is some simple maths.
A bigger pool will forge every epoch several blocks and therefore every epoch some rewards are flowing to you. But you have to share the rewards with a bigger number of delegators first of all and the proportion of your delegation into the pool is also taken in account. Unless you don’t own millions of Ada, a bigger pool is giving you less, but constant rewards.
A smaller pool will forge maybe every 5th or 10th epoch some block, therefore the rewards are not flowing as constant as you would expect. But since a smaller pool has a small amount of delegators and the proportion of your delegation into the pool is higher, you will get some quite high rewards, when a block is forged in a lucky epoch. When you simply calculate the mean then over every epoch which has passed, the interest will be most likely the same, compared to a bigger pool.
And last but not least, a smaller pool is less likely able to hit the saturation point soon. At this point, the rewards are dropping and every block gives less rewards, which lowers your interest over time. So with a smaller pool you don’t have to re-delegate your Ada soon, which costs some transaction fees.
In the end, it is your personal decision, but ADELA will give you a virtual hug, when you delegate to our pool.
Staking can be done with delegation or pledging.
Delegation is the easiest process for every user, who owns at least 1 ADA.
Pledging is a personal commitment of the pool owner.
Supporting a smaller pool, is giving more decentralization, which is good for Cardano.
Even a small pool should have a pledge around 100000 Ada. The amount of pledge is a metric for trustworthyness.