Difference between revisions of "Staking and Delegation"

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'''Since this page was written [https://www.cardano.org/en/staking/ a new page] on this topic has appeared on [https://www.cardano.org/ the official Cardano website]. This page perhaps needs updating according to new information, but is probably good enough to function as an overview. Those seeking more detail and/or up-to-date info should go to the official page.'''
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'''This page needs updating according to [https://staking.cardano.org/ new information], but is maybe just about good enough to function as an introductory overview. Those seeking more detail and/or up-to-date info should go to [https://staking.cardano.org/ the official page]''' [https://forum.cardano.org/t/stake-info/21397 or forum page].
  
 
==All About Staking==
 
==All About Staking==
Staking refers to the process of allowing ADA in your wallet to be part of the system that both manages and secures the Cardano protocol.  Staking is an anticipated feature of Shelley, the next major release for Cardano, and is expected sometime in late Q2 or Q3 of 2018.  When staking starts we will have entered the third of three phases of the platforms maturity:  The Reward Era.
+
Staking refers to the process of allowing ADA in your wallet to be part of the system that both manages and secures the Cardano protocol.  Staking is an anticipated feature of Shelley, the next major release for Cardano, and is expected sometime in the first half of 2020. In preparation on staking on the mainnet, staking on the incentivised testnet is possible already right now.  When staking on the mainnet starts we will, after the Testnet and the Bootstrap Era, have entered the third of three phases of the platforms maturity:  The Reward Era.  
  
 
===Why===
 
===Why===
All blockchains require some method to come to a consensus about which blocks are valid and which ones are not.  Bitcoin, for example, uses Proof of Work (PoW). Cardano uses Proof of Stake (PoS) and more specifically a protocol called Ouroboros. In Ouroboros slots (blocks) are generated and signed/approved by what is called a "slot leader" once every 20 seconds. When a slot leader successfully signs a block they get a reward in the form of ADA. Thus staking can be lucrative and a way to generate passive income from ADA you hold.
+
In a central database it is easy to decide who is allowed to create new entries, while in a trustless and decentralised database like a blockchain it is a complicate task that has to be well designed. All blockchains require some method to come to a consensus about which blocks are valid and which ones are not.   
 +
 
 +
Bitcoin, for example, uses Proof of Work (PoW). Miners compete for the right to produce a block by trying to solve a very complicate mathematical problem, where it is on the other hand easy to verify that the solution is correct. If a miner solved the problem, the other miners verify it and if there is agreement, the miner has the right to create a block and receives a reward to creating this block. In the meantime everyone starts again with trying to solve the next problem. This consensus model has been proven to be unshaken by attacks during the first ten years of existence but on the other hand is tending towards centralisation in the hands of very few very large mining pools and the arms race for more and more hash rate requires more and more energy and dedicated hardware.
 +
 
 +
Cardano uses Proof of Stake (PoS) and more specifically a protocol called Ouroboros. The consensus mechanism isn't based on hash rate of powerful mining computers but on the amount of ADA staked by different pools. Therefore the effort in needed hardware and energy as well as the environmental impact is way below it is for Bitcoin or other coins based on PoW. While in former years PoS was thought of to be less secure than PoW, research has shown that this is not true [citation to be inserted]. The Ouroboros protocol was developed on top of these findings and is one of if not THE most secure existing consensus protocol.
 +
 
 +
===Ouroboros: Epochs, slots and slot leaders===
 +
In Ouroboros time is divided into epochs. One epoch corresponds to 5 days on the mainnet, one day on the incentivised testnet. Each epoch is divided into slots, once every 20 seconds. At the end of each epoch, rewards for creating blocks are distributed and stake pools are nominated as slot leaders for the next epoch.
 +
 
 +
Nomination is done by the protocol on a random basis but depending on the actual stake of the stake pools. Stake pools are run by a pool operator who runs the stake node. They represent the stake of the operator (pledge) and of the delegators who joined the stake pool. A nominated slot leader has the right to generate and sign/approve one or multiple blocks during certain slots of the actual epoch. If he succeeds in generating his blocks, he receives a reward in the form of ADA at the end of the epoch. If he misses out blocks, his rewards are being reduced. Therefore a stake pool needs to be up and running reliably to be financially interesting for its delegators. After each epoch the rewards for all the stake pools are calculated and distributed automatically by the protocol. Thus staking can be lucrative and a way to generate passive income from ADA for the delegators.
  
 
===Two Ways to Stake===
 
===Two Ways to Stake===
 
There are two ways to participate and earn these rewards.   
 
There are two ways to participate and earn these rewards.   
*You may solo stake which means you spin up a server running the Cardano SL node and stake your ADA to that node.  You will want to insure your node is online 24 hours a day, 7 days a week, 365 days a year to insure that if you are selected your server responds and generates the block.  Otherwise you will be skipped and will miss out on rewards for that round.
+
*You may solo stake which means you spin up a server running the Cardano SL node and stake your ADA to that node.  You will want to ensure your node is online 24 hours a day, 7 days a week, 365 days a year to ensure that if you are selected your server responds and generates the block.  Otherwise you will be skipped and will miss out on rewards for that round.
*You may delegate your stake to a "staking pool".  By being part of a larger pool all participants share in the cost of keeping a node up and running all the time and also share chances of being the slot leader.  Naturally your individual staking rewards will go down as they are shared with all participants in the pool, but your chances of having the pool be elected a slot leader is much higher. This method will be the obvious choice for most ADA holders.
+
*You may delegate your stake to a "staking pool".  By being part of a larger pool all participants share in the cost of keeping a node up and running all the time and also share chances of being the slot leader.  Rewards and running costs are shared with all participants in the pool. Averaged out over the long term, the rewards per ADA before costs and fees should be the same, and the fee charged by the pool administrator will be offset by the more efficient use of resources. This method will be the obvious choice for most ADA holders.
  
 
===How===
 
===How===
*Daedalus will have a separate area to allow you to delegate your stake to specific staking pools.  All staking pools must be approved by Cardano and will be part of an official list in Daedalus.
+
Staking at Cardano is always directly done inside the own wallet. No ADA needs to be sent somewhere else to stake. While there are different wallets for ADA available, staking will be possible at the beginning only at Daedalus and Yoroi wallets. During the insentivised testnet only testnet ADA which were created after a snapshot at 29th(?) of November 2019 can be staked. Testnet ADA were created only for ADA in the Daedalus and Yoroi wallet, and which were not secured by a Ledger hardwere wallet. The testnet will run for some time (probably few months) before staking on the mainnet is rolled out.
 +
 
 +
*Daedalus has a separate area to allow you to delegate your stake to specific staking pools.  All staking pools must be approved by the Cardano Foundation and are be part of an official list in Daedalus.
 
*THERE IS NEVER ANY REASON TO SEND YOUR ADA TO A STAKING POOL.  If someone asks you to send ADA to them for staking it is a scam.
 
*THERE IS NEVER ANY REASON TO SEND YOUR ADA TO A STAKING POOL.  If someone asks you to send ADA to them for staking it is a scam.
*Once you delegate your stake to a pool, you will be unable to spend that ADA. The ADA will never leave your wallet or control, but you will not be able to use it for anything else until you revoke the delegation or it expires on its own.
+
*Staking is per epoch: what matters most is the "state of play" at the beginning of each epoch (5 days at the mainnet, one day at the testnet). ADA registered as staked by an individual or in a pool at the beginning of an epoch can be spent or assigned to a different pool during the epoch and that change then takes effect at the beginning of the next but on epoch.
 +
  Example: During epoch 12345: You delegate your ADA to pool P1. Epoch 12346: You wait and drink tea. If you had another delegation before to pool P0 then you will still receive staking rewards from this pool. Beginning of epoch 12347: Now your delegated stake has been moved to pool P1. End of epoch 12347: You receive your rewards for delegating to pool P1 during the last epoch. If you didn't redelegate in the meantime, you will receive rewards for further epochs from pool P1 at the end of each epoch.
 +
* Here is an unofficial [https://cardanowiki.info/wiki/List_of_staking_pools list of staking pools]
  
===How much are the Rewards===
+
===Staking Rewards===
 
A new block is generated every 20 seconds and each block needs a slot leader.  IOHK has not defined what the staking rewards are yet so nobody knows.  Once the rewards are defined this section will be updated with specifics, but until then here are the factors that will go into it:
 
A new block is generated every 20 seconds and each block needs a slot leader.  IOHK has not defined what the staking rewards are yet so nobody knows.  Once the rewards are defined this section will be updated with specifics, but until then here are the factors that will go into it:
*A slot leader will be randomly selected from all stakers.  Right now there is about 31,000,000,000 ADA in circulation.  Assuming half of that will be staked that means your ADA is competing with about 15,000,000,000 ADA to become a slot leader.  Your chances, therefore, increase depending on how much ADA you control and stake.  If you have 1 Billion ADA then your chances of being a slot leader are 1/15 every 20 seconds.
+
*A slot leader will be randomly selected from all stake pools depending on the amount of staked ADA in the pool.  Right now there is about 31 Billion ADA in circulation.  Assuming half of that will be staked and your own pool stakes 15 Million ADA means your pools 15 Million ADA is competing with about 15 Billion ADA to become a slot leader.  Your chances, therefore, are about 1/1000 for each slot to be nominated as slot leader and increases with every ADA you control and stake.  If your pool stands for a stake of 1 Billion ADA then your chances of being a slot leader are 1/15 every 20 seconds.
*The reward will likely be some combination of transaction fees, block size fees and block signing rewards.  The current fees as defined in the protocol are ~0.15 ADA per transaction (a) and ~0.000044 per byte (b).  There is an unsubstantiated rumor of 1500 ADA per slot reward.
+
*The rewards are some combination of transaction fees, block size fees and block signing rewards.  The current fees as defined in the protocol are ~0.15 ADA per transaction (a) and ~0.000044 per byte (b).  There is an unsubstantiated rumor of 1500 ADA per slot reward.  
 
*The more transactions in a slot the higher the reward.  Also the more bytes in the slot the higher the reward.  Therefore as the network gets more active the higher the rewards based on transactions will be.  Its likely that as transaction volume increases the per slot reward will decrease to compensate (pure conjecture).
 
*The more transactions in a slot the higher the reward.  Also the more bytes in the slot the higher the reward.  Therefore as the network gets more active the higher the rewards based on transactions will be.  Its likely that as transaction volume increases the per slot reward will decrease to compensate (pure conjecture).
 
*Treasury take.  Part of a sustainable organization is the ability for it to self fund ongoing development activity.  It's not clear how this will be funded for Cardano, but it's expected to be funded through transaction fees that are split with the staking rewards.  Again, there are no specifics provided so far, but other entities take 20% so this is as good of an assumption as any for now.
 
*Treasury take.  Part of a sustainable organization is the ability for it to self fund ongoing development activity.  It's not clear how this will be funded for Cardano, but it's expected to be funded through transaction fees that are split with the staking rewards.  Again, there are no specifics provided so far, but other entities take 20% so this is as good of an assumption as any for now.
  
An example calculation for all this can be found here: [https://docs.google.com/spreadsheets/d/e/2PACX-1vRuXrCO5j7pz_WazMfgLp_vmhecAiUE95iGpmXNFOPCNJ26zsWfMYE-v1fljRZ1GASnxpJPMUQWKaZv/pubhtml Spreadsheet]
+
An example calculation for all this can be found here: [https://docs.google.com/spreadsheets/d/e/2PACX-1vRuXrCO5j7pz_WazMfgLp_vmhecAiUE95iGpmXNFOPCNJ26zsWfMYE-v1fljRZ1GASnxpJPMUQWKaZv/pubhtml Spreadsheet] and there is now a [https://antipalos.github.io/cardano-calculator/ Cardano Staking Profits Calculator] but please heed disclaimer at top of page.

Latest revision as of 10:55, 4 January 2020

This page needs updating according to new information, but is maybe just about good enough to function as an introductory overview. Those seeking more detail and/or up-to-date info should go to the official page or forum page.

All About Staking[edit]

Staking refers to the process of allowing ADA in your wallet to be part of the system that both manages and secures the Cardano protocol. Staking is an anticipated feature of Shelley, the next major release for Cardano, and is expected sometime in the first half of 2020. In preparation on staking on the mainnet, staking on the incentivised testnet is possible already right now. When staking on the mainnet starts we will, after the Testnet and the Bootstrap Era, have entered the third of three phases of the platforms maturity: The Reward Era.

Why[edit]

In a central database it is easy to decide who is allowed to create new entries, while in a trustless and decentralised database like a blockchain it is a complicate task that has to be well designed. All blockchains require some method to come to a consensus about which blocks are valid and which ones are not.

Bitcoin, for example, uses Proof of Work (PoW). Miners compete for the right to produce a block by trying to solve a very complicate mathematical problem, where it is on the other hand easy to verify that the solution is correct. If a miner solved the problem, the other miners verify it and if there is agreement, the miner has the right to create a block and receives a reward to creating this block. In the meantime everyone starts again with trying to solve the next problem. This consensus model has been proven to be unshaken by attacks during the first ten years of existence but on the other hand is tending towards centralisation in the hands of very few very large mining pools and the arms race for more and more hash rate requires more and more energy and dedicated hardware.

Cardano uses Proof of Stake (PoS) and more specifically a protocol called Ouroboros. The consensus mechanism isn't based on hash rate of powerful mining computers but on the amount of ADA staked by different pools. Therefore the effort in needed hardware and energy as well as the environmental impact is way below it is for Bitcoin or other coins based on PoW. While in former years PoS was thought of to be less secure than PoW, research has shown that this is not true [citation to be inserted]. The Ouroboros protocol was developed on top of these findings and is one of if not THE most secure existing consensus protocol.

Ouroboros: Epochs, slots and slot leaders[edit]

In Ouroboros time is divided into epochs. One epoch corresponds to 5 days on the mainnet, one day on the incentivised testnet. Each epoch is divided into slots, once every 20 seconds. At the end of each epoch, rewards for creating blocks are distributed and stake pools are nominated as slot leaders for the next epoch.

Nomination is done by the protocol on a random basis but depending on the actual stake of the stake pools. Stake pools are run by a pool operator who runs the stake node. They represent the stake of the operator (pledge) and of the delegators who joined the stake pool. A nominated slot leader has the right to generate and sign/approve one or multiple blocks during certain slots of the actual epoch. If he succeeds in generating his blocks, he receives a reward in the form of ADA at the end of the epoch. If he misses out blocks, his rewards are being reduced. Therefore a stake pool needs to be up and running reliably to be financially interesting for its delegators. After each epoch the rewards for all the stake pools are calculated and distributed automatically by the protocol. Thus staking can be lucrative and a way to generate passive income from ADA for the delegators.

Two Ways to Stake[edit]

There are two ways to participate and earn these rewards.

  • You may solo stake which means you spin up a server running the Cardano SL node and stake your ADA to that node. You will want to ensure your node is online 24 hours a day, 7 days a week, 365 days a year to ensure that if you are selected your server responds and generates the block. Otherwise you will be skipped and will miss out on rewards for that round.
  • You may delegate your stake to a "staking pool". By being part of a larger pool all participants share in the cost of keeping a node up and running all the time and also share chances of being the slot leader. Rewards and running costs are shared with all participants in the pool. Averaged out over the long term, the rewards per ADA before costs and fees should be the same, and the fee charged by the pool administrator will be offset by the more efficient use of resources. This method will be the obvious choice for most ADA holders.

How[edit]

Staking at Cardano is always directly done inside the own wallet. No ADA needs to be sent somewhere else to stake. While there are different wallets for ADA available, staking will be possible at the beginning only at Daedalus and Yoroi wallets. During the insentivised testnet only testnet ADA which were created after a snapshot at 29th(?) of November 2019 can be staked. Testnet ADA were created only for ADA in the Daedalus and Yoroi wallet, and which were not secured by a Ledger hardwere wallet. The testnet will run for some time (probably few months) before staking on the mainnet is rolled out.

  • Daedalus has a separate area to allow you to delegate your stake to specific staking pools. All staking pools must be approved by the Cardano Foundation and are be part of an official list in Daedalus.
  • THERE IS NEVER ANY REASON TO SEND YOUR ADA TO A STAKING POOL. If someone asks you to send ADA to them for staking it is a scam.
  • Staking is per epoch: what matters most is the "state of play" at the beginning of each epoch (5 days at the mainnet, one day at the testnet). ADA registered as staked by an individual or in a pool at the beginning of an epoch can be spent or assigned to a different pool during the epoch and that change then takes effect at the beginning of the next but on epoch.
 Example: During epoch 12345: You delegate your ADA to pool P1. Epoch 12346: You wait and drink tea. If you had another delegation before to pool P0 then you will still receive staking rewards from this pool. Beginning of epoch 12347: Now your delegated stake has been moved to pool P1. End of epoch 12347: You receive your rewards for delegating to pool P1 during the last epoch. If you didn't redelegate in the meantime, you will receive rewards for further epochs from pool P1 at the end of each epoch.

Staking Rewards[edit]

A new block is generated every 20 seconds and each block needs a slot leader. IOHK has not defined what the staking rewards are yet so nobody knows. Once the rewards are defined this section will be updated with specifics, but until then here are the factors that will go into it:

  • A slot leader will be randomly selected from all stake pools depending on the amount of staked ADA in the pool. Right now there is about 31 Billion ADA in circulation. Assuming half of that will be staked and your own pool stakes 15 Million ADA means your pools 15 Million ADA is competing with about 15 Billion ADA to become a slot leader. Your chances, therefore, are about 1/1000 for each slot to be nominated as slot leader and increases with every ADA you control and stake. If your pool stands for a stake of 1 Billion ADA then your chances of being a slot leader are 1/15 every 20 seconds.
  • The rewards are some combination of transaction fees, block size fees and block signing rewards. The current fees as defined in the protocol are ~0.15 ADA per transaction (a) and ~0.000044 per byte (b). There is an unsubstantiated rumor of 1500 ADA per slot reward.
  • The more transactions in a slot the higher the reward. Also the more bytes in the slot the higher the reward. Therefore as the network gets more active the higher the rewards based on transactions will be. Its likely that as transaction volume increases the per slot reward will decrease to compensate (pure conjecture).
  • Treasury take. Part of a sustainable organization is the ability for it to self fund ongoing development activity. It's not clear how this will be funded for Cardano, but it's expected to be funded through transaction fees that are split with the staking rewards. Again, there are no specifics provided so far, but other entities take 20% so this is as good of an assumption as any for now.

An example calculation for all this can be found here: Spreadsheet and there is now a Cardano Staking Profits Calculator but please heed disclaimer at top of page.