Learning Zone

Learn more about Cardano, the protocols it utilizes and everything in between

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General

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Cardano

Cardano is a proof-of-stake blockchain platform: the first to be founded on peer-reviewed research and developed through evidence-based methods. 

 

Named after Gerolamo Cardano, an Italian polymath, who was one of the most influential mathematicians of the Renaissance, and was one of the key figures in the foundation of probability. He wrote more than 200 works on science.

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ADA

The native token of the Cardano network. It is used as the main currency used to make transactions on the Cardano blockchain. 

 

Named after Ada Lovelace, a 19th-century mathematician who is recognized as the first computer programmer, and is the daughter of the poet Lord Byron.

 

1 ADA = 1 Million Lovelaces.

Max Supply: 45 Billion ADA

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Lovelace

The smallest unit of ADA.

 

A lovelace is to ADA what a satoshi is to bitcoin. Similarly in fiat currency, it is what a cent is to a dollar.

 

These smaller units exist as a simpler means of  communication. For example, it's easier to ask someone for 42 cents instead of 0.42 dollars. So in ADA, it's simpler to say 42 lovelaces instead of 0.000042 ADA.

 

Named after the last name of Ada Lovelace.

 

1 Lovelace = One Millionth of 1 ADA (0.000001)

Protocols

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Ouroboros

Cardano utilizes a custom proof of stake (PoS) protocol named Ouroboros instead of a proof of work (PoW) algorithm, which is used by Bitcoin and Ethereum.

 

Orobouros is the consensus protocol used by nodes running the Cardano to secure the network. 

 

It is also the protocol that divides time into epochs and then into the slots. 

Proof of Work (PoW)

This method requires nodes of a network to solve the same cryptographic puzzle (ie. a rubik's cube) using processing power (ie. CPU, GPU, ASIC) to validate transactions.

 

The nodes solving the puzzle are referred as miners and the first one to find the solution gets a reward. So, imagine a room filled with people solving Rubik's cubes and the first one to solve it, gets a reward and then they add the Rubik's cube to a chain of other cubes. Then everyone in the room gets a new Rubik's cube and the game starts all over.

 

This method consumes a significant amount of resources (hardware, electricity, time) to essentially solve a random puzzle.

Proof of Stake (PoS)

This method requires nodes (ie. Mahalo Pool) of a network to validate transactions by holding/staking tokens. You can think of these staked tokens, like lottery tickets. The more lottery tickets a pool has, the better chance they have at winning the "lottery" to add a block of transactions to the blockchain.

 

This method consumes less resources, as it utilizes far less hardware and electricity, since it doesn't require energy demanding hardware like GPUs. The nodes just need to be online and available to validate blocks.

Staking / Delegating

Staking/Delegating

Staking or Delegating are two terms that are used interchangeably in the community, but people may have different interpretations of what each action means. For simplicity, we'll treat both terms as the same thing.

 

Staking/Delegating is the act of taking tokens you own and assigning them to a pool in the network, so you can participate in the operations of the network. In short, you can think of each ADA you hold as a voting ballot and when you delegate it, you are registering each ADA as a potential vote.

 

By delegating your tokens to the network, you will gain rewards for participating in the network's operation. This participation and reward mechanism allows a network like Cardano to become increasingly decentralized. This is because the rewards will attract more people to participate in the network, which results in more pools and stakers. 

 

When you stake your ADA, you are delegating all the ADA in that wallet to the pool of your choice. The tokens aren't locked, so you can spend them or transfer them out of the wallet being staked. You just won't receive rewards for the amount no longer in the wallet. You can delegate to multiple pools if you have multiple wallets.

 

Stake Pool

A stake pool (IE. Mahalo Pool) is a reliable server node that manages and holds the combined stake of various stakeholders in a single entity.

 

Stake pools are responsible for processing transactions and producing new blocks and are at the core of Ouroboros, the Cardano proof-of-stake protocol.

Staking Process

  1. The Ouroboros protocol will divide time in epochs (5 days).
  2. It will then further divide time into a slot (1 second).
  3. In that slot, a slot leader is randomly elected from the stake pools (the more stake a pool controls, the greater chance is has to be elected). 
  4. The elected slot leader (ie. Mahalo Pool) running the Cardano software on a node/server will validate the transaction against certain requirements (ie. sender's have enough funds to pay for the transaction). If all requirements are met, the slot leader will record the transaction as part of a new block. 

Network Details

Epoch

A term used define a period of time.

 

The Cardano network splits time into periods called epochs. One epoch on the Cardano network lasts approx. 5 days.

 

Essentially, it's a way to track and divide time, so there is a start and end to certain processes like calculating rewards or when updated settings in pools such as the pledge or fees go into effect. 

 

Similar to how people receive pay from their jobs every two weeks, if we didn't have a start or end time to the hours worked, it would be difficult to track when we get paid.

 

An epoch will contain 432,000 slots and produce approx. 21,600 blocks (432,000 slots / 20 seconds).

 

An epoch on another blockchain network will constitute a different period of time.

Stake Snapshots

A snapshot of each pool is recorded at the beginning of each epoch. It will record the amount of ADA in the pool's pledge and active stake.

 

This record is used to determine the chances a pool will have to become a slot leader in the figurative lottery at the beginning of each epoch.

Pledging

Pledging is a mechanism within Cardano that allows pools operators (IE. Mahalo) to stake some or all of their own ADA tokens to their pool. This pledge represents "skin in the game" and allows operators to make their pool appear more attractive, as people will correlate pledge to how committed an operator is to their pool.

 

The pledging mechanism is also necessary to protect the network against malicious actors. Read about Sybil Attacks to learn more.

 

As a staker, you won't be performing any pledging, but rather you will be delegating your ADA to a pool. So pledge is just one statistic you should refer to when choosing a pool to stake with. 

Slot

Slots are 1 second increments within an epoch. So they are a sub unit of time in an epoch.

 

In these slots are when blocks can be produced/minted and added to the blockchain.

 

There is some confusion regarding the duration of a slot, as they are sometimes referred to as 20 seconds long. This is because approx. 5% of those slots currently produce a block.

 

Thus, on average a block is produced approx. every 20 seconds (1 second / 0.05), which is why 20 seconds is sometimes referred to as the slot duration.

 

Slot leaders are elected to each slot at the beginning of each epoch like a gigantic lottery or a huge battle royale where the more ADA they have, the more ammo they have to win. It's more like lottery...

 

A Cardano epoch currently includes 432,000 slots (5 days * 24 hrs * 3600 seconds per hr)

Variable Fee

Aka Pool Margin, aka Profit Margin, aka "How Dare They Take a Percentage of My Money"

 

Is a variable percentage that each pool charges to make additional profit to continue operations. This percentage is calculated based on the following: (Block Rewards in an Epoch - Fixed Fee) * Pool Margin %.

 

For example, let's say we are getting a return of 5% ROA (Return on ADA) / year and we have a pool with the following stats:

  • 1.46M ADA Actively Staked in a Pool
  • 340 ADA Fixed Fee + 2% Variable Fee

This is how the variable fee works:

  • The block rewards in an epoch might be ~1000 ADA (1.46M ADA * 5% ROA / 73 epochs in a year)
  • After the pool operator takes the fixed fee, the remaining amount is 660 ADA (1000 ADA - 340 ADA)
  • From that 660 ADA, the variable fee of 13.2 ADA (660 * 2%) is removed
  • This leaves 646.8 ADA to be distributed to the delegators of the pool

You'll see pools with this percentage set anywhere from 0 - 10%.

 

Overall, the variable fee for small pools does not impact their profit margin much at all as they rely on the fixed fee for stable income. Whereas, larger pools will typically have a higher variable fee, as their profit margin greatly increases as a result of a much larger number of ADA staked.

Slot Leader

Within each slot, a slot leader or slot leaders are elected randomly from among the stake pools. The more stake the pool controls, the greater the chance it has of being elected as a slot leader to produce a new block that is accepted into the blockchain.

 

Slot leaders (a stake pool) are responsible for validating transactions in a slot. This is done automatically using the Cardano node software the pool is running. So pool operators aren't actually waiting until it's their slot to manually validate the transaction, they just need to ensure the pool is online and running the software.

 

Although, if a slot leader (staking pool) is offline when it's their turn to produce a block, they won't get the rewards, which may also result in a slot with no produced blocks.

 

As well, all slot leaders are elected at the beginning of each epoch, so the slot leader election is not happening at real-time.

 

Fixed Fee

Is a flat rate (usually 340 ADA, as that is the bare minimum) that each pool charges to keep the lights on. Cardano implemented this fixed fee so stake pool operators had a stable income coming from somewhere to continue operations.

 

The fixed fee is taken from the block rewards in an epoch and not from your staked ADA. So if you're thinking, I have 1000 ADA and these thieves are going to take 340 ADA every 5 days from me, they are robbing me blind!

 

Rest assured, it's being removed from the block rewards. So if an epoch's block reward is 1000 ADA, the 340 ADA is taken from the 1000 ADA and results in 660 ADA remaining for the variable fee and delegators.

Technical Details

Sybil Attacks

Is an attack that tries to compromise the network by creating a large number of pools and uses them to gain a disproportionately large amount of influence.

 

Cardano's Proof of Stake is susceptible to such an attack, as a malicious actor could attempt to create hundreds of pools, but the pledging mechanism and other factors such as ADA token price make such an attack highly unlikely.

Height Battles

If you read about Slot Battles, then you heard about orphaned blocks. Well a height battle is another example of how blocks can be minted but never used.

 

In a height battle, a block could be orphaned if it's not added to the network fast enough before the next block is made. So you can think of it like a race. Or... like being invited to a party, but the host tells you to arrive before Charles is there. You end up being late cause your dog ate your Ledger, so when you finally arrive to the party, Charles is already there and they won't let you in. Say what now...

 

This is because slots are 1 second long, so it's possible for 2 blocks to be created 1 second apart. This creates a situation where a block may take too long to be added to the node of the pool producing the next block.

 

For a more technical example, let's say we have a block minted named "X" and it takes too long to reach the pool that is minting the next block named "Y".  This "Y" block has no idea "X" even exists because it wasn't added to the network fast enough. The network will proceed to add "Y" to the blockchain and since "X" was never included in this most recent block... the protocol will do to "X" block what my tinder date did to me last week... ghosted.

 

Disclaimer: Ghosted is not a technical ADA term

Protection

The pledging mechanism is necessary to protect the network against Sybil attacks. A Sybil attack is when a malicious actor creates hundreds of pools to attempt to gain majority consensus on the network. Due to the pledging mechanism, if this attacker has low pledges on these pools, the chances they will attract stakers will be very low.

 

Thus, to attempt a successful attack, a malicious actor would need an enormous amount of ADA pledged to hundreds of pools. This is very expensive and as the value of ADA rises, the cost to perform this type of attack on the network greatly rises.

 

In short, Cardano is one of the most secure blockchain networks, as the cost to attack the network, vastly outweighs the benefit.

Slot Battles

It is possible for a slot to have 2 or more elected slot leaders. These stake pools are given the same block (called a Competition Block) to mint, which creates a situation called a "slot battle".  The result of who wins is completely... random. 

 

Both stake pools will create the same block, send them off, but the winning block is chosen at random. You can think of it like putting the blocks into a one of those bingo ball tumblers and whichever block comes out is the winner. The other block is unused and orphaned (IE. it never gets to join its siblings in the chain... oh that got dark)

 

Well it's technically a bit more complicated then that as a value called VFR is used to determine the outcome, but bingo balls are cooler.

Organizations

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IOG | IOHK

Input Output Global (IOG) or Input Output Hong Kong (IOHK) is responsible for the development of the Cardano blockchain.

 

Founded in 2015 by Charles Hoskinson and Jeremy Wood, IOHK is a technology company committed to using peer-to-peer innovations to provide financial services to the three billion people who don’t have them.

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Cardano Foundation

Responsible for managing the Cardano project. It's core mission is to "standardise, protect and promote"​ the Cardano Protocol technology.

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EMURGO

A global blockchain technology company providing solutions for developers, startups, enterprises and governments.

 

EMURGO is the company that developed the Yoroi wallet and Seiza blockchain explorer.

Wallets

Terms related to Cardano

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Daedalus

Daedalus is a full node wallet. This means that unlike light wallets (e.g.Yoroi, Adalite etc.) Daedalus downloads a full copy of the Cardano blockchain and independently validates every transaction in its history. That way you get maximum security and completely trustless operation, without centrally hosted 3rd party servers.

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Yoroi

Yoroi is a light wallet for Cardano. There is no need to download the blockchain when you open the wallet. So you are ready to send and receive transactions right away.

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ADALite

AdaLite allows you to access your funds using a hardware wallet. It currently supports Trezor model T, Ledger Nano X and Ledger Nano S.

More Coming Soon!

People

Terms related to Cardano

Charles Hoskinson

Is the founder of Cardano, co-founder of Ethereum.

 

Cardano Roadmap / Eras

Terms related to Cardano

Byron

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Shelley

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Goguen

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Basho

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Voltaire

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Organizations

Terms related to Cardano