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How to stake Ada with Daedalus
An Introduction to Staking in the Cardano Ecosystem and at Ada Economy
In its current form, Cardano is federated and not completely decentralized but still operates as a Proof of Stake (POS) system. The deployed version of Cardano is known as the settlement layer or Cardano-SL. In the next several months, from March to July 2019, the Cardano network will gradually decentralize. Here at Ada Economics, the next couple of paragraphs will explain how staking Ada is the mechanism that will secure the decentralized network. The approaching developments in Cardano are called the Reward Era with a formal name known as Shelly. In the reward era, the network will operate in a completely decentralized, trustless mode. During the reward era, staking pools will need to emerge during, allowing stakeholders to acquire rewards by pointing their stake toward stake pools - nodes that remain online to maintain the protocol in a decentralized fashion. Ada Economy plans to run a stake pool node with maximum participation. How do we achieve maximum participation? Making pool information available in multiple languages and making staking with the Ada Economy as easy as possible.
So what is the difference between when a person stakes their Ada or operates a pool?
A person who is staking, a delegator, has 2 things they can do with their money, Ada, at the same time. A person can both spend and transfer funds, and stake funds. This is called the dynamic Proof of Stake. Some cryptocurrencies require a user to lock their funds when the funds are staked, Cardano will not. Spending and transferring funds are the primary purposes of owning a cryptocurrency, but the same cryptocurrency can also be used to secure the network. This is where the stake pools come into play, as the pools become the slot leaders, where the slot leader node secures the network by signing transactions when their turn arrives. The slot leader turns are selected by cryptographic protocol call Ouroboros which randomly selects the slot leaders. The random selection process of Ouroboros combined with the stake power of the honestly operating slot leaders is what secures the network.
A note about voting with your Ada as opposed to staking. In Cardano, staking and voting are separate. You will be able to stake with one pool, or slot leader, and still be able to vote with your own Ada power, or delegate your voting power to an expert. This feature will come later in the Basho Era.
For more details and authoritative information, the next sections are sections from Cardanodocs.com
Why Proof of Stake?
The most important thing about picking a Proof of Stake protocol over a Proof of Work protocol (the one adopted by Bitcoin), is the energy consumption considerations. Running the bitcoin protocol is a very expensive endeavor that uses large amounts of energy. It is estimated that 3.8 American households can be powered for a day by the energy that is spent to generate one bitcoin transaction. These energy requirements for running the bitcoin protocol continue to grow as more and more bitcoin miners sink money into mining. In addition, more energy is needed as the difficulty of the problems that their computers or mining rigs, encounter increases. This is why researchers have investigated alternative ways to reach consensuses — such as using the Byzantine Fault Tolerant (BFT) consensus algorithms and PoS algorithms.
What is Proof of Stake?
Proof of Stake is a novel approach to block generation. The core idea of Proof of Stake is that instead of wasting electricity on cracking computationally heavy problems, a node is selected to generate, or mint, a new block with a probability proportional to the number of coins this node has. If a node has a positive stake greater than zero, it is called a "stakeholder". If a node eventually becomes chosen to mint a new block, it is called a "slot leader". The "proof" part of "proof of stake" refers to evidence that blocks of transactions are legitimate. While "stake" means "the relative value held by addresses on the node". By "relative value" we mean "all the total value held by wallets on a particular node divided by the total value in the Cardano SL system".
Nodes with a positive stake are called stakeholders, and only stakeholders may participate in running the protocol. Moreover, to be able to generate new blocks for the blockchain, a stakeholder must be elected as a slot leader. The slot leader can listen to transactions announced by other nodes, make a block of those transactions, sign this block with its secret key and publish it to the network. You can think of a slot leader as a miner in bitcoin, but the above-mentioned consensus defines who will be able to mine, when and how much.
Epochs and Slots
The Ouroboros protocol divides the physical time into epochs, and each epoch is divided into slots. Each slot has one and only one leader, the slot leader, and a slot is a relatively short period of time currently 20 seconds. The slot leader is the only node with a right to produce the one and only one block during his slot. If slot leaders missed their slot for any reason, for example, they are offline, the right to produce a block is lost until they are elected again. One or more slots can remain empty without generated blocks, but the majority of blocks of at least 50% plus 1 must be generated during an epoch.
How Slot Leaders Elections Work
Slot leaders are elected from the group of all stakeholders. Please note that not all stakeholders participate in this election, but only ones who have enough stake (for example, 2% of the total stake). This group of stakeholders is known as "electors". Electors elect slot leaders for the next epoch during the current epoch. Thus, at the end of any given epoch, it is already known who are slot leaders for the following, and it cannot be changed.
You can think of this election as a "fair lottery"; anyone from the group of stakeholders can become a slot leader. However, an important idea of PoS is that the more stake stakeholder has, the more chances one has to be elected as a slot leader. In addition, One stakeholder can be elected as a slot leader for more than one slot during the same epoch.
The fundamental assumption of a protocol is known as an honest majority. This means that participants owning at least 50 percent plus 1 of the total stake are honest ones. In this case, we can prove that adversaries cannot break the persistence and liveness of the blockchain.