FREQUENTLY ASKED QUESTIONS
What is Shelley
Shelley is the long-awaited second stage of Cardano's planned evolution, adding both decentralization and proof of stake (POS) to the ecosystem. This is a very important milestone for the Cardano project, advancing forwards on the path to becoming the number one cryptocurrency in the world.
The five stages of planned evolution are:
1. Byron - Third Generation Cryptocurrency with Wallet
2. Shelley - Decentralization and Staking
3. Goguen - Smart Contracts and Defi
4. Basho - Scalability and Interoperability
5. Voltaire - Governance, (Voting)
Proof of Stake (POS)
Proof of Stake is similar to the older Proof of Work, (POW) systems, only significantly more efficient. While Bitcoin uses the power of a small country to mine the blocks that protect it's network, Cardano's POS system has been designed by the world's greatest minds, then independently peer-reviewed, to deliver superior global results on the power needed to run a single home. This is millions of times more efficient than the older POW systems.
This POS system uses stake pools to create blocks and protect the network. ADA owners are then required to delegate stake to these stakepools in exchange for ongoing rewards.
The more equally dispersed this stake is across all stakepools, the safer the network becomes.
Staking Rewards
Staking Rewards are paid every 5 days at the beginning of each epoch in ADA and sent directly to the address of the account holder, with an expected return on investment (ROI) of 5% to 6%. This is globally equivalent to approximately 1.8 billion ADA per year distributed as compensation.
To maximize your rewards, it's best to avoid staking to saturated pools.
When choosing a stake pool for the best ROI the winning strategy is to fully understand the following relationships:
1. Margin %
2. Fixed Cost (340 ADA minimum)
3. Pledge
4. K Factor (currently 500)
5. Stake
A pool becomes oversaturated once it's stake reaches the Total Global ADA, (over 31 Billion ADA) divided by the K factor. Once oversaturated any pool's ROI will fall significantly.
Potential Risks
Cardano gives you complete control over your funds and provides a secure platform for sending and receiving ADA. If you delegate your stake to any stake pool shown in the official Daedalus or Yoroi wallet, there is no risk involved, you maintain full control of your funds and are free to withdraw or spend your ADA at any time.
IMPORTANT:
Sharing your wallet seed phrase or spending password with
anybody is extremely dangerous because they then have complete control over your wallet's funds. Never share this information with anybody, even if they ask for it or seem like they are trying to help! If anybody asks for this information then they are a scammer and are trying to steal your ADA.
Costs
All costs are included in the official Daedalus and Yoroi wallets and consist of both fixed and variable costs. Each stake pool has its own fee structure and must charge a minimum fixed fee. This fixed fee will be distributed to all ADA delegated to that pool.
Total Cost to Delegator = (Fixed Cost + Commission) x Total ADA in Pool / ADA in Pool
Staking Options
Cardano provides free and easy tools to use, ensuring you always have full control over your ADA.
Delegating to multiple stake pools:
All ADA within the delegated address will be delegated to the stake pool of your choice. So if you would like to delegate to multiple stake pools, you will first need to create and divide your ADA between several addresses, before being able to delegate to each stakepool of your choice.
Spending ADA:
Once your ADA is delegated to a stakepool, you are still able to transfer ADA into or out of that account as often as you like. The transfer will be immediate and the remaining funds will continue to be delegated to your chosen stakepool earning you rewards.
Re-delegation to another stake pool:
If you want to delegate your ADA to another stake pool, simply select a new stake pool from the official Daedalus or Yoroi's wallets and choose the option to stake to your new pool. Rewards from the new stake pool will be delivered at the beginning of the epoch after next, and until these rewards are received you continue to earn rewards from your existing stakepool.
Choosing not to stake:
If you no longer want to stake, you have the option to undelegate using the official Daedalus and Yoroi wallets. Selecting this option prevents you from selecting another staking option until the epoch after next.
Rewards Timing
While staking rewards are paid every 5 days, (1 epoch) on the Cardano blockchain there is much more to understand about the timing of the rewards. Please carefully study the pictures below to fully understand when rewards are paid:
The picture above shows how when you delegate to any pool it will take 4 epochs before you receive rewards from your chosen pool. This is the same for any delegation or redelegation to any pool you choose to stake to and cannot be changed as it is a fixed part of the Cardano code.
The picture above shows the shortest and longest timings between delegation or redelegation and rewards from your new pool.
It's important to realise you do not lose any rewards when changing pools. When you change pools you will carry on receiving rewards from your old pool until the rewards from your new pool begin to be paid.
