On July 1, 2020 Cardano migrated its network from PoW, transactions are processed by mining, to PoS where validation takes place via the staking of the ADA, Cardano's coin. Proof of Stake represents significant advantages especially on energy consumption, a central factor in the development of the Cardano blockchain, as well as greater network security and much better scalability.
But how exactly does the PoS work on Cardano?
Shelley has initiated a delegation and incentive program, a reward system to drive stake pools and community adoption. As a PoS network, users bet their ada to participate in the network and receive a reward, in proportion to the amount of coins wagered but also to the efficiency of the pool in generating blocks. Pool administrators therefore have the role of managing their environment in the best possible way, in order to optimize resources and receive a greater number of rewards to share with users. To discourage users from investing their coins in a few pools, the developers have set a limit of ADA per pool, called saturation, at which the rewards decrease drastically. In this way it is encouraged to have a larger number of participation of the Pools and all this means a greater decentralization of the network and therefore greater security.
The team has arranged that the network will be totally decentralized by April 2021 and this will happen for the total migration from the federal to the community nodes. Now I will go into the merits of Cardano's PoS system.
Each era of Cardano is made up of 420000 blocks and has a duration of 5 days. The user who wants to invest his ADAs in a Pools will get his rewards at the end of the third epoch following his entry. The mechanism is as follows: for example I add my ADAs in epoch number 1 but these will remain inactive until the beginning of epoch 2 when they will be used for block validation, in epoch number 3 the rewards will be calculated and at the end of the same, the rewards will be distributed. The ADAs that the user invests in the Pools are not blocked and can be withdrawn at any time, collecting the rewards accrued up to the second before the withdrawal of my coins which will always be distributed at the end of the third subsequent epoch.
When I talk about sending ADAs to a stake pool the user does not actually physically send their coins. To give a simpler example comparable to Hive, it is as if you delegate your Hive Power, so physically the coins do not move from your wallet and all the rewards obtained at each epoch are automatically used for staking.
This chart shows how the inflation rate will decrease dramatically over time and the last ADA is expected to be earned around 2130, which coincides with the time when the last Bitcoin will be mined.
This graph instead illustrates how ADA's supply will increase rapidly in the next few years but then almost stop and this means that it will be very difficult to obtain 1 single ADA. Cardano has a maximum supply of 45 billion ADAs of which 31 billion are currently in circulation.
To participate in the Cardano stake, users can easily use Dedalus, the Main wallet for desktop or Yoroi, the lite wallet for smartphones.