Learn about incentives
In blockchain technology, the goal is to incentivize participants to “do the right thing”. In Cardano that means achieving a certain distribution of stake. This distribution can be achieved with an appropriate number of stake pools, not too many or too few. Most stake is expected to be concentrated in stake pools and stake pools are incentivised to be online and actively participate in the protocol.
Incentives are designed in such a way that if everyone follows their own rational financial interest, the outcome should be an even distribution of stake amongst stake pools.
In the context of a cryptocurrency, incentives is a way of encouraging stake pools to participate in the protocol and to support it faithfully. In Cardano, that means that the stake pool is online and creates a block when it has been elected as slot leader.
As stake pools make an investment in the form of hardware, time, and so on, it is fair that they receive incentives for their costs and effort. Incentives in our case refer to monetary incentives in the form of ada.
What do we want to incentivize?
In our incentives model we want to incentivise stake pools to be online and participation in the protocol creating blocks whenever they are elected slot leaders.
On the other hand, there may be people who are not interested or do not have the technical know-how to set up the required software or the time to be online, but they can still participate by delegating their stake to a stake pool.
About the incentives mechanism
A lot of work has gone into creating an incentivization mechanism that will ensure the long term health of the network, but the game theory which underpins the incentivization only works if real rewards are available for real users. The Incentivized Testnet enables us to test the theory in a sandbox environment to make sure it works as intended. The ada rewards earned for delegating stake or running a stake pool are real and, once the testnet is complete, those rewards will be redeemable and available to spend. We are using real rewards to gauge real responses and to assess how the incentivization mechanism works in a real-world setting.