What is the Delegation?
Delegation is the process by which ADA holders delegate the stake associated with their ADA to a stake pool. It allows ADA holders that do not have the skills or desire to run a node to participate in the network and be rewarded in proportion to the amount of stake delegated.
What is a stake?
Ada held on the Cardano network represents a stake in the network, with the size of the stake proportional to the amount of ADA held. The ability to delegate or pledge a stake is fundamental to how Cardano works.
There are two ways an ADA holder can earn rewards: by delegating their stake to a stake pool run by someone else, or running their own stake pool. The amount of stake delegated to a given stake pool is the primary way the Ouroboros protocol chooses who should add the next block to the blockchain, and receive a monetary reward for doing so.
The more stake is delegated to a stake pool (up to a certain point), the more likely it is to make the next block – and the rewards are shared between everyone who delegated their stake to that stake pool.
Incentives are used to ensure the longevity and health of the Cardano network and ecosystem. The incentive mechanism is underpinned by scientific research that combines mathematics, economic theory, and game theory.
What is the difference between Payment address and Stake address?
Payment address in Daedalus always starts from "Addr..." and it has 103 characters long. We use this address for general transactions. e.g Transaction between wallet to the exchange. Wallet to wallet. Etc.
Pre-shelley addresses can start with “Ddzff…” (104 character long) or “Ae2…” (59 characters long). These addresses cannot have a stake key/stake address associated with them.
Stake address is sometimes referred to as Rewards address. This address starts from "stake1...", it is only 59 characters long. Your rewards from delegation will be distributed to this address. You can not create a transaction to this address.
Overview of Delegation
Delegation is a separation of the control over the movements of funds and the rights (and obligations) in the PoS protocol that are associated with those funds. We achieve this separation by modeling it in the address structure. We distinguish between payment addresses that determine how funds can be spent, and stake addresses that define if and how the stake rights of those funds take part in the PoS protocol. Coins belong to payment addresses. Each payment address (optionally) refers to a stake address. This delegates the stake rights of any funds held at the payment address to the corresponding stake address. The stake address delegates to a stake pool that participates directly in the PoS protocol. Thus overall there are two steps to the delegation of stake rights: a payment address refers to a stake address and the stake address delegates to a stake pool. We support multi-signature (multi-sig) schemes, for payments as well as for delegations. We do this by allowing value addresses and stake addresses to use either keypairs, or scripts for authorization, and implementing a simple scripting language to describe multi-sig schemes. Introducing multi-sig in this way has the benefit of naturally generalizing when we will later introduce more powerful scripting languages, such as Plutus and Marlowe. Participating in the PoS protocol requires two steps:
Using a registered stake address Users can post certificates to the chain to register a stake address. This will allow them to delegate funds associated with that address, and also automatically set up a corresponding reward account, where the system will accumulate rewards for delegating funds from that stake address.
Delegating from that stake address to a registered stake pool All blocks in Cardano-Shelley will be produced by a set of stake pools that need to be registered on the chain, by posting an appropriate certificate. Individual stakeholders can delegate funds from each of their registered stake addresses to a pool of their choosing. Stake in an address that delegates to a pool, adds to the stake of that pool in the leader election. The pool will be rewarded for block production, and those rewards will automatically be distributed to the appropriate reward addresses. Note that this does not restrict an individual stakeholder wanting to use their own stake to produce blocks (“self delegation”). Such users should register a private stake pool, and delegate their funds to that pool. This uniform architecture, not distinguishing between those stakeholders that are using their stake directly and those that are delegating, reduces the overall complexity of the system significantly.
Registration of stake addresses and delegation are optional, but it is the only way to exercise the stake rights to take part in the PoS protocol and to earn rewards. Rewards to pools and their members follow the scheme described in Section 5. In designing the rewards system, we were careful to avoid incentivizing selfish behavior and to encourage cooperative behavior instead. The rewards that a pool will get for producing blocks depend on how much stake they control, and on how well they perform when producing blocks. Stake pool operators can influence how the rewards for the pool are split amongst its members, by setting parameters in the stake pool registration certificate. Wallets will assist users in making rational choices and delegating to pools that are expected to give the best rewards.
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