The PoS system would allow holders of Cardano’s cryptocurrency ADA to manage and maintain the platform’s official ledger.
In its Reddit announcement, Cardano explains:
Through the mechanism of staking, ADA holders will receive rewards based on the amount of stake they hold. They will be able to join stake pools to minimize the effort needed to take part in staking and receive rewards through their membership of a pool.
A Mixed Environment
A blog post by Aggelos Kiayias, chief scientist at distributed technology company Input Output Hong Kong (IOHK), suggests that certain disadvantages generally come with a PoS system, and that while a Proof-of-Stake protocol saves energy in the long run, stakeholders are stuck bearing several burdens.
“It requires a good number of them to be online and maintain sufficiently good network connectivity that they can collect transactions and have their PoS blocks reach the others without substantial network delays,” he comments. “It follows that any PoS ledger would benefit from reliable server nodes that hold stake and focus on maintenance.”
Does a PoS System Lean Towards One Side?
In addition, Kiayias argues that wealth distribution through a PoS system isn’t entirely fair, as most of the financial rewards make their way into the hands of a select few that possess most of the blockchain’s power, thus leaving many stakeholders out of the loop.
“This is undesirable,” he writes in the post. “It would be better if everyone had the ability to contribute to ledger maintenance.”
Lastly, he suggests that a PoS system incurs maintenance costs for those who take part. While these costs aren’t as high as a proof-of-work (PoW) protocol, they can still run up quite the bill.
“As a result, it is sensible that the community of all stakeholders incentivizes in some way those who support the ledger by setting up servers and processing transactions,” he writes.
Having Multiple Groups Will Solve the Issue
Kiayias is very supportive of a pooling system as Cardano is initiating, saying that it will “rectify” the wealth distribution problem by allowing stakeholders to form a single entity and empower the PoS protocol to utilize the energy of most, if not all, of its members.
This will allow a more even distribution of power.
“A pool will have a manager who will be responsible for running the service that processes transactions,” he states. “At the same time, the pool manager should not be able to spend the stake that their pool represents, while members who are represented by the pool should be free to change their mind and reallocate their stake, if they wish, to another pool. Finally, and most importantly, any stakeholder should be able to aspire to become a stake pool manager.”
More Power to the People
Cardano announced plans to host as many as 1,000 stake pools, which it claims will achieve a stronger level of decentralization.
Furthermore, Cardano comments that stakeholders will be allowed to experiment more with pool creation and delegation, and that members can join and leave pools as they please. They will also receive “guaranteed rewards for participation and witness their contribution to Cardano’s PoS distributed ledger regardless of the size of their stake.”
On Reddit, Cardano’s plans have garnered mostly positive comments from users.
Recently, IOHK gave Cardano the go-ahead on its new smart contracts feature named “Icarus.” The new platform previously underwent a security audit by third-party collaborator Kudelski Security in Switzerland, which deemed the Icarus wallet “problem-free” and ready to go.