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Key Deposit

Cardano Network Parameters Part 3

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As of this recording, Cardano has around 30 network parameters. Parameters are the mechanisms that control how the Cardano Blockchain works. Today we are talking about a parameter that affects every ada holder wishing to actively contribute to the security of Cardano.

Our parameter today is the key_deposit parameter. Before we define this parameter, let’s set the stage:

Cardano is a proof-of-stake blockchain. This means that to participate in keeping the network secure, you don’t need to buy special computer hardware – you simply need to acquire and hold the network currency, ada.

Once you have some ada, you could contribute to network security by choosing to run a general purpose Linux server and link your ada to that server. Or instead, you can simply link your ada to someone else who can run that server on your behalf. When you do the latter, you are said to be delegating your stake to a stake pool. This, along with our earlier definition, is what makes Cardano a proof-of-stake blockchain.

When you stake, you must submit a registration transaction to the blockchain. When you do this for the very first time, 2 ada is required as a deposit. The rule that defines that amount is the key_deposit parameter.

If you actually look at the parameter setting under the hood, what you will see is not the number 2, but 2 MILLION. That’s because the parameter is not defined in ada, but in its much smaller division, lovelaces. A lovelace is the smallest increment of ada. There are 1 million lovelaces per 1 ada. Thus, by defining this amount in lovelaces, it’s possible to keep very granular control of this setting - even though the current setting is a round number. This parameter is interesting because of its current value. On many proof-of-stake blockchain, you either have to lock up your entire funds for a period of time or lock up a high deposit amount. In at least one case, that deposit amount is as high as a 50 thousand dollar equivalent of said currency. Requiring only 2 ada as a deposit to participate in staking on Cardano is a rare advantage compared to other proof of stake blockchains.

Delegation in Cardano is also noncustodial and liquid. This means that only the 2 ada will leave your control. You will retain full control of the remainder of your ada and are free to trade or do anything you can normally do with ada. As long as the ada stays in your wallet and is staked, you contribute to Cardano security and are rewarded for it. You can move your delegation anytime you like. There is no deposit required to move your delegation. The deposit is only held the first time you delegate to a pool. If you ever decide to unstake entirely and not delegate to any pool, you can submit a deregistration transaction, and that 2 ada deposit will be returned to you.

If you’re in the market for a proof of stake blockchain to call home, we invite you to join the community here at Lido Nation by staking to ticker: LIDO. In addition to normal Cardano network rewards, our delegators enjoy reward-multipliers on our Every Epoch quiz game, and also earn our philanthropic giving token, PHUFFY.

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