As of this recording, Cardano has around 30 network parameters. These parameters are the mechanisms that control how the Cardano Blockchain works. Today we are talking about the pool_deposit parameter.
Cardano, unlike Bitcoin, is a Proof-of-Stake blockchain. On bitcoin, the blockchain is secured by expensive computer hardware using lots of electricity. These machines are distributed across the planet. Every time new data needs to be stored, 51% or more consensus is required among this global network of devices. The idea is that since these expensive machines are distributed worldwide, it would be very hard for a single group to control more than 50% of the total hashing power in the system. So far, this has worked well, but there’s a big downside: the more popular bitcoin gets, the more electrical or hashing power is required.
Cardano Proof-of-Stake works the same way but replaces expensive special machines with generic low energy ones. Instead of hashing power or electricity, Cardano uses its native currency Ada as a central variable to its security. The big idea is that the more popular Cardano gets, and the more valuable its native currency Ada gets. The more valuable Ada gets, the harder it becomes for a single group to acquire more than 50% of the total Ada in the proof-of-stake system.
Like Bitcoin, anyone can set up a server and connect to the Cardano network. When you do this on Cardano, you have to deposit some minimum amount of Ada. The parameter that controls what this amount of Ada is is the pool_deposit parameter. As of this episode, the pool_deposit parameter is set to 500 Ada. This is only a deposit; if you decide to retire your pool, you can submit a deregistration transaction to receive your 500 Ada back.
Why is this interesting
This is interesting because, while Cardano is one of many proof of stake blockchain networks, a big differentiator is the low cost of entry. We looked at Ethereum, Solana, and Avalanche (other popular proof of stake blockchains) and found the cost of entry on these systems range from 25 to 40 thousand US dollars. Part of the cost is expensive hardware but many times, there is a much higher required deposit that must be locked up to join other proof-of-stake networks as a node operator. For Cardano, if you believe in the technology and want to help run the network, that opportunity is far more accessible.