Understanding the Delegation Mechanism¶
As Cardano is a proof-of-stake (PoS) system, owning ada not only allows you to buy goods or services, but also confers upon you the right and obligation to participate in the protocol and create blocks. These two uses are separated by the delegation mechanism, meaning someone who owns ada can keep the spending power, while delegating the power to participate in the protocol to someone else, a stake pool. It is important to note that funds can be spent normally at any time, regardless of how they are delegated.
Delegation is important to increase the stability and performance of the system. It gives ada holders the ability to transfer their rights to participate in the PoS protocol to stake pools, rather than expecting them to continuously run a node that is well-connected to the rest of the network, in order to write a block on rare occasions. Some users might lack the expertise to do so. Most users will not have enough stake to warrant running their own node. Delegation allows all holders of ada to participate in the protocol, regardless of their technical abilities and the amount of stake that they hold. This means that less stake is held offline, making the system faster and more resilient against an adversary in the process. Our delegation mechanism design is aimed at keeping the number of nodes that produce a significant amount of blocks reasonably small, so that effective communication between them is feasible.