Cardano 101

Markus / Mar 11, 2021

Reliability and consistency through true decentralisation – which pool should I choose?

On 10 March there was a catastrophic fire at an OVH data centre in Strasbourg in the heart of Europe.

Despite great marketing promises with the highest quality claims, everything currently indicates that the building structure made of wood, metal poles and corrugated sheeting had no automatic fire protection. Usually, fire suppression in data centres is done by releasing fire-smothering gas. In the event of an alarm, people only have a short time to leave the rooms before the gas is forced into the server rooms at high pressure to quickly displace all combustible oxygen.

What impact such an incident has had on the Cardano network?

In short: After only half a year, the Cardano network already consists of several thousand publicly accessible relay nodes. Only about 10-20 of them were operated in this now completely burnt down data centre in Strasbourg.

So there was no visible reduction in the density value, which is very close to 5 in ideal block production.

So you can see that there is a very good distribution and therefore decentralised deployment. This is very good for all those who want to build on the Cardano network in the future.

Nevertheless, the question arises

Which constellations can have a significant and negative impact on the network?

Here we can clearly say that it is highly recommended to all ADA holders to think about the right things and to make an educated decision with which they also support the resistance of the network.

After all, it is not only a matter of the nodes being geographically distributed worldwide in networks of various data centre and backbone providers. Each ADA-holding delegator can decide for itself whether to follow a herd instinct and support an already very large pool operator who may already be running several pools. In the vast majority of cases, these are all operated at the same location and by the same servers.

If these pool clusters become too large, they generate a lot of blocks. And if they fail – for whatever reason (fire, attack, error, carelessness …) – this has a noticeable impact on the stability and credibility of the Cardano network. Much more than a whole burned down datacenter.

Let’s take the very well-known and still growing 1PCT pool cluster as an example. All of its current 28 pools operate through only two publicly registered relay nodes. And if you break down the two hostnames, you can even see that they have the same IP address, so they run on only one server. One would think that the 500-900 ADA or 600-1000 $ in rewards that each of these 28 pools generates for the 1PCT operator every 5 days should allow a higher investment in his infrastructure.

Considering that the 1PCT pools currently account for slightly more than 5% of all delegations, and thus generate blocks at this rate, it is strange that only one of the currently 2500 active and public registered relays of the Cardano network are provided by 1PCT. Once IOHK no longer runs hundreds of relay servers for all Daedalus wallets after full decentralisation is achieved (d=0), it is we stake-pool operators who will have to make this infrastructure and resources available to all users.

Source: https://adapools.org/groups/

So as I said before, each delegator should consider very carefully which pool operator they support. I recommend considering only those operators who consciously and transparently operate one single pool. In good conscience for a central, fair and resilient Cardano network.

Please read more here about how to choose a stake pool wisely.

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Markus / Jan 13, 2021

What are Cardano hard forks?

Here you will learn what Shelley, Allegra and Mary mean and what these Cardano hard forks are all about. ()

The Cardano blockchain runs on thousands of independent nodes. They all use an up-to-date software version so that they can exchange data reliably.

Most importantly, it’s about finding the consensus on block production. On average, a new block is created every 20 seconds. All nodes must receive this and check for validity before the next block can be placed on it.

Blockchains are constantly evolving and getting new features. This means that all these nodes need to be updated by the stake pool operators. This is relatively common, especially with Cardano, as many new features such as token locking, smart contracts, and governance are gradually added. For good reason, Cardano has played a leading role in statistical comparisons of developer activity for years.

get better step by step

In the case of minor updates and function enhancements, this is done in an uncomplicated and continuous manner. The old and new versions remain compatible. The normal user does not notice any of this.

But when it comes to fundamental protocol changes, blockchains perform what is known as a hard fork. In this case, a new software version is used which brings incompatible functions, a new data format or changed communication to the old version.

With earlier blockchain generations, a hard fork took place in which all operators (miners) convinced of the innovation started their nodes with the new version at a certain time announced in advance. The others stayed with the old version. Often this ended up in two separate blockchains. A well-known example is the Ethereum DAO hardfork of 2016 from which ETH and ETC emerged. Or in 2017, the Bitcoin Cash hardfork where no agreement could be found on the maximum block size and implementation of Segwit.

intelligent innovation

Cardano has also provided innovations in this area. The so-called Hardfork combinator technology allows a smooth and therefore controlled and secure transition from an old to a new protocol version. In this process, the proportion of blocks that are generated according to the old specification is gradually reduced over several epochs and replaced by new blocks. So the transition from the Byron era to the Shelley era started in August 2020 and was migrated in a slow, controlled way over several months.

However, an update can also take place from one epoch to the next. To do this, the nodes install the new software, which can handle both the old and new protocol versions. A proposal for the time of the changeover is then submitted at the protocol level, which serves as a common signal to all nodes for the changeover to the new version. So there will be no rebooting or splitting of the blockchain.

Not every software update means a hard fork event. In order to clearly identify the various hard forks, names are given to the respective era introduced, such as

Shelley (Aug-2020) : switch from BFT to Ouroboros PoS.Allegra (Dec 2020) : Introduction of token lockingMary (Feb 2021) : Actuation of multi assetsupport.

So from the risky and uncertain hard forks of the early blockchain generation, Cardano has become what can be called a decentralized yet coordinated software update.

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Markus / Dec 21, 2019

does anyone want to jump the queue?

In epoch 7 the CLIO1 pool was a leader to produce a block for slot 3161. Our monitoring normally shows a constantly rising red line for each block created by the testnet pools:

The brown horizontal line is the approached next scheduled slot. If everything goes correctly, the block is created at the exact time and the line jumps to the next scheduled slot in the monitoring graphic.

But at the mentioned slot 3161 in epoch 7 we observed something very unusual: The actually constantly growing block chain suddenly jumped to slot 3245 and this before the time for slot number 3161 has come.

So: How was this possible and what effects did it have?

As can be seen in the graph, there was no progress for a long period of time then due to the extraordinary event. The stake pools probably tried to find out which of the two blocks was the right one.

Since CLIO1 could only refer to the block 3123 previously produced with the lower slot number, there were suddenly two blocks and thus a fork. If everything goes right and honest there shouldn’t be any fork!

If the blocks had been produced in order according to their height, there would be no problem and the hash checksums of all blocks in a row would fit together.

But so the subsequent block creators had to make a selection, append their block to one and discard the other including the user transactions contained in it. In this case, the pool who had pushed forward had won the race and CLIO1 had unfortunately lost its block, even if created correctly on time.

For us pool operators it is an exciting time. Especially when the network still has strong fluctuations, you try to find out what the error is and what you can do on your own site to ensure stability and performance.

Misconception or deliberate strategy?

The obviously too early generated and distributed block came from BNTY1 Pool. The question now is whether this is due to an imprecise server clock or whether the pool operator deliberately tried to generate and send his block a bit earlier in order to beat a competitor for the same slot and then shine with better performance values at the end of the epoch. But all this at the expense of stability and with the side effect of rolling back user transactions that were discarded with the CLIO1 block.

After this incident, we observed the matter, recorded a lot of data, and consulted with other pool operators known to us. They checked their own recordings and confirmed the “extraordinary” event was also seen on their nodes. We also contacted the Jormungandr development team. They checked if there is a possible process error that can be fixed.

If, on the other hand, it were a deliberate strategy of a pool operator, a completely different situation and challenge would arise for the stable and proper operation of the Cardano blockchain.

We assume that in the past epochs some pool operators have fiddled around with time and slot-schedules, with the aim of gaining an unfair advantage. However, since this has led to twists in the block order and thus to forks, we also consider it likely that these tricks have made a significant contribution to the instabilities and problems in epoch 4-5-6.

The solution is v0.8.5

We are really pleased to report that release v0.8.5 includes a mechanism that allows honest pool operators to sideline these prematurely created and distributed blocks. It is a fork that only becomes significant when its time has come.

This means that this trick turns into a normal 51% attack Vector. Only if a majority of pool operators decide to move their pools’ system clocks into the future they will win. If there is no majority, they will create a block that may contain invalid transactions because they created it too early.

If a majority of pool operators would decide to always put their system clocks a little bit before the others, it could happen that we humans at the end of the test net actually have April, but the blockchain is already in May. And that would probably be pretty crazy, we think.

So please let us remain honest and serious! The challenges are there, and with the research and development work made available to us all free of charge, there are many real opportunities.

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Markus / Dec 18, 2019

Stake Pool Costs And Rewards

The Cardano Shelley incentivized testnet was launched on 13 December 2019. As a pool operator, we naturally observe closely how the various components and participants of this complex system behave and react.

We noticed something unexpected when we saw the delegations of ADA holders to IOHK pools.

IOHK has a great interest in making the initial phase (bootstrap) as safe as possible, and with its large pools plays an important role in this. Gradually, the block generation is decentralized to many pools then.

There are 4 IOHK pools available which differ in the registered values 8, 10, 12 and 14%. Interestingly, the 14% pool received the most delegations so far:

IOHK 8% 215
IOHK 10% 274
IOHK 12% 103
IOHK 14% 303

So it might be a good idea to explain the rewards structure of Ouroboros and Jormungandr in a blog post, focusing mainly on the criteria that affect the payment to the delegates.

Cardano Staking rewards explained

For each epoch – which lasts 24 hours – a certain amount is available from the reward pot. From this amount, a share (e.g. 10%) goes to the Treasury, from which future projects for further development are to be financed.

The rest is distributed to all stake pools. The larger the stake pool is, the more often it was selected by the Ouroboros protocol to create blocks in the epoch. In the best case, the pool-node was always ready, because the operators of the pool ensured safe and reliable operation (staff, connectivity, servers, monitoring, security, redundancy, …).

In this case, the pool will receive the maximum possible share of rewards. If, on the other hand, the pool has only created half of the blocks, there will be fewer rewards available.

Now it is the turn of the pool operator. He has made a business calculation and registered his pool with corresponding cost and profit margin values. He has three parameters for this:

Fixed (costs): A fixed ADA value that is deducted from the total pool return. This can be 0 or 1000 ADA, for example.Ratio (margin): Here the pool operator specifies a share of the total amount that he will keep for himself before it is paid out to his delegators. This can be 0, 7 or 14 percent, for example.Limit: Here the pool operator can optionally enter that he will never take more than e.g. 1000 ADA as profit margin.

Stake Delegation rewards

What remains after this expense compensation goes as rewards to the delegates.

And therefore this high number of delegations to the IOHK Pool with 14% cost explanation seems to us to be an indication that there is a frequent misunderstanding here. We do not believe that all these 303 delegates have the desire to pay IOHK as much as possible to run the pools, but that they probably expect an increase in the value of their ADA delegation of 14%. That is not the case!

When the delegates look at the fixed and ratio costs in the delegation centres and on the stake pool performance pages (pooltool.io and adapools.org), it is advantageous to know them correctly.

However, it may not be a good idea to choose the cheapest ( low cost ) provider, and here is why:

Why you don’t earn twice as much with a 2% pool as with a 4% pool

So let’s try to look at the rewards after deducting the pool costs to understand what really happens.

If one pool charges 2% and another 4% as margin costs, then 98% or 96% remains for the delegators.

For example, if someone receives 100 ADA reward for their delegation to the 2% pool, by delegating to the 4% pool he would receive about 98 ADA.

For the pool operator, however, it makes a big difference whether he gets 50 or 100 ADA for the operation because this allows high-quality support and guidance.

A 0% pool is either someone who likes to work for free, or then in the course of epochs will probably also try to operate as little effort as possible.

But what happens if a pool gets stuck and is not noticed until the next morning?

As mentioned above, a pool and its delegators are entitled to maximum returns in proportion to the staked amount. However, this becomes correspondingly less if only a part of the blocks is produced.

A pool that has invested in a stable system and ongoing monitoring can react quickly in an emergency before the next block appointment is due.

We at CLIO1 have that because our team can look back on 20 years of experience in the Internet service business:

Each step in the above graph represents a CLIO1-produced Block in the growing epoch 4 (red area) The spike in the middle happened due to an unexpected event and was solved before the next block production was scheduled.

A failure of 8 hours would the yield of the pool by around 33% because he will miss his schedules to produce blocks for the Cardano system.

The pool operator will still deduct his fixed and relative cost and distribute the rest of the 66% to his delegators. So you can see that this is a completely different ratio, and that it is probably a good decision to leave a fair share to the pool operator.

Read more about the incentivised reward model and try out the free rewards calculator.

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