Collateral is a mechanism on the Cardano blockchain designed to ensure the secure execution of smart contracts. It involves temporarily locking a small amount of ADA (usually between 5–10 ADA) in your wallet to enable safe interactions with smart contracts.
You can unlock and retrieve your collateral at any time by disabling the collateral setting in your wallet.
How Does Collateral Work?
When you interact with a smart contract, the collateral ensures that:
The contract executes successfully without disruptions.
Any costs incurred by the network during a failed transaction are covered.
Why Is Collateral Important?
Collateral protects the Cardano network from malicious attacks, such as Denial of Service (DoS). Here's how:
Without Collateral:
If a smart contract fails, the user incurs no charge, but the network still expends resources to process the transaction.
Malicious actors could exploit this by flooding the network with invalid transactions at no cost, disrupting services for legitimate users.
With Collateral:
When you initiate a transaction involving a smart contract, a small amount of ADA is locked as collateral.
This makes launching a DoS attack prohibitively expensive, as attackers would need to commit significant amounts of ADA to flood the network.
FAQs About Collateral
1. How Much Collateral Do I Need?
You typically need 5–10 ADA in your wallet for collateral. This amount is locked temporarily and does not affect your wallet's main balance.
2. Can I Retrieve My Collateral?
Yes, you can disable the collateral setting in your wallet at any time to retrieve your ADA.
3. Is Collateral a Fee?
No, collateral is not a fee. It’s a safeguard, and you get the ADA back unless your transaction fails due to invalid or malicious activity.
4. Do All Transactions Require Collateral?
No, collateral is only required for transactions involving smart contracts. Regular transactions, such as sending or receiving ADA, do not need collateral.
