Staking Cardano is a process where holders of the cryptocurrency (ADA) delegate their coins to receive rewards from the network. The massive advantage of staking in Cardano is your ADA never leaves your wallet. Your ADA is 100% safe. In this article we look at how this works in practice.
What is Cardano?
If you are new to cryptocurrency you are probably wondering what is Cardano? In short, Cardano is a Proof of Stake (PoS) blockchain launched in 2017 by ex-Ethereum co-founder Charles Hoskinson. Much like more established currencies such as Bitcoin (BTC), transactions are stored in a digital ledger (called a blockchain).
Unlike Bitcoin, however, transactions are not verified by CPU intensive computer ‘miners’ running complex algorithms to receive rewards. Instead Cardano considers the amount of stake (ADA) delegated to node operators (Stake Pools) to dictate the amount of rewards that can be distributed to each pool. As a result, Cardano is often considered a less power intensive crypto, with greater ‘green’ credentials.
As mentioned earlier in this article, the unique feature of Cardano is that a user does not have to send their ADA crypto anywhere to delegate to a specific pool. The ADA remains in the user wallet the whole time and there’s no need to lock up your ADA for any specific period of time.
In fact, you can spend your ADA if you wish shortly after delegating. You remain in full control. You are only recording a vote or a record of your desire to stake with that particular pool. You do not need to trust the stake pool to delegate to it as you are not sending your ADA. Of course, reducing your ADA staked may mean your rewards will be reduced.
The amount of rewards you get will depend on the individual stake pool operator. The stake pool operator will set the amount of fees and margin that is available to delegates. Each stake pool will usually advertise their current yield.
Roughly every five days (called an Epoch) the protocol will distribute 0.3% of its reserves to active pools that have successfully completed blocks on the blockchain. These rewards are shared by all delegates on each pool proportional to the amount of ADA staked.
In this way, staking is a great way to make some passive income from your ADA with practically zero risk. Typical rewards are from 0-5% per annum. Some pools offer additional rewards for staking such as additional tokens or NFTs. Usually these additional rewards will be delivered via smart contract or manually via the stake pool operator themselves. Currently Cardano has no provision to distribute native tokens via the protocol
How to Stake?
Staking on Cardano is very easy. The process is as simple as logging in to your Cardano compatible wallet such as Yoroi or Eternl, clicking on a dropdown and selecting the pool you wish to delegate to.
In Yoroi for example, simply click “Delegation’ in the top right hand corner.
It should be noted that the Nami wallet currently only allows delegation to its own pool.
The ROA (Return of ADA annualised) is displayed, as are the costs associated with each particular pool. Then, just browse or search for the pool you wish to delegate to and select ‘Delegate’ and that’s it!
Staking on a centralised exchange
Some centralised exchanges like Binance or Coinbase, for example, offer staking rewards via their platforms. Users should be careful of using such options as it means you will need to keep your ADA stored on that particular exchange. In this case the exchange has control of your ADA and is staking them on your behalf. If the exchange were to go bankrupt you could lose all your ADA and your rewards.
Staking on Cardano is so easy there really is no excuse not to stake directly with the stake pool operator via your wallet. That way you are 100% certain your ADA is safe since it remains in your wallet at all times.
Staking Cardano is very straight forward. Even a beginner to crypto should be able to stake their ADA with minimal risk. However, care should be taken to retain control of your ADA by only staking via the delegation list in your preferred wallet. Staking via a centralised exchange adds risk to the process as you do not retain control of your ADA.
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