The Ultimate Guide To Cardano Staking [2020]
Learn what Cardano staking truly is. How to stake ADA (₳) by choosing a good stake pool and get rewarded an additional ADA (₳) in return!
The Ultimate Guide To Cardano Staking
- [What is Cardano (ADA) staking?]
- [Why Cardano encourages and rewards staking?]
- [The example of dividend]
- [Earning the passive income through Cardano staking]
- [How much you can earn through staking?]
- [What happens with my ADA when I am staking it?]
- [How to stake ADA?]
- [How to choose a good Cardano stake pool?
- [Does it means that the larger the stake pool – the better?]
- [Will I receive more rewards if I delegate to multiple stake pools?]
- [Joining a stake pool vs becoming a stake pool operator]
- [The great future for Cardano (ADA) staking]
What is Cardano (ADA) staking?
Holders of the Cardano’s native cryptocurrency ADA (₳) are rewarded additional ADA by taking part in the network consensus.
Staking simply stands for holding ADA in a wallet and delegating it to a stake pool for a certain period of time and earning additional ADA as a reward if the pool you’ve delegated to is able to produce a block.
Why Cardano encourages and rewards staking?
First and foremost, the overall objective of staking is to provide security to the network of transactions. The more staking pools is online and producing blocks, the more secure the network becomes .
The reward associated with validating blocks is intended to work as an incentive (in the form of ADA ) paid for completing a service.
It is obvious that network now actually has the real ‘economic value’ due to the possibility of holders earning more ADA (₳).
Understanding the concept of staking
To understand the concept of staking we need to first look at how investors traditionally earn returns on their investment.
The example of dividend
Let’s take a look at the stock market.
If someone purchases an x amount of Apple stocks (ticker: AAPL) this gives the rights to an annual or semi-annual dividend payment.
It’s important to note that If you hold the shares you will receive your dividends straight into your brokerage account in the form of fiat.
Earning the passive income through Cardano staking
Blockchain based staking on the Cardano network is similar to that of the traditional stock market. It is a way of passively earning ADA (₳), or an income.
Your passively earned ADA can be re-staked or you can choose to have your ADA transferred to a different wallet and you could possibly liquidate your ADA earning to get money in your bank account.
How much you can earn through staking?
The rewards ( ADA ) earned from staking varies depending on factors such as: the amount of stake delegated to a stake pool, the amount of blocks the stake pool has successfully validated/produced, the pool fees, total amount of ADA delegated on the network and some other details.
You can use Cardano rewards staking calculator to get a rough estimate on how much ADA you can earn.
What happens with my ADA when I am staking it?
When staking, your ADA stays in your wallet , and nobody can access it (not even stake pool operators).
Your staked ADA never leaves your personal possession.
It’s not “locked up” in any sense either, you are free to un-delegate, spend and send your ADA at any time.
How to stake ADA?
If you don’t have ADA right now and just plan to buy it, you will have to wait until Shelley Mainnet is launched to participate in staking.
That is because Shelley Testnet allows the participation only for wallets that had ADA in their possession during the snapshot that was taken in November.
However if you did had ADA in your wallet at that time you can easily choose a stake pool you wish to delegate to and see all it’s parameters using your Daedalus or Yoroi Cardano wallet.
Stake Pools are nodes on the Cardano network that are set up to perform the essential functions of staking and creating blocks for the blockchain.
How to choose a good Cardano stake pool?
Currently on the Cardano Incentivized Testnet (ITN) stake pools receive their ranking based on their performance. The calculation for determining the performance is based on the number of blocks the stake pool was scheduled to create vs the number of blocks it actually created.
Delegating ADA on Yoroi Wallet is very simple
For example, if a pool only produces half the number of blocks that it was nominated to create (during a given epoch), its performance rating will be 50% .
There could be a number of reasons why the stake pool was not able to produce their assigned blocks.
Not showing up, or not being able to create the appointed block, could be the result of poor network connection, lost blockheight battles or simply because the node was turned off by its stake pool operator .
However, for delegators the most important thing is that rewards are received in full .
So if a pool operator fails to perform, delegators miss out on (full) rewards. This can lead to delegators leaving for a better performing stake pool.
There is also a stake pool fee set by the pool operator which is a % of the total ADA rewards made by that pool.
Bare in mind that the more pools joining the network the more security they bring and that’s why you are incentivized – rewarded to participate in the protocol by staking your ADA.
Does it means that the larger the stake pool – the better?
No. Every pool in the Cardano blockchain reaches the point of saturation which is now having over 1% of the total network stake. When it happens stake pool starts receiving less block assignments from the network and proportionally – the less rewards.
It makes sense right? In order to have a fully safe decentralized blockchain network that can’t be compromised you can’t allow any participant (stake pool) to have for let’s say 6% of a total network stake or a “vote” in the system.
Bare in mind what we said that the bigger number of pools bring more security to the network and that’s why you are incentivized – rewarded to participate in the staking.
If some pool is close to a saturation point you’ll probably be better with a smaller one providing good and constant performance and ADA return.
Will I receive more rewards if I delegate to multiple stake pools?
While it is possible to make more rewards using multiple stake pools, it’s not a practice we would advise. It’s important to note that there is a small fee paid for delegating.
So if you choose to delegate ADA to multiple stake pools keep in mind that by splitting your ADA between multiple stake pools the cost in fees also increases.
Joining a stake pool vs becoming a stake pool operator
When you join a stake pool all you need to do is check on it’s performances from time to time – most importantly if the stake pool is producing all appointed blocks.
On the other hand, if you decide to become a stake pool operator , you will need a good internet connection (your node must be online and running 24/7 ) and some technical skills.
If you don’t have the technical skills don’t worry, but you will need to catch up on your learning as it will require a bit of time and knowledge to maintain your node.
Cardano has the best community of all blockchain projects and there is always someone willing to help you out with the process.
The pools where the operators contribute (pledge) more stake will get slightly higher rewards . This is to discourage pool owners for splitting their stake in order to operate several pools, and Sybil attacks where attacker with a low stake, opening a lot of pools with low costs could try to gain control over majority of the stake.
Regardless of your choice, you won’t need a powerful computer or ASIC devices spending enormous quantities of electricity as for the Bitcoin mining !
Cardano’s revolutionary POS (Proof of Stake) consensus mechanism relies on on-chain resources not on the off-chain resources like Bitcoin’s POW (Proof of Work) protocol.
Very soon running a stake pool on the Cardano’s Shelley Mainnet will be simplified with a plug-and-play solutions to get stake pool operators up and running fast.
The great future for Cardano (ADA) staking
The future of staking ADA (₳) in the Cardano blockchain protocol and earning rewards is very exciting. Cardano is the first blockchain and cryptocurrency to evolve from a scientific philosophy. The only blockchain network that has been fully and carefully engineered – based on the scientific research and mathematical proofs.
Once all features have been implemented Cardano will become the safest and fully decentralized blockchain where you will be able to invest and earn passive income in the most secure and trustworthy manner.
Big thanks to Denicio Bernier (StakePool ticker: WEQNT) for participating in writing this article.
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