Learn what Cardano staking truly is. How to stake ADA (₳) to stake pools and get rewarded an additional ADA (₳) in return, making it a sweet passive income.
Please read the article to the end, you will get understanding of what Cardano blockchain aims are and why it’s a great investment.
What is Cardano (ADA) staking?
Holders of the Cardano’s native cryptocurrency ADA (₳) are rewarded additional ADA by taking part in the network consensus.
Cardano staking stands for delegating your ADA (₳) to a stake pool and earning additional ADA as a reward proportional to your stake and the pools overall ability to produce blocks in that Epoch and some other parameters.
Stake pools are nodes on the Cardano network, run by a reliable operators: an individual or business with the knowledge and resources to run the node, that are set up to perform the essential functions of staking and creating blocks for the blockchain.
Cardano blockchain continuously grows and new blocks are created every 20 seconds. Blocks are grouped together in Epochs which are 5 days long.
You get rewards after each Epoch (5 days) proportional to your stake and the pools performance and it’s policy. The rewards are paid out to your wallet.
You can re-delegate your ADA to a new stake pool if you are not happy with the performance and leadership of the current one.
Delegation changes take effect at the end of the current epoch plus one full epoch.
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.
Rewards work as an incentive for ADA holders to participate in the network protocol of producing and validating blocks.
Hardly anyone wants to miss the opportunity to earn passive income by just delegating ADA, so participation is already very high which additionally boosts the growth of the Cardano blockchain and the price of ADA!
How much you can earn through staking?
The total amount of stake delegated to the stake pool and pool’s pledge are the primary way the Cardano protocol called Ouroboros chooses which pool should add the next block to the blockchain, and get a reward for doing so.
The more stake is delegated to a stake pool (up to a certain point of saturation), the more likely it is to make the next block — and then the rewards are shared between stake pool operator fixed fee and everyone who delegated their stake to that stake pool proportional to their investment — but also according to stake pool operator reward percentage they set by themselves, at anywhere from <1% to 100%!
The amount of rewards (ADA) the stake pool and it’s delegates get depends on factors with the already mentioned amount of stake delegated to the stake pool and stake pool operator rewards % set for its delegates : the stake pool operator’s pledge, the amount of blocks the stake pool has successfully validated/produced and the fixed pool fee.
The pools where the operators contribute or pledge more stake will get better chance to create blocks. 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. Remember Cardano is aiming to be a fully decentralized proof of stake blockchain with thousands of nodes — stake pools providing that state of security.
Stake pool fee is a % of the total ADA rewards pool made in that Epoch paid to a pool operator. It’s used to keep the stake pool operable and optimized so that rewards are received in full after all dedicated blocks are successfully minted.
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.
The ADA rewards you receive you can withdraw anytime, it will also be automatically delegated to your current pool, while ADA you spend will be deducted from your stake!
How to stake ADA?
You can stake ADA easily from your Cardano wallet.
Stake ADA using your wallet
It’s easy to delegate ADA to a stake pool using any of the following Cardano wallets: Daedalus, Yoroi or AdaLite.
Cardano stake pool saturation point!
The Cardano stake pool will reach the point of saturation when it’s total amount of stake or % of total stake in the network becomes too big. When it happens stake pool starts receiving less block assignments from the network and proportionally — the less rewards.
Why does it makes sense? 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 10% of a total network stake or a “vote” in the system.
Other factors to consider when choosing the Cardano stake pool
Except saturation, the stake pool or a node need to be fully functional and safely running 24/7 in order to produce all blocks dedicated by the protocol for the given epoch and not miss on rewards.
Stake pools will use their revenue to build better server infrastructure, incentivize it’s delegates, but also to support other projects and causes .
With the Voltaire era features now being implemented every ADA holder has a vote in the system, deciding on the Cardano blockchain future, proposals and funding.
What is the best Cardano stake pool?
Considering all things said, if a stake pool operated good in the past or this epoch it doesn’t mean it will produce the most income for you in the long run. Some bad actors in the Cardano network, stake pool operators, will ask of you to send ADA directly to their address in order for them to be able to increase pledge. You should never do this, you should only delegate from your wallet safely to a reliable Cardano stake pool.
This is Advice from this article published by the Cardano Foundation:
The percentage of the slot reward that the stake pool operator retains is known as the stake pool fee, while the rest of the slot leader rewards are distributed among the stake pool’s delegates according to their stake — the amount of ada they have delegated to the pool.
Stake pool operators are allowed to decide their stake pool reward percentage themselves, at anywhere from <1% to 100% (at which point the stake pool would essentially become private).
It may be tempting to choose a pool with the lowest fees to try and maximize your delegation rewards, but this may not always be the right choice.
Often, high-quality pools — those which have the highest desirability and reliability — will have a greater amount of ada staked to them and be chosen more often as slot leaders, and therefore may yield higher rewards for their delegates despite having comparatively higher fees.
Ultimately, it is up to each ada holder which stake pool they delegate to, but do keep in mind when first choosing a stake pool that lower fees do not always equal higher rewards.
The stake pool I can recommend with pleasure is called GINKGO (Ticker: GINKG) run by a long time Cardano ambassador and my friend Vasil St. Dabov.
You can see a list of all Cardano pools and how they perform in your Daedalus and Yoroi wallet but also on AdaPools website.
Delegate your ADA to smaller pools!!
As already said the pool fee and rewards % pool operator decides to share among delegates are things to consider.
However, if you are a long term Cardano investor you would like to invest in smaller pools. Why?
The Bitcoin was a successful experiment if a decentralized monetary system can exist. Transactions are transparent (except who sends to who) and every participant has a full copy of a blockchain and use blockchain explorers. There’s no central authority like US bank that can print money and devalue your dollars due inflation. The 35% of all US dollars in existence have been printed in just 10 months in 2020:
Just like the BTC the Cardano (ADA) has a total supply. Which is 45,000,000,000 ADA and around 30,000,000,000 ADA in circulation right now. Total supply of ADA is fixed which means you own it’s value.
But, the point of decentralization what Cardano is aiming for is not to allow the big fishes to have 51% of ADA or then they can do whatever they want and devalue your Cardano holdings just like the any bank with it’s currency.
So if in the long run you want Cardano blockchain and it’s price to succeed don’t delegate to largest pools which often have multiple pools like 1,2,3,4 but to smaller pools operators, which often also have goals like giving part of it’s rewards to support Cardano ecosystem, charities, preserve nature etc
Why Cardano will probably be #1 blockchain?
I believe this because… Currently people are quite uneducated on Blockchain. They only heard of Bitcoin and trade on speculation and the news. But the blockchain can and is starting to be used in many sectors like land registers, health systems etc. Why? Well China is implementing blockhain (but it’s surely be the centralized one :)) due its superiority over currently used web databases used on websites (they are linking it now to blockchains) that are hacked all the time and millions of user information and credit cards are being stolen.
Information on Blockchain can’t be manipulated as we will all notice it cause we all have copy of it (and aiming for decentralization). For example take land registers. You own the property, it’s written on the blockchain and there’s not some office employee like now that can change it by no one knowing it.
But not all blockchains are the same.
Cardano has always moved slowly not rushing to make mistakes and fill headlines but instead creating, through science, a more secure, transparent, and sustainable foundation for individuals to transact and exchange, systems to govern, and enterprises to grow.
I would like in the future to have sort of “internet of blockhains” but Cardano future is to be no.1 among them.
Cardano has the best infrastructure based on scientific approach, the transaction fees are much lower and faster compared to Bitcoin and Ethereum.
Bitcoin transactions are slow and nothing can be built on so it became so called “digital gold” and as currency due it’s disadvantages used by only 3% of internet users for payments. It’s being heavily propagated by Bitcoin maximalists which got it for 10 cents when it was created.
It’s price is built on hype and speculation (but also pioneering merits) but in 5 years people will drop it. Just like MySpace was wiped out by Facebook!
Ethereum (which Charles Hoskinson founder of Cardano was co-founder also but didn’t want to follow that path) gave birth to smart contracts and ability to build decentralized apps and new cryptocurrencies (erc-20 tokens). But their leadership and road is probably doomed (to withdraw $1 of Ethereum on CoinBase Commerce few days ago I would have to pay $23 of transaction fees!).
With Gougen phase being implemented Cardano will also enable smart contracts just more secure and easier to build dapps (using better programming languages) with lesser fees and surely take that piece of market.
Now back to staking!
Can I stake using my Cardano hardware wallet?
Cardano staking on the exchanges
As we are seeing exchanges rapidly adding staking option for it’s users — traders and investors. We can probably expect Cardano staking to be available on Binance, Kraken, eToro already and other exchanges very soon.
Staking on exchanges can be viewed as similar to investing in fixed income securities, such as bonds or money market funds. The exchanges are doing the staking process on your behalf so this might seem like the easiest option for the new Cardano holders but don’t do it.
Unless there is some Cardano initiated promotion.
There’s an old saying “If you don’t own the private keys to your coins, you don’t own them”. I use the exchanges for trading but doing Cardano staking from my own Cardano highly secure hardware wallet.
The other part is the decentralization, do we want some exchange to have in their pools 30% of all our ADA? No.
Thanks for reading. The hardware wallet link contains my referral link.
Check out the article where we reviewed best Cardano wallets in 2021.