If you’ve heard about staking Cardano but are not sure how it all works, you might have a lot of questions like, “What is crypto staking?” “How do I stake my crypto to earn rewards?” and “Is crypto staking safe?”
Never fear – mBitcasino is here with a helpful guide to Cardano staking.
In this article, we’ll cover everything you need to know to understand how staking works, whether it’s right for you, and how to get started if you decide to give it a shot.
Let’s begin with a simple question.
What is Cardano Staking?
Cardano staking is a key part of the way transactions are processed and recorded on the Cardano network.
The need to validate transactions in a decentralized system
For any decentralized cryptocurrency platform, it is necessary to prove that transactions are valid. When you have a centralized authority, this happens automatically. The central authority (e.g., a bank) consults its records and can say whether a transferor has the money in their account or not. When there is no such central authority, users have to work together to check the public records and achieve consensus.
Ways of achieving consensus in a crypto network
Cardano functions differently than, say, Bitcoin because it uses two different protocols to get a consensus on the correct transaction records in the blockchain.
Bitcoin and certain other networks use a proof-of-work method. This involves solving complex computational equations to ensure that it is costly to update the record, thereby discouraging would-be fraudsters.
In contrast, Cardano is a proof-of-stake (PoS) system. In a PoS system, users set aside a portion of their crypto assets to be locked up or “staked” while transactions are recorded. If they were to attempt to corrupt the records, their crypto would be forfeited. This risk again disincentivizes nefarious behavior.
How Does Cardano Staking Work?
Assuming you’re not going to become a staking pool operator, you’re going to need to find one to participate in. The pool operator is the one running the hardware to actually process transactions. In order to provide a larger amount of assets and thus more skin in the game, pool operators allow other Cardano ADA (that’s the name of Cardano’s native currency) holders to participate in their pool. The process of joining a pool and staking some of your assets is known as “delegation.”
Importantly, this is done without transferring ownership of your ADA. This means that your funds remain in your wallet, allowing you to maintain full control of your money. So, you can participate by staking Cardano on Coinbase online “hot” wallets or even staking Cardano on Ledger hardware “cold” wallets.
The delegation process is simple: you just select a staking pool and then decide how much ADA you want to stake. By increasing the pool’s stake, it gains a higher probability of selection to produce new blocks. This generates rewards, which are then distributed to all delegators.
CoinBureau offers a decent guide on staking Cardano if you want to dive a bit deeper into the topic of staking Cardano in general. If not, we can talk about rewards next.
How Cardano Staking Rewards Are Earned
Rewards in Cardano staking come from both block production and transaction fees. Each 5-day epoch produces staking rewards based on the pool’s success in validating transactions and creating new blocks. These rewards are automatically added to your staking balance, allowing for compounding returns as they are reinvested. Percentages vary from around 2-5%, depending on a variety of factors. It’s important to use a reputable Cardano staking rewards calculator to see what you’re really going to earn from a particular pool or platform.
How Often Are Cardano Staking Rewards Paid Out? (And What the Heck Is An Epoch?)
If you stake Cardano, your rewards will be paid every five days, which is known as an “epoch” in the crypto world. Initially, however, there is a 25-day waiting period for the regular rewards to begin. So, the first wait lasts almost a month, but then you earn rewards regularly every five days thereafter.
Cardano Staking Calculator: Maximize Your Earnings
A staking rewards calculator is a tool that will tell you what you’re going to earn when you stake your ADA. The calculator typically takes into account several factors, including:
- The amount of cryptocurrency you plan to stake.
- The expected annual percentage yield (APY) or reward rate.
- The staking duration (how long you plan to keep your assets staked).
- Pool-specific metrics, such as fees and pool performance.
It’s very much like a savings account or certificate of deposit at a bank. You lock up your funds for a specified time and receive a fairly stable small reward percentage.
A Cardano staking calculator lets you try different inputs to compare potential rewards from various staking pools or platforms.
Best Cardano Staking Pools
What factors determine the best Cardano staking pool?
When selecting a pool, it’s important to consider saturation, which is something we haven’t talked about. Saturation is determined by checking how much ADA is already staked in a given pool. Pools that exceed a certain saturation point provide diminishing rewards. This incentivizes decentralization.
There’s also a pool’s operator pledge amount to consider. How much the operators themselves put in the pool indicates greater commitment. This can slightly improve rewards.
Pool performance is another key factor, as consistent block production leads to more reliable rewards. Pools with higher uptime and consistent block generation are more desirable.
Click here for a list of the top Cardano staking pools, along with the return on allocation percentage, the total live stake, and how much is actually pledged. At the time of this writing, Spire, ADAvault, and Nordic Pool are at the top of the list.
Start Your Cardano Staking Journey
Read up using any of the links above, or join the discussion in the comments section. If you have a question, that would be a good place to ask it. You could also try the Cardano subreddit, which is a solid spot to keep up with the news.