Proof-of-Work (PoW), also known as mining, requires miners to solve complex mathematical problems as a means to validate the authenticity of transactions on the blockchain. Miners compete and try to be the first ones to solve the mathematical problem and produce the next block.
As a reward for verifying transactions, miners are paid in cryptocurrencies. The complexity of these mathematical problems rises in direct proportion to the network's computer capability.
When it comes to Proof-of-Stake (PoS), it serves the same purpose as Proof-of-Work but is done in a sustainable manner.
A PoS consensus method is made up of a set of validators that regulates transactions and generates new blocks on a blockchain network in order to achieve network consensus. To attest to the authenticity of a block on the blockchain, the validators stake their cryptocurrency, and they are then rewarded with a specific amount of cryptocurrency through this staking method.
Users who possess ADA tokens on the Cardano network have a stake directly proportional to the number of tokens held.
There are two ways to earn rewards with staking Cardano:
Operate or run a stake pool
Join a stake pool
Users can stake their ADA tokens by operating a stake pool or by joining a stake pool, taking part in the administration and surveillance of the proof-of-stake network, and verifying new blocks and transactions. They are then rewarded for their work in new ADA tokens.
Advanced users usually run their own pool, which requires technical skills and experience in development and operations. If Amanda is operating a stake pool, she will then be rewarded for maintaining the network.
However, if Amanda cannot be online 24/7, she should “delegate” her holdings and join a stake pool. It is basically when a user “elects” someone to maintain their network for a small fee. Being online constantly will allow the user to mine the next block.
In return, the user will be rewarded and will always have access to the pool even after delegating them.
8 Steps to Stake Cardano (ADA)
The primary way to stake Cardano is staking via an exchange or wallet.
Staking Cardano using a cryptocurrency wallet is the most straightforward approach for beginners. To begin staking ADA tokens, you must first have ADA tokens in a cryptocurrency wallet.
In terms of wallet choices, Cardano can be staked through Daedalus and Yoroi.
Picture credit: cardano.org
Daedalus was created by IOHK, a dedicated company pursuing the growth of Cardano. It is a software wallet that is compatible with macOS, Windows, and Linux. Yoroi is a beginner-friendly staking wallet suitable for anyone who wants to stake ADA tokens as a delegator.
In this article, the process of staking Cardano through Yoroi will be broken down into simple steps.
Step 1: Download Yoroi extension
Head on over to Yoroi and download the extension that is suitable for you. For this article, we will be using the Chrome extension wallet.
Step 2: Create a new wallet
There is an option to restore an existing wallet, use a hardware wallet, or create a wallet. For this article, we will create a new wallet.
Step 3: Create username and password
Next, simply name your wallet and the password you will use to access this wallet. Once that is sorted, you will be prompted with a custom recovery phrase.
Step 4: Save the recovery phase
Keep the custom recovery phrase somewhere safe and guarded where it won’t be lost. The recovery phrase is needed to restore your wallet to a different computer should you choose to.
If you lose the recovery phrase, you will lose access to the wallet, and the funds contained in it cannot be recovered. Also, note that if the recovery phrase falls into the wrong hands, the other party will have access to all the funds contained in the wallet.
Step 5: Deposit ADA tokens
Now, some ADA tokens will need to be deposited in the newly created wallet. Click on the ‘Receive’ option and you will be prompted to the next page.
For this article, the tokens will be withdrawn from Kraken.
Step 6: Withdraw ADA tokens from the exchange
You will need to copy the address from your Yoroi wallet and input the address in the withdrawal address on your exchange.
Kraken withdrawal screen
Once your withdrawal is completed, your Yoroi dashboard should look like this.
Step 7: Start delegating the tokens
Click on the ‘Delegation List’ column at the top right to choose a stake pool. It should look something like this.
If you know the name of the stake pool, then you can simply input the name into the search bar and delegate your tokens. However, if you are unsure where you should stake your Cardano, head on over to these two sites to analyze your stake pool of choice:
Step 8: Select your stake pool
Select your stake pool, then key in your password, and you are good to go! You have just staked your ADA tokens and can now start collecting staking rewards.
The operation fee varies with different stake pools, and a waiting period of 20 days is needed for approval when you first start delegating. Once the approval is completed, ADA rewards are given at every epoch (five days).
How Much Can I Earn With Cardano Staking?
You will get a return on your investment if you opt to stake your Cardano (ADA) tokens for a period of time.
According to the Cardano website, you can expect to earn around 4.6% per annum when you stake USD1,000 worth of ADA.
Is Staking Cardano Safe?
As an investor, you should be aware that staking ADA is simply like earning interest from a checking account. The ADA that is used to invest and stake does not leave the investor’s wallet.
Investors have the freedom to stake any amount of ADA tokens they like and withdraw them at any time, a feature that serves as an advantage for Cardano stakers.
As shown above, staking through a wallet like Yoroi is a relatively simple process. However, as an investor, you should safeguard your password and seed phrase. If the seed phrase is lost, you will not have any access to the ADA tokens in your wallet.
Wrapping It Up
Staking Cardano is a good way to earn rewards for holding this cryptocurrency but just like any other investment, should the price of ADA reduce, you may bear some losses as the returns would not be substantial.
The journey of investing in cryptocurrency is a volatile one and the risks that come with it are among the things to be aware of. Cardano has gained its popularity over the years and having dedicated platforms to stake ADA tokens has made the process simple for potential investors.
Regiena is a banker, an avid reader, and part-time freelance writer, currently exploring the realm of blockchain technologies.