Staking is a common practice among individuals who invest in cryptocurrency. The first step to get started in staking Cardano (ADA) is to open a wallet that supports the cryptocurrency. A number of well-known cryptocurrency wallets perform this function.
If you own units of Cardano’s native coin, ADA, and intend to stake and earn some rewards, this article is for you! Keep reading as you will learn the basic steps you need to take as well as the risks involved.
Staking in Cardano
Staking is a process where cryptocurrency users deposit or lock some quantity of their coins in a blockchain for a period of time in order to earn rewards. For most people, learning how to stake cryptocurrency is one of the first things they learn after buying coins that offer this option.
The purpose of staking cryptocurrency, for many users, is to receive rewards in percentage. This is usually based on the quantity of assets they lock in the network. Basically, the more you stake, the more you earn. Also, the longer the staking period, the higher your reward.
Cardano is a flexible and scalable network on which ADA runs. It permits staking because it makes use of the Proof-of-Stake consensus mechanism.
Against the Proof-of-Work mechanism which enables individuals called miners to validate transactions on the blockchain, Proof-of-Stake makes use of a group of investors called validators. Also known as stakers, these validators stake their assets (in this context, ADA) in the network and earn rewards in return.
One feature that has made staking in Cardano very easy is the use of staking pools. All you need to do is join one.
A staking pool is a group of stakers who validate transactions on the Cardano network. In order words, a group of validators make up a staking pool. It is controlled by a staking pool operator.
The rewards you earn depend on the pool you join. It is best not to throw caution into the wind while choosing a staking pool.
Some key elements that should influence your choice of staking pool include the following:
- Return On Assets (ROA): This refers to the interest you’ll be earning when you stake your ADA.
- Pool Saturation: The number of validators who make up a staking pool affects its saturation. When a pool becomes overly saturated, the rewards its participants earn will be reduced.
- Blocks: The total number of blocks that have been minted in the history of each staking pool should be evaluated. Each block represents the rewards earned by participants.
How to Stake Cardano: The Steps involved
Make sure to carefully follow the basic steps involved in staking Cardano (ADA) as explained below.
- Open a Cryptocurrency Wallet
The first step you need to take if you intend to stake Cardana is to open a cryptocurrency wallet that supports ADA. You should make your findings before choosing a wallet.
- Buy ADA Using a Cryptocurrency Wallet or Exchange
The next step to take is to purchase ADA using either your wallet or a cryptocurrency exchange.
If you make your purchase on an exchange, transfer your ADA to your wallet.
- Join a staking pool
Before choosing a staking pool, check the information of all the ones available on your wallet. Each staking pool comes with a fee.
Select the pool you prefer and add your funds. Your ADA will be staked within a few minutes.
The period of time used in Cardano staking is referred to as a Cardano epoch. It is about 432,000 seconds which is approximately five days.
The Cardano network calculates the returns after one epoch and distributes them after three epochs (roughly 15 days). As a result, many stakers receive their rewards after about 15 days.
Risk Associated With Staking Cardano (ADA)
As with other cryptocurrencies, the market value of ADA is not stable. It is not protected by any human or organization. Hence, the price rises and falls without any prior notice.
The continuous reduction in the price of Cardano has made this question pop up in the minds of users: Is Cardano dead? This price volatility also affects the rewards earned by investors who stake ADA.
Before you choose to stake Cardano (ADA), it is important that you carefully review the wallet options that support the currency, the staking pools available in your wallet and the risks associated with staking.
If you are an investor and wish to earn extra income from the cryptocurrency space, you may want to include ADA and staking in your list of options.