Staking Cardano – earn passive income
Cardano labels itself a “third generation cryptocurrency”, considering itself an advancement on the first and second generation of cryptocurrencies that preceded it. Cardano was founded in 2015 by the co-founder of Ethereum, Charles Hoskinson, and was created to overcome the problems that he saw with proof-of-work platforms like Bitcoin and Ethereum and even some of the earlier proof-of-stake platforms like NEO.
Like these earlier proof-of-stake platforms, Cardano utilizes staking, which is a way of earning a passive income from helping the blockchain achieve consensus.
What is Cardano?
Cardano was founded as a response to the challenges that have impacted the proof-of-work consensus mechanism, such as ballooning transaction costs and times and excessive energy consumption. Cardano claims to solve these problems using a decentralized proof-of-stake (DPoS) mechanism which allows it to keep costs low, cut energy consumption drastically, and speed up transaction times in ways no proof-of-work platform can match.
The company has christened its DPoS protocol ‘Ouroboros’. Ouroboros is a verifiably secure blockchain protocol that facilitates Cardano’s decentralization and allows users to earn ADA tokens through staking. Cardano offers similar applications to Ethereum, such as smart contracts, decentralized finance, decentralized applications, and token creation. However, its stated aim is to build out by also supporting identity management and traceability.
How Does Ouroboros Work?
Ouroboros is central to the Cardano platform achieving its aims. It uses a variety of tools to secure the platform which include cryptography, combinatorics, and mathematical game theory. With Ouroboros, Cardano is able to scale the activities on its network while still maintaining up to four million times the energy efficiency of Bitcoin.
In order to create new blocks, Cardano encourages its community to participate in staking. As with all proof-of-stake platforms, the algorithm bases its node selection on the amount of ADA that has been staked and how long it has been staked for.
Once interested ADA holders have staked their coins, Ouroboros designates an “epoch” and divides it into slots; an epoch lasts five days, while a slot lasts one second. Once an epoch ends another one starts immediately.
Each slot is then allocated to a randomly chosen “slot leader” who is charged with the responsibility of validating transactions, creating new blocks, and adding those blocks to the blockchain. To ensure fairness, Ouroboros uses a Verifiable Random Function which produces fresh randomness for each epoch.
In order to avoid being penalized if chosen, nodes must be available to run the Ouroboros protocol 24/7. As it is impossible to expect everyone participating in staking to be online at all times, Cardano encourages Pool Staking, which means that ADA holders are encouraged to create groups that will hold their combined stake and designate one member to represent the pool during protocol execution.
This makes it easy for members of the community to participate even if they are not able to be online at all times. It also serves the function of reducing the amount of energy consumed during the validation process whilst still maintaining a high level of decentralization.
Once the slot leader has validated the block of transactions assigned to them, other validators attest to the accuracy of the block, and once a prespecified number of attestations has been achieved the new block is added to the blockchain.
Unlike other PoS blockchains that issue rewards per validated block, Ouroboros issues rewards for each epoch. As compensation for their efforts, Ouroboros rewards participants in each epoch with ADA sourced from transaction fees and the Cardano reserve. The reward is distributed on a pro-rata basis.
Cardano has two layers to its blockchain, they are:
- Cardano Settlement Layer (CSL): contains the ledger of accounts and balances and handles validation exercises.
- Cardano Computing Layer (CCL): contains smart contracts and handles computation for DApps.
Having two layers with separate functions enables Cardano to achieve the levels of speed it aims for, processing as much as a million transactions per second.
How To Stake Cardano
There are various ways to stake Cardano, with each method having its own advantages and disadvantages. In this piece we cover a few of the different ways in which Cardano staking can be achieved and who they are best suited to.
One thing to note about staking Cardano is that there is a network fee users must pay in order to claim their rewards. While it varies across platforms, it is usually between 0.1 and 0.2 ADA. In order to avoid paying fees over and again, it is advisable that you allow rewards to accumulate and withdraw as seldom as possible in order to protect your gains.
Daedalus is Cardano’s official desktop ADA wallet. The Daedalus wallet is a full node wallet, so in downloading it you are making a copy of the entire Cardano blockchain. This means that with Daedalus you can even run your own Cardano node, although this comes at the cost of disk space – at least 35GB at the time of writing.
In using the Daedalus wallet, users will be automatically giving the Daedalus staking pool network their voting power in return for a 5% annual percentage yield (APY) on their ADA coins, so this is something worth considering. You should also research the various Cardano staking pools before you launch the staking process so you know which one you prefer.
Due to the huge storage and data requirements that accompany a Daedalus wallet download it can only be used on a desktop machine and it is advisable that you download it with an unlimited bandwidth package from your broadband provider. However, for those that can adhere to these requirements, Daedalus is overall one of the best ways to stake Cardano.
Staking Cardano with the Daedalus Wallet:
- Download and Install the Daedalus Shelley Mainnet from the official website
- Open the mainnet and choose your number and date formats
- Wait for the node to sync (this may take a while the first time)
- To create a new Shelley wallet click “Add wallet” on the lower left corner of the screen and select “Create”
- You will be shown a generated recovery phrase, copy it/write down and then input it as requested
- Type in your wallet name and password
- On your dashboard you will find a menu at the top of the screen, click “Receive” and follow the instructions to deposit ADA to your account. You must have a minimum of 10 ADA to delegate your stake
- On the far left corner you will find a menu with three symbols – click on the middle one which resembles the Cardano logo to access the Delegation Center
- Choose your wallet and click Delegate (you will find it in the same row as your wallet)
- On the new page, choose your staking pool
- Once you have made a choice, confirm your staking delegation and enter your password
- You are now an official stake pool member!
You will begin to receive your staking rewards after two epochs (five days).
Yoroi is a beginner-friendly, lightweight, and easy to use Cardano wallet that comes with a variety of features, on of which is of particular interest to Cardano stakers as it allows them to sort staking rewards by return on iInvestment, staking cost, and pool size.
Yoroi gives you a variety of methods through which you can access its service, with browser add-ons and mobile-specific wallets available. You can also use it on a hardware wallet if you have one.
Yoroi offers the same 5% APY as Daedalus so you won’t be losing anything when you stake Cardano on Yoroi as opposed to the official Cardano staking wallet.
How to stake Cardano on Yoroi:
- Download the extension here or head to your Android/Apple app store and download the mobile app
- Create a new ADA wallet if you don’t have one or restore an existing one
- Input a name for your wallet and create a password (new wallets only)
- Note your recovery phase and store it somewhere safe (new wallets only)
- Click on “Receive” and follow the prompts to deposit ADA to your wallet
- In the top right corner, click on “Delegation List” and choose your preferred staking pool
- Input your password
- Get staking!
Yoroi users will need to wait 20 days for Cardano staking approval, after which they will begin to receive ADA rewards after every epoch (five days). This means the first rewards will be received no sooner than 25 days after staking registration.
Those who know their crypto will know that Binance is an exchange rather than a wallet, but the platform offers a great staking option for beginners. The process is easier than doing it yourself with Daedalus or Yoroi, but it comes at the cost of Binance owning your staked ADA and your rewards, at least until you withdraw them.
Due to the scale of Binance’s operations and the fact that it operates such a large and powerful exchange its security is much better than other exchanges, but a platform is only ever as secure as its users. binance users have been subject to phishing attacks in the past, so make sure that your personal security is up to scratch.
One major benefit of staking your ADA through Binance is that it offers you the highest bang for your buck, offering a minimum of 7.75% APY, beating out Daedalus and Yoroi. Binance also gives you the flexibility of choosing how long you want to lock your funds.
The most popular staking lengths are 30, 60, and 90 days, but longer stakes are available. You can also withdraw your ADA during a staking session, but at the cost of just a 0.5% return. On the plus side you can stake Cardano with Binance from just 1 ADA.
One important factor to bear in mind with Binance is that you will have to pass a strict KYC/AML process, which won’t be to everyone’s liking.
Staking Cardano on Binance:
- If you don’t have a Binance account already, the first step is to create one
- Fund your account with ADA, either by buying on the platform or depositing some from another wallet
- At the top of the dashboard, click “Finance” and then “Binance Earn”
- On the Binance Earn page, find Locked Staking and click it
- On the next page, click on the search bar, find ADA, and select it
- Choose your staking length and note the APY
- On the following page, input the amount of ADA you want to stake
- Follow the prompts, agree to the service agreement, and click confirm
- Sit back and wait for the ADA rewards!
You will be able to check your staking position in the wallet section of your account. To redeem the coins before the period elapses, open the “Earn” section from your Wallet and select “Locked Staking”, and then select “Redeem Earlier”. Note that it will take some time before your coins are released.
Staking Cardano is one of many ways to earn a passive income through cryptocurrency, and the process is fairly easy for users of any level of knowledge. Binance is probably best for the casual user (so long as they already have an account), while Yoroi is a good middle ground. Daedalus is only really suitable to those who are serious about their staking, although it’s easy enough for new starters to get a handle on.
Whatever option you choose to stake your Cardano, please ensure that your staking device is secure so someone else doesn’t profit from your work. Happy staking!