By Adam Beddall published 27/01/2023
Cryptocurrency is scary. Words such as proof-of-stake and staking are scary. Below is a guide and FAQ on Cardano staking to demystify the whole process and keep you safe and secure. By the end of this guide you will be confident with:
Let us begin!
Staking is the way of earning rewards for certain cryptocurrencies that utilise proof-of-stake such as Cardano (also known as ADA). Other cryptocurrencies such as Bitcoin are proof-of-work and cannot be staked.
Most cryptocurrencies are decentralised, but without a centralised system it is required to ensure there are no mistakes or fraud occurring in the ecosystem through verification of transactions. In proof-of-work the miners solve this problem by solving complicated hash puzzles. When a miner completes a hash puzzle the miner gets the right to add the latest block of transactions to the blockchain and get paid in the same cryptocurrency i.e., Bitcoin. For Cardano which is decentralised the transactions are verified by those who are invested in the blockchain by holding the crypto and staking it.
Those who stake Cardano are randomly chosen to verify a block of transactions and rewarded proportionally with how much Cardano you have staked. For example, if you stake 1000 ADA you will be rewarded x10 the rewards of someone who has staked 100 ADA.
To increase your odds of reliable rewards through this passive income you can delegate your ADA to a staking pool. A staking pool is a large number of ADA holders coming together to process transactions, create blocks, and get paid rewards.
With ADA there aren’t really any risks. The ADA itself never actually leaves your wallet even when staking to a stake pool. The only way to lose your ADA is by losing your wallet password.
If you are staking to a staking pool which does not create any new blocks in a five-day period, also known as an epoch, you will not receive any rewards. This is not technically a risk, but something that could occur and can be mitigated by choosing the right staking pool.
It is always worth remember that you can remove your stake at any time.
When choosing a staking pool, it is good practice to avoid a saturated pool. Pool saturation is when a staking pool has more ADA delegated to it than is ideal for network security. No one pool should have too much power over the network because it could damage the network if a mistake is made. Avoiding a saturated pool can also help your rewards.
For the first set of rewards, it could take between 15-20 days, but after that it should be every epoch (five days). Annually it is about 5.5% annual returns, but it can vary based on the staking pool you are in.
Using the Daedalus wallet is the best way to stake ADA. It is the wallet developed by IOHK which is the research company that built Cardano and is feature rich. The Daedalus wallet is a desktop application, but if you prefer to have access to a wallet on your phone the Yoroi wallet is the next best alternative. This guide assumes you will download Daedalus.
The Daedalus wallet can be downloaded from daedaluswallet.io.
Please make sure you download the wallet of your choosing from the correct website.
Once you have downloaded the Daedalus wallet you will be asked to create a password and be given a 24-word recovery phrase. You must write these down and keep them offline for best security practices. Losing these will mean you can never access your wallet and subsequently your ADA again.
After this the wallet will begin to perform a full sync with the blockchain which can take multiple hours. Patience is a virtue!
Once complete you will need to buy at least ten ADA (this is minimum required for staking) on another platform to send to your wallet. You cannot buy ADA on the Daedalus wallet application.
The platform you buy ADA on must be able to withdraw the ADA to the Cardano network. Binance and Kucoin have this ability along with most popular exchanges.
Below is a picture of the Binance withdrawal process for ADA:
As you can see above you will need to input a withdrawal address. This can be any one of the addresses of your Daedalus wallet. Your addresses can be found in the Daedalus wallet under the receive tab:
It could take a little while for it to appear in your Daedalus wallet, but once finished you will be able to see the ADA under the Summary tab and under the Transactions tab.
Now you are ready to choose a stake pool! This is the final step.
To choose a stake pool you must head to the Staking section of the wallet and then to the Stake Pools tab. This tab shows all the ADA stake pools across the world. To find the best stake pool first start by moving the slider to how much ADA you have to stake for example, 1000. This will then narrow the pool down to find you the best potential rewards.
You may notice that pools are green, yellow, or red. This indicates the viability of the pool including potential rewards and saturation level.
At this point you can choose whichever pool you wish. Clicking on each pool will show you information such as saturation, rank, potential rewards, and pledge. If you add the pool ticker such as ‘EDEN’ in the example below to adapools.org it will show you more information about the potential rewards and performance of the pool. Ideally you would like to receive at least 4% annually. Some pools also have charity causes too which may sway your choice.
When you have chosen a stake pool you must click delegate to this pool and choose how much to delegate. When delegating it will take a small deposit which is returned when you un-stake.
Once delegated now you leave the stake and close the Daedalus application. Over time you will see your rewards begin to increase.
Congratulations you have learnt how to stake Cardano safely, securely, and correctly! ??
Never share your wallet password or 24-word phrase with anyone. Keep a backup in a secure location. Be wary of scams.