How to Stake Cardano
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Staking has become a new cryptocurrency dream. It enables you to take part in blockchain networks, but without pricey rigs and high electricity costs. Besides, it is environmentally friendly, as it doesn’t consume enormous amounts of electricity during the process. As such, it’s possibly the simplest way to generate passive income while requiring you to do absolutely nothing.
What Is Staking
Staking is extremely straightforward and easy to understand. It is a process during which cryptocurrency holders deposit their crypto tokens in order to be active participants in running the blockchain network. This way, they become validators, aka stakers, whose duty is to validate new data added to a blockchain network.
However, stakers don’t perform this duty without a reward. For this reason, staking is an excellent way of earning yield on your crypto holdings. Even though they are randomly chosen to participate in the blockchain, not everyone will be accepted. The selection criterion is fairly straightforward — the more tokens you have to lock away, the higher the chance of being selected is.
What Makes Staking Possible
As mentioned above, staking supports, and secures the stability of blockchain networks, just like mining. However, as opposed to mining, which uses a proof-of-work (PoW) consensus mechanism to validate transactions on the blockchain, staking employs a proof-of-stake (PoS) mechanism. This is the system used by blockchain to make sure that the participants’ conduct on the network will be in its best interest.
Since there is no central authority that will monitor who obeys the rules, anyone can take part in the blockchain network. Consensus mechanisms such as PoS are here to select the participants that will perform the essential tasks of adding new data to the blockchain. Thus, you can picture each consensus mechanism as a selection test dedicated to choosing worthy participants.
Why does proof-of-staking outweigh proof-of-work? Well, PoW requires using energy-extensive computers to validate transactions and find new blocks. In addition to being extremely environmentally unfriendly, it has a high entry barrier, implying that not everyone can join the network.
PoS, on the other hand, doesn’t require such powerful hardware. This means that more people have an opportunity to take part in the network. Plus, energy consumption levels are far lower, thus making staking more environmentally friendly than mining.
Staking Cardano (ADA)
Now that you’ve learned the basic difference between staking and mining, another question is popping up — how to stake Cardano (ADA).
Cardano is deemed to be a leading smart contract blockchain that challenges Ethereum’s dominance in the market. Having a market cap of over $30 billion, Cardano ADA is among the most popular crypto tokens that millions of users hold. Thus, it comes as no surprise that the interest in staking ADA has risen nowadays.
Where to stake Cardano (ADA), you may ask.
The very first step is to find a trustworthy crypto exchange, such as CEX.IO. Create an account with it, provide all the necessary documents, and wait for the account to be verified. Next, choose an option for staking coins. Note that, in order to stake coins, you need to have them in your wallet. If you don’t, you may deposit them from another wallet.
Then, find ADA in the list of tokens and choose how many coins you’d like to stake. You may also see what the Estimated Annual Yield (EAY) is, and how much you’ll earn on a daily, monthly, and yearly basis.
What you should keep in mind, though, is the fact that buying Cardano solely for the sake of staking may not be of much worth due to the volatility of the crypto market. On the other hand, for long-term Cardano holders, staking is as simple as ABC.
Pros & Cons of Staking
Unlike some staking instances in which you don’t have access to your coins once you lock them away, this is not the case with Cardano. You could stack as many coins as you want, and access them whenever you want.
As opposed to crypto mining, Cardano staking may earn you passive income without any hassle, expenses, or risk connected with a mining rig and equipment. Furthermore, staking yields are commonly higher than those of traditional investments. Lastly, by staking your Cardano ADA tokens, you help secure blockchain networks with very little energy consumption.
Since Cardano staking poses no greater risk than holding the tokens in your wallet, the only possible hazard might be losing your private key. However, this is a risk that is present with all crypto tokens, notwithstanding whether staking is involved or not.
All reputable wallets will give you two different private keys for spending and staking. When staking ADA, your tokens never leave your wallet, so you can unstake them whenever you want. Unstake means that you can remove the tokens from the stock whenever you want. To avoid any potential hazards, you might want to split your stakes among various pools. This way, not only will you diversify your portfolio, but you will also reduce staking fees you might be required to pay.
Even though your crypto tokens are safe, you can be taken advantage of by pool owners who might seize most of the rewards from it. Therefore, it’s essential that you select a pool you trust, and you’re comfortable with.
Lastly, just like all cryptocurrencies, Cardano ADA is susceptible to volatility as well, so its price might be very unpredictable. This could be a true double-edged sword. While the token’s loss of value may impose a risk of your losses exceeding your yield, the increase in price might earn you higher rewards. Yet, for long-term investors, staking Cardano ADA represents an uncomplicated way of increasing returns.
The Bottom Line
In the previous two years, people were looking for Ethereum alternatives mainly because of the high ETH gas fees that were required to utilize the smart contract blockchain. Cardano, on the other hand, was considered the most exhaustively developed PoS blockchain whose smart contacts were hack-proof.
Subsequently, it might be the right time to start staking Cardano ADA before any further upgrades of the network. You can never tell whether it will dominate the market, resulting in the exponential growth in the price of Cardano ADA.
