Who doesn’t love extra income? In addition to your primary job, an additional source of income can provide a blanket of security. This is especially beneficial in times of economic disarray like the COVID-19 pandemic.
If you’re a crypto investor, there is good news for you. You can add cryptocurrency staking as your source of passive income. It’s easy and guaranteed. This article will walk you through what is staking crypto, how you can do it, and much more.
Crypto staking is the process of acquiring a certain number of coins and setting them aside in your wallet for a period of time, Our Cardano Staking Calculator helps you to estimate the rewards. A more traditional analogy for this would be depositing money in an interest savings account.
Staking is similar to mining in the sense that it aids transaction validation. It doesn’t just offer a return on investment. Staking also acts as a support for the operation and security of the coin’s blockchain network.
With the advent of the Proof of Stake (PoS) verification protocol, an evolution of the Proof of Work (PoW) protocol, cryptocurrency staking gained popularity. PoS verification is a much more efficient solution to validate blocks, reducing the computational power required while maintaining decentralization. Cardano has been in the news a lot lately and labeled a “green” coin that uses a fraction of the energy of PoW coins like Bitcoin and Ethereum. Indeed, Ethereum 2.0 is trying to change to PoS as a fundamental reason.
What is Cardano (ADA)?
Cardano is a public, open-source, decentralized PoS blockchain platform. It allows building and running smart contracts and other decentralized operations. The mastermind behind this third-generation platform is Charles Hoskinson, the co-founder of Ethereum. He recognized the limitations of PoW blockchain networks and began developing Cardano in 2015.
The primary cryptocurrency of Cardano is ADA, named after the 19th-century countess and English mathematician Ada Lovelace, who is also recognized as the first computer programmer. The Cardano platform was launched in 2017 and runs on PoS Ouroboros consensus protocol.
In a short time, Cardano has managed to become a highly sought-after cryptocurrency. With a current market cap of over $42 billion, it’s the fifth-largest cryptocurrency, according to CoinMarketCap.
Cardano (ADA) Staking
Much like any other cryptocurrency staking system, Cardano staking involves holding ADA for a period of time. Cardano’s Shelley upgrade introduced ADA staking rewards. Therefore, you not only get a return on investment, but you also assist the network in validating blocks on the protocol.
Cardano staking rewards are paid out every “epoch” or every five days. Selecting a stake pool to delegate to is required, and the beauty of the protocol architecture is such that you never share your private keys to do so. The scientific research and peer review is a critical component of the protocol engineering and in this case, you only share delegation keys, so your funds are never at risk in the delegation process. This is a stark contrast to the Ethereum 2.0 architecture and lack of scientific research and rigor that has caused a very recent “Key Management Issue” and the permanent loss of over $75 million Ether.
As mentioned, Cardano wallet addresses have separate keys for staking and spending. This means that if you’ve chosen to delegate your tokens to an existing staking pool, they will never leave your wallet. This is a reason many experts recommend not keeping your Cardano Ada coins on an exchange (including delegating with an exchange) because your wallet is stored in a centralized location and vulnerable to total loss from a hacker or key mismanagement. Remember the moniker, “not your keys (you don’t hold the keys yourself), not you’re your crypto”. Many experts recommend storing your Ada in wallets like Daedalus, Yoroi, or compatible hardware wallets so the individual holds the private keys and not the exchange.
Also, since there is no time period for tokens to be locked up, you can un-stake or re-stake them whenever you want. This is not true other PoS protocol where your funds are locked up for varying lengths of time. The Cardano staking protocol does take 4-5 epochs to pay out the first rewards payment, which may seem like the longest 15-20 days of your life, but rest assured the rewards come automatically after that, every epoch or five days. The stake pool you delegate to has no part in the payment of the rewards, it is handles very efficiently by the Cardano protocol.
Staking as a Source of Passive Income
When investors delegate their coins to existing ADA staking pools, they increase the pools’ chances of producing blocks. When blocks are produced, pools receive rewards which are then paid out to all contributors. These rewards are similar to interest in a savings account.
According to Shidan Gouran, the founder of the Canadian merchant bank Gulf Pearl, investors should stake all their coins. There is no downside to participation, and investors can earn approximately 5.39 percent annually, this return percentage is built into the protocol. Every epoch the stake pool is assigned to produce blocks that’s based on their total stake. There is a slot lottery or “slottery” which is the mechanism that selects stake pools to make blocks every epoch. There is luck involved in every epoch or “slottery”, sometimes the protocol assigns a pool to produce 115% of blocks based on their stake, and another epoch it may be assigned to produce only 85%. But the Cardano protocol was engineered to pay out the average of 100% of the 5.39% annually.
Compared to PoW based cryptocurrency mining, PoS based staking is a much more efficient and simplified process for investors to participate in the verification process. It involves no more risk than simply holding coins in a wallet. You can stake as much as you want, and the rewards are re-invested every epoch in your wallet automatically. The scientists, researchers, and engineers that designed and developed Cardano have really put huge amounts of effort to offer the best staking experience for those who delegate. It is no wonder 74% of all Ada in existence is staked, by far more than any other competitor coin out there. It is a stable, secure, and efficient way to earn passive income or rewards. Happy staking!