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OCTIVIO

What is Proof of Stake

Proof of Stake (PoS) is the way that Cardano and some other blockchains validate the blocks that form the chains. Users or delegates, pool their ADA, the cryptocurrency of Cardano, together and delegate it to a pool. The more ADA that is delegated, the more trust that pool has and the more blocks it will produce.

Proof of Work (PoW) on the other hand works by using computing power to mine or validate the blocks. The more power you have the more blocks you can produce.

PoS requires the pooling of ADA together to validate while PoW requires mass computing power to mine.

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How Does Staking Work on Cardano

Staking is a relatively easy process on Cardano. Once you have moved your ADA to a wallet, you can delegate, or point your wallet balance, to a stake pool that you want to be the validator of blocks on the network.

Your ADA never leaves your wallet. You simply point your wallet to a pool. That's how delegating works. If someone asks you to send your ADA balance to a wallet address, then it's a scam. Your ADA should never leave your wallet.

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What is an Epoch

The Cardano timeframe is divided up into 5 day periods. This is called an Epoch, not an epic. At the end or beginning of each epoch, the Cardano network does a snapshot of where your ADA is staked for the next 5 days. If blocks are produced on that pool, then you will get the rewards.

As long as you are staked at the snapshot point, you're good to go with that pool. You can move your ADA in and out to trade or buy NFTs as needed.

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Cardano makes staking easy through delegation

With Cardano, individuals can hand over the responsibility of staking to entities called “stake pool operators.” As the name suggests, people who join these have their tokens pooled together. The pools are usually run by individuals or groups of people who have the specialist knowledge and hardware necessary to perform staking on the network – though anyone can become their own staking pool operator. Users have complete freedom to choose which pool they’d like to join, and can review each one based on their previous performance, uptime and size of pool.

Once a person chooses a pool to stake their tokens with, they must enter them into the pool in a process called "delegating." Coins can be unstaked and re-staked as many times and with as many pools as you like. You just have to wait for the next epoch to pass before your assets are relocated.

Cardano divides time into divisions called “epochs” where each epoch consists of 432,000 one-second intervals called “slots.” This means each epoch typically lasts for five days.

At the end of each epoch, a snapshot is created. Snapshots record the distribution of staked ADA to pool participants and use it to calculate what rewards are owed to each person.

This means that when rewards enter your wallet, you are actually being rewarded for staking that took place a few epochs back. Therefore, it may take some time for you to see your first rewards, and other times you can receive rewards after your tokens have been unstaked (taken out of the pool).

You will earn a percentage of the coin you have delegated, not a percentage of the U.S. dollar value of that coin. The dollar value of ADA may change while you are staking it.

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What makes crypto staking possible?

Staking on Cardano is possible because its blockchain uses the proof-of-stake (PoS) consensus mechanism. This refers to the system the blockchain uses to ensure all network participants act honestly and in the best interest of the network.

You have to remember, anyone can participate in a blockchain network worldwide, and no central authority is in place to make sure people follow the rules. Consensus mechanisms like proof-of-stake are coded into the blockchain and decide who is selected to do the important task of adding new data, like transaction data, to the blockchain.

You can think of each consensus mechanism as its own type of selection test designed to choose honest, worthy participants.

Bitcoin uses a different consensus mechanism called proof-of-work (PoW), which uses miners instead of stakers to check and add new data to the blockchain. Miners have to compete with one another using energy-intensive computers to generate a winning code before anyone else in order to be selected to validate transitions and discover new blocks. Not only is this system bad for the environment, but it also involves a much high barrier for entry. With proof-of-stake, the hardware requirements are far lower meaning more people can participate and energy consumption levels are low.

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How to begin staking ADA

There’s a choice of two different digital wallets you can download to store and start staking your ADA tokens:

• Daedalus

• Yoroi

Daedalus is a wallet that can be downloaded onto your desktop computer and is aimed at more intermediate-level users. The Yoroi wallet is a much more suitable option for beginners that, when downloaded, sits in your web browser such as Google Chrome or Mozilla Firefox. Irrespective of which wallet you download, the staking process is similar for both.

Let’s look at the Yoroi wallet as an example. Once you have signed up and installed the Yoroi software, click the browser extension to go to your Yoroi dashboard and find the "delegation list" tab.

Here, you will see a list of stake pools along with key information such as:

• ROA: Return of ADA. This is your interest rate.

• Share/Pool Size: How much ADA is in the pool as well as how close to full capacity it is.

• Costs: The costs are divided into a tax percentage you'll be charged and a fixed rate the entire pool will be charged.

• Pledge: This shows how much of their own money the pool operators have delegated in their own pool.

• Blocks: This shows how many blocks have been minted in the history of the pool.

Take your time researching staking pools. You can do this by heading over to ADAPools.org for a more in-depth look at the pools.

Once you have found where you wish to delegate your ADA, simply click the delegate button. You'll then have to enter your spending password that you created when setting up your wallet and agree to the fees.

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Why Would You Stake Cardano (ADA)? What Are the Benefits?

You get ADA for staking. For holding on to your ADA and delegating it to a pool, you get rewarded ~5% ADA per annum. This is paid out proportionately every 5 days. This means that your ADA actually compounds in value every 5 days.

Compared to the interest rates of many banks around, this is much more appealing. One of my local banks currently offers 0.05 per annum in a regular savings account, and 0.35% on a 12 month, long term savings account that is locked in place. Both of these interest rate values are well below the rate of inflation which means your money is worthless even with the appreciating interest.

The other benefit is the fluctuating value of ADA which on current trends appreciates and increase in value against fiat currencies over the long term.

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How Much of a Reward Do You Get Staking Cardano (ADA) to a Stake Pool

The amount that you get paid from a pool when delegating will vary from pool to pool depending on the current performance and saturation of the pool.

The lower the saturation, the less regular the pool rewards will be and in turn, will fluctuate in the value of the reward. On pools with higher saturation levels, you will see more blocks being consistently minted from the pools giving you a more consistent reward.

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How to Stake Cardano ADA?

The staking process is easy and secure. You just have to manage your wallet security yourself.

1) Create a wallet using one of the popular wallet apps, ensuring it is from the correct and real developers.
2) Transfer ADA to the wallet.
3) Choose which pool you want to delegate to via the delegation tab on the app.
4) Pay the delegation fee and wait for the rewards which usually come in after 20-25 days.

Your ADA never leaves your wallet. You simply point and assign your ADA to a pool that you wish to produce rewards for you and is to perform the validation process for the blockchain.

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I've Delegated, When Do I See My Rewards?

Rewards are paid out every 5 days once your delegation to a pool becomes active and that pool produces blocks in the active state.

When you first delegate to a pool, your ADA is in a live state until the epoch ends. When the epoch ends and a snapshot is taken, your stake then becomes active. In this active state, if the pool produces a block, you will get rewards from the pool in the form of minted tokens and transaction fees in the block. At the end of that epoch, the rewards from the epoch are calculated. At the end of the epoch, the rewards are then distributed.

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To recap:
Epoch 1: Delegation is in a live state
Epoch 2: Delegation becomes active and if the pool mints blocks you get rewards
Epoch 3: Rewards are calculated
Epoch 4: Rewards are distributed
Epoch 5: Cycle begins again from Epoch step 2

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Since each epoch is 5 days, this process takes approximately 20-25 days depending on when you started your delegation. You may have started delegating right after an epoch change over and snapshot, which means you have a few more days before the epoch goes into a live state.