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In the following article I will be discussing how you can earn passive income by participating in Cardano’s proof of stake(PoS) consensus network.
Cardano is an ambitious proof of stake, environmentally friendly, scalable and peer reviewed consensus based blockchain network. Currently, Cardano is still under development and it will be a while before Cardano is fully able to execute and hold Plutus based smart contracts and decentralised applications(dApps) like the ones on Ethereum network. However, it is important to note that the founder of Cardano(also the co-founder of Ethereum), Charles Hoskinson, has publicly aired his negative views on decentralized applications on his YouTube channel. Hoskinson is of the opinion that the current decentralized application ecosystem as it exists on Ethereum is entirely impractical in the long run. Hoskinson also propounded that BTC’s lack of decentralized applications has not held it back, implying that there is little connection between dApps and token pricing. Instead of being just another blockchain competitor, Cardano actually aspires for scalability, usability and mass adoption. It is important to understand that by staking ADA, you are participating in bringing a revolutionary change in our financial systems.
Staking ADA
Everyone who holds ADA in a self owned wallet(Some exchanges allow staking), has a “stake” or “ownership” in the network. To put it simply, when you own some ADA, you own a part of the network as well. The Cardano network is able to maintain a high level of decentralization along with strong security by making smart use of economic incentives. The end users of the block chain network who purchase ADA tokens are financially motivated to hold their ADA by “staking” the tokens in exchange for reward in form of ADA. Staked ADA in a pool also compounds and creates additional passive income. Staking is one of the fundamental driving forces behind the success of the network and it rewards users for sincerely delegating their ADA. Delegating directly decentralizes Cardano and also provides funds for security. The financial motivation to hold and stake ADA keeps it decentralized and prevents 51% attacks from happening. Users who help decentralize the Cardano network by delegating their ADA to staking pools are thus rewarded in form of tokens. The current rate of return on staking is between 4-5%, however, rewards vary between staking pools and it is advisable to research a pool well before staking ADA in it. Many variables like pool saturation affect the rate of return on your staked ADA. In a PoS network like ADA, there is no high energy use and simply holding and delegating ADA is enough to stake it. This makes it lucrative for new users who may not have the hardware and financial resources to mine crypto currency. Delegated ADA can also be cashed out or switched between staking pools quite easily. This ensures that staking pools do not become oversaturated, as oversaturated pools will have diminishing returns. You can calculate the returns you could expect staking by this easy to use ADA staking calculator.
Exchanges or wallets?
Staking and storing your ADA on an exchange isn’t a particularly great idea. Not only are exchanges susceptible to hacking attacks, but staking ADA with an exchange hurts the decentralized nature of Cardano because any ADA bought on an exchange is owned by the exchange and not you. If you do not hold the keys to your tokens, they are not yours. The ideal and much preferred method to stake ADA is by storing them on self owned wallets. Daedalus and Yoroi are the two popular options used by many to stake ADA. The former is a full node heavy wallet while the latter is a much more user accessible light wallet.
Disclaimer: I am not a financial advisor and everything written below is subject to risk. Nothing written above is to be treated as financial advise because it is not. It is important to understand that Cardano will be able to provide rewards to the stake holders only if it flourishes as a proof-of-stake consensus network. Cardano is viewed positively and it is typically expected that Cardano will grow and compete with Ethereum as a secure third generation blockchain solution. Tips are appreciated.
