Cardano Staking — My First Experience

What is Cardano

Cardano is considered as a 3rd generation blockchain platform built with the aim of addressing the issues faced by current platforms, named scalability, interoperability and sustainability.

One of the features adopted by Cardano that distinguishes it from other platforms (e.g. Bitcoin, Ethereum) is the use of Proof of Stake (POS) as consensus algorithm.

In this article, I am going to share my staking experience and how I can get rewards from it.

POS (Proof of Stake) vs POW (Proof of Work)

The consensus algorithm adopted by Bitcoin and Ethereum is called Proof of Work (POW). The basic idea is that the blockchain platform posts a hard mathematical problem regularly and the 1st participant to solve it correctly will be invited to generate the next block and rewarded with tokens (e.g. Bitcoin, ETH). There are plenty of articles that talk about it in-depth. You can refer to the ones cited below.

There are several drawbacks for this algorithm. To me, the biggest one is the waste of energy. During the problem solving process (a.k.a coin/token mining), the participants have to do a lot of “hashing” in order to derive the answer in trial and error manner. That requires plenty of computational power. Considering all participants doing the same thing at the same time, it adds up to a huge amount of electricity. In fact, it’s estimated that the total energy used for bitcoin mining every year is nearly equal to the energy consumed by the Philippines per year (just slightly behind Belgium & Finland). It’s so environment unfriendly!!!

To address this, Cardano uses a totally different approach to reach consensus. The algorithm is called Proof of Stake (POS). For this to work, all participants have to hold “stake” (in form of token called “ADA”) of the platform. Participants with more “stake” will have higher chance of being chosen to generate the next block and rewarded with tokens. A good analogy is lottery. People who buy more tickets will have higher chances of winning. As you can see, this methodology doesn’t promote computational power and thus much more environment friendly. One important point to note is that this algorithm favours more stake but up to a certain point only (i.e. participants owning > n tokens will have equal chances of being chosen). This addresses the problem of platform being controlled by a small group of participants (e.g. bitcoin controlled by big mining pools now), achieving true de-centralization. Again, please refer articles below for more in-depth explanations.

How to Participate and Get Rewards

To confess, it’s the potential rewards that incentivize me to participate in Cardano POS (ADA price speculation is the other one)😀.

Note that there are tons of ways to achieve the same end goal. There is no way I can cover all. I just share mine below:

Step 1: Buy ADA

ADA is listed on major crypto exchanges (e.g Binance, HitBTC, Bittrex, Gate.io…). Please note that these exchanges may have country restrictions. Also, they may need strict KYC (Know Your Customer) for membership registration. There are many different payment methods such as credit card, money transfer, P2P... Please check their T&C carefully.

The exchange I used was Binance and I paid using their P2P service.

Step 2: Create ADA wallet

Daedalus & Yoroi are the 2 most popular ADA wallets. Daedalus is heavier in the sense that it will download the whole Cardano blockchain data on your machine and thus need more time for initial setup.

I am using Yoroi now. But in future, I may download Daedalus to explore more features.

Step 3: Withdraw ADA

I had to withdraw the ADA purchased from the exchange to my own ADA wallet. I just copied my Yoroi wallet public key and paste it on Binance.

It required a few minutes before the withdrawal was complete. That’s because the exchange waited for other members’ requests and did the transfer in one single batch. Also, a small amount of ADA was deducted as transaction fee.

Step 4: Join Stake Pool

Once ADA was verified on my wallet, it was ready for me to choose the stake pool to delegate my ADA.

I found a lot stake pools with expected rewards listed on Yoroi. The parameters that will affect the rewards such as pool size, cost & pledge were listed as well.

I just picked a stake pool that looked reasonable. I will study more on how those parameters affect the rewards and share my experience in the coming articles.

After the above steps, all I have to do is wait and receive passive income 😀

Conclusion

In this article, I introduced Cardano and explained very briefly on it’s consensus algorithm — POS. The concrete steps of joining the ADA stake pool were mentioned.

Cardano is still a work-in-progress project but everybody can participate right now. The fun part is you can earn passive income while getting involved.

I have high expectation on this project as I believe it will solve some critical issues faced by current blockchain platforms. I will dig deeper in future by studying the returns of different stake pools and ultimately build my own stake pool. Please stay tuned.

References:

Owner of IT companies. Blockchain/Crypto enthusiast. Interested in Cardano, Chainlink, Ethereum, Hyperledger,……

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