Cardano uses a Delegated Proof Of Stake model.
What that means is that you don't have to hold the full blockchain and create new blocks to get your
rewards. You just delegate the job to someone else and they do it and give you the ADA, taking a small
commission. You just hold the ADA. Its easy, you don't have to expose your private keys, so there is no
risk. Here are a few general knowledge facts about staking:
Staking rewards are not defined yet, so you have to
wait to see how much you will get. Different pools will charge a different fee, but the fee isn't the
only thing that affects the one you should choose to get the best reward. There is a full technical
specification of the the whole process and everything that you need to to know in huge detail in the
If thats a bit heavy for you there's a much more accessible
staking rewards calculator
from antipalos. It will tell you what you might get, and why.
A few things most Cardano fans already know about delegating your stake:
- You will be able to use either the Daedalus or Yoroi wallets to delegate
your stake (see below).
- You never give out your private keys, you just choose a staking pool and
- Your funds are not locked up. When you spend them or move them you stop
- You can choose any staking pool you like, and change your mind as often
as you like, but when you switch it doesn't take effect until the end of the next epoch.
- Staking pools charge a fee, to cover the small costs they have. Different
pools charge different fees.
- The rewards that come from staking are the same for all pools as long as
the pool is up and running when it is their turn to add a block, unless the pool is very large.
- There is a limit set in the protocol to define what is too large for a pool,
so you should avoid pools bigger than that.
- There is a different type of address available for Exchanges which doesn't
support staking. This is another deliberate decision to increase decentralisation.
How to choose a staking pool
As mentioned in the FAQ, all pools are not equal. The
most obvious thing is the commission they charge, which is usually between 0% and 10%. It might be
tempting to go for one with a 0% commission, but there are other things to consider:
Reliability: The timing of block creation is managed with epochs
and slots. A schedule is created at the start of the epoch which gives notice of who the slot leaders
will be, but if those leaders don't appear exactly on time to fill their slot they get penalised. The
slot leader has to be online and listening, with a blockchain which is fully synchronised to create
the block and get the reward. If it doesn't pick up and process the block quickly the reward is lost.
It seems easy but it means pools have to process all the blocks without getting behind or onto a fork.
This means having a fast disk, high speed internet connection, and reliable hardware with zero downtime.
Saturation: When new blocks are ready to be added to the chain
the choice of staking pool depends on how much ADA is in each one. The percentage chance each pool gets
is proportional to the amount of ADA they represent, until a certain limit. After that extra ADA isn't
counted. For pools bigger than the limit the same reward gets spread out among more stakers, so the
return on investment (ROI) is lower. If the rules are set such that Cardano doesn't want less than
100 pools the limit will be set at one hundredth of the total staked balance. This ensures that the
network remains decentralised.
Commission: The commission charged by the pool is subtracted from
the reward automatically, so there is no cheating. You can see what they charge when you view the pool
in the list. Pools need to make enough money to pay their expenses, normally, and can't be allowed to get
too big, so this needs to be set sensibly. It doesn't cost a fortune to run a pool, but doing it properly
will always have some cost.
Making a choice: When choosing a pool the first thing you see is
the commission fee, so make sure it isn't too high. Many pools are set around 5%, which covers the cost
of a good system. In fact the quality and reliability of the system is more important than the charge.
If a pool charges 5% you get 95% of the profit, if it charges 6% you get 94%. You are only getting 1%
less return, which you will hardly notice, while the pool will (hopefully) be better funded and better
managed, so it will stay up and running. The extra return from a reliable pool is likely to be more than
For example, run the
with 10,000 ADA. Right now when I run it I would get 352 ADA per year from a pool charging 5% fee. If
the fee goes up to 6% I get 348; only 4 ADA difference. Pool reliability is more important than small
differences in the fees, mostly.
Keep looking: You have to keep an eye on your pool to ensure it
isn't saturated. After that even if it is reliable your rewards will be less. For this you need to know
what the saturation point is, then make sure your pool doesn't have more ADA than that in it. At the
moment the saturation point is 67,000,000 ADA, but there is a proposal being considered where this will
fall to about 34,000,000. Choose a pool which isn't saturated.
Daedalus has been built be IOHK, and versions are
available for Windows, Mac, and Linux. It is the only wallet available which has been designed to
run as a Full Node. This means that it downloads the a full copy of the blockchain and verifies your
balances and all transactions using your own copy, which it verifies by connecting to the pools.
By running it you are helping to secure the network by validating it. You can also see the list of
all the stakepools and get statistics on how they are performing, how much stake they have, and follow
a link to their websites for more info. You can delegate your ADA and earn rewards.
Daedalus is built on Electron, which
keys, you can either use a Ledger hardware wallet, or you can store them locally using a password protected local
key. You can download here
and get ready to join my stakepool - which is called KMADA.
Yoroi is a web based light wallet which runs as a Google
Chrome extension. No need to download the blockchain. Despite being a light wallet, it might be the
most secure option because it supports both the
wallets. Since it runs as a Chrome extension it also can see the web pages you are on, so
in the longer term (when we get smart contracts) it might be able to interact, make payments, etc.
For now it is just a wallet. I use mine with Ledger and its good, very easy to use.
Shelley is the codename for the version of Cardano which
supports staking. The previous phase was called Byron which didn't support staking and was not
decentralised. For this reason if you have a Byron wallet you will need to transfer the ADA to a new
Shelley address. With Shelley the blocks are created by thousands of Staking Pools like
KMADA which are run by different people in different countries. You can earn
rewards if you stake using a suitable wallet. Both Daedalus and Yoroi wallets support a transfer of
ADA from a Byron address to a Shelley address. The rules for what rewards are available are adjusted
so that the staking does not all centralise in a few super-pools. This is how smaller pools like
KMADA can stay in the race as long as they remain fast, reliable, and honest.
Ouroboros is the name of the consensus protocol used
by Cardano. People in crypto get used to words like "consensus protocol" because it gets talked about
a lot. It comes from the fact that when you try to run a currency on lots of computers at once they all
have to talk to each other and agree who has the money, but they can't trust each other, because if they
could get away with it they would all say they had it.
Another term often mentioned here is
Byzantine Fault Tolerance
This comes from an ancient battle in the Byzantine Empire when a lot of Generals all attack a single fortress at once,
and have to agree with each other when to attack, but also have an incentive to tell lies since the guy
who goes first gets a hard time. The idea is to punish people who lie by refusing to talk to them for a
while, and find out who is lying by assuming more than 50% of people are truthful.
It all works pretty well but with computers there is the "nothing at stake" problem
as well. This is where people program computers to pop up and dump massive amounts of false data into
the system, and they can do it quicker than the honest actors can clean it up. The solution here for
Bitcoin was to demand a solution to a complex maths problem, so spam comes in either very slowly
or with incorrect answers and is easy to weed out.
Staking solutions for some coins can suffer from the nothing at stake problem,
because you have to check the blockchain to verify that the held coins exist. Its easier to create false
claims than it is to check them.
Cardano avoids this trap by using Staking Pools. You can't add to the blockchain
unless you are a registered pool, and to get registered you have to either stake
your own ADA or persuade others to delegate their ADA stake to your pool. It takes effort and money to
create the pool and get ADA into it. Once you get going you are highly likely to stay honest.
Its not just about staying honest, you also have to be around and respond by creating
a block when its your turn. If you don't other nodes won't talk to you and your pool gives poor rewards.
Nobody wants to use pools that have poor rewards, so you lose money.
Holders of Cardano choose a profitable pool to get the rewards from their stake but
that pool has to be online and ready to create a block if their number comes up. This also supports higher
speeds, since popular staking pools will stay online as close as 100% of the time as they can. There's
more details about this in my Lexicon