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Cardano is a decentralized, proof-of-stake based Layer 1 blockchain that uses Ouroboros, a provably secure consensus algorithm.
Rewards are earned from reserves and transaction fees, and are distributed every epoch, which lasts for 5 days.
After each epoch, pool rewards are calculated and adjusted for pool performance, where pool performance is determined by the successful block production rate. Stake pools are required to charge a minimum operating cost per epoch, currently set at 340 ADA.
Rewards are then automatically distributed on a pro-rata basis directly to delegates’ staking wallets net of per epoch pool operating costs and stake pool commission.
Initially, delegates stake in epoch 0 and delegations are snapshotted in epoch 1. Rewards are then earned in epoch 2, calculated in epoch 3, and distributed in epoch 4.
There is no stake unbonding, or lock-up period for staked ADA on Cardano. Delegated funds can be un-delegated, re-delegated or transferred anytime.
There are no slashing penalties in Cardano. Since staking rewards are adjusted
for pool performance, stake pools can’t lose existing funds, but can fail to earn the maximum rewards possible by missing blocks.
Stake pools can reach a point of saturation when the pool has more stake delegated to it than is ideal for the network. Once a pool reaches the point of saturation, the amount of rewards it can earn are capped. The saturation point is dynamic, and a function of the target number of stake pools, and the network stake rate. The target number of stake pools is currently set to 150, will be increased to 250 soon, and is expected to increase to 1,000 over time. Adding pools to the target set has the net effect of lowering the saturation
How to delegate ADA:
ADA can’t be delegated from a legacy Byron wallet. It must be delegated from a new Shelley compatible wallet, such as Daedalus: https://daedaluswallet.io/. The Yoroi light client wallet does not yet support delegation.
- With the Daedalus wallet open and fully synched to the Shelley mainnet, click on the delegation “star map” icon (second from the top, below the wallet icon), and then click on the Stake Pools tab.
- STKD is the symbol for Staked’s stake pool. Search for STKD in the search stake pools search box. This will display the STKD stake pool listing.
- Click on the STKD stake pool listing. This will open a pop-up window with details about Staked’s stakepool. Click on the delegate to this pool button at the bottom of the screen.
- Click Continue in the Delegate Wallet screen.
- Select the wallet you want to delegate from in the wallet drop-down of the Delegate Wallet (Step 1 of 3) screen, and click Continue.
- With STKD checked in the currently selected stake pool section of the Choose a Stake Pool (Step 2 of 3) screen, click Continue.
- Enter your spending password on the Confirm Delegation (Step 3 of 3) screen, and click Confirm. This will broadcast your delegation transaction to the Cardano blockchain. Once confirmed, you will receive a wallet delegated success message on the next screen.
- The delegation will only take effect after both the current and next Cardano epochs have been completed. Each epoch lasts for 5 days.
Your second option is to run a Pool.
Joining vs. Running a Pool
Cardano relies heavily on staking pools, whereas some other blockchains rely heavily on individual staking nodes.
Pools will ensure that Cardano’s validator network stays large: “If people could get rewards without operating a pool or delegating to one, then there might not be enough node operators to have a successful network,” an IOHK spokesperson told us.
Advanced users should run their own pool to earn higher profits. However, individual users can stake their tokens with an existing stake pool, which is a much simpler process. You can delegate tokens from your Daedalus or Yoroi wallet, as explained here.
What Do You Need To Run a Pool?
If you decide to operate a staking pool, you will need constant Internet connectivity, and you’ll need various technical skills. Cardano’s website says that pool administrations need to have:
- Operational knowledge of how to run and maintain a Cardano node on a 24/7 basis
- System operation skills
- Experience of development and operations (DevOps)
- Server administration skills (operational and maintenance)
You won’t need a powerful computer, and ASIC devices provide no advantage: unlike mining, staking requires only minimal power. You will, however, need reliable internet access.
You can run a pool without owning any ADA at all, in which case you would simply provide technical services to other users. By comparison, Ethereum will require nodes to stake at least 32 ETH.
What Do You Need to Join a Pool?
If you join a staking pool, you won’t need a constant Internet connection, and you won’t need to monitor your stake 24/7. There is no minimum staking amount on most pools.
However, you will need to choose a pool that is reliable and which offers low fees. Websites like PoolTool and Adapools allow users to view the status of each pool. Cardano’s Daedalus wallet also helps users choose a pool through its delegation screen:
Once you’ve staked your ADA, you don’t have to do anything at all: rewards are automatically paid out, and there is no need to make a claim. If you do not withdraw your original stake, your ADA will remain staked, and you will continue to earn rewards.
Cardano is an advanced smart contracts platform that is more technologically sophisticated than any other existing blockchain. It is created by experienced software developers and researchers that utilize a science-based approach.