06 Jul 2021 10:14 AM +00:00

Cardano Staking: How Does It Work?

As Cardano continues through its roadmap, Cardano staking is becoming vital to the decentralised platform.

Following the Shelley update - the most recent phase before the upcoming Cardano Gogugen update - Cardano became a further decentralised blockchain. New Proof-of-Stake protocols offered ADA holders the chance to stake their cryptocurrency.

So, here's how it all works.

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How does Cardano Staking Work?

Unlike bitcoin and dogecoin, Cardano uses a Proof-of-Stake (PoS) algorithm rather than Proof-of-Work to verify transactions.

Cardano holders can stake their ADA into nodes, or pools, that may be selected to produce a block for the Cardano blockchain. The more ADA a pool has staked, the more likely this is.

When this happens, stakers are rewarded with ADA depending on how much they delegated to the pool.

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It's also worth noting that when ADA is staked, it doesn't leave your wallet, nor is it locked up in the pool.

Cardano also users a Saturation Parameter to prevent individual pools from becoming too prominent or central to staking. As explained by the official website:

Once a pool reaches the point of saturation, it will offer diminishing rewards.

After this point is reached, the promise of higher returns should encourage holders to set up alternative pools.

Cardano Staking Rewards

Cardano's staking rewards are distributed automatically at the end of every epoch - once every five days.

Your total profits and rewards will depend on various network parameters and actively staked tokens. You will also need to account for any pool fees from the stake pool operator.

Various rewards calculators exist, including one from the official Cardano website. However these all include disclaimers that such calculations or just estimates, not guarantees.

According to the Cardano calculator, stakers may earn 4.6083% annually at the time of writing, although this is not a guaranteed percentage.

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Can Cardano be Mined?

Cryptocurrency mining is perhaps the most well-known method of validation due to the likes of bitcoin mining and Dogecoin mining, but this does not apply to Cardano.

As Cardano does not run on a Proof-of-Work algorithm, it cannot be 'mined' but is instead staked.

With its upcoming shift to Ethereum 2.0, Ethereum is also set to change its system to incorporate staking, rather than mining.

READ MORE: Does Cardano have a fixed supply?

[Featured Photo by Ruben Hanssen on Unsplash]

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