Cardano vs Ethereum: A Detailed Comparison of Layer 1 Solutions

David Heredia February 4, 2024
Cardano vs Ethereum: A Detailed Comparison of Layer 1 Solutions

Imagine earning passive income simply by holding onto your cryptocurrency. With Cardano (ADA) staking, that’s exactly what you can do! As a leading proof-of-stake (PoS) blockchain, Cardano offers a secure and rewarding way to participate in its network and earn ADA tokens.

Whether you’re a seasoned crypto savant or a novice, this guide is your one-stop shop for navigating the exciting world of Cardano staking. We’ll break down the process into easy-to-follow steps, from choosing the right wallet to selecting a reputable stake pool. So, get ready to unlock the potential of your ADA and join the growing community of Cardano stakeholders!

A step-by-step guide to staking Cardano (ADA) 

There are many ways to stake ADA. The most common ones include using either a wallet or an exchange. The general steps are as follows:

Step 1: Buy ADA from an exchange

Select a cryptocurrency exchange that lists ADA, such as Coinbase, Binance, or Kraken. These exchanges are widely used and offer various features, including security measures, user-friendly interfaces, and different payment methods.

Sign up for an account on the exchange. This process usually requires you to provide personal information and complete a verification process to comply with regulatory requirements.

Once your account is established, you must proceed to fund it through a bank transfer, credit card, or other cryptocurrencies. Then, search for the ADA trading pair that matches your currency (for instance, ADA/USD or ADA/EUR) and execute a transaction.

You have the option of a market order, which purchases at the prevailing market rate, or a limit order, where you specify the price you’re prepared to pay.

If you’re new to Cardano and need further assistance, follow our step-by-step beginner’s guide on how to buy Cardano in 2024.

Step 2: Choose a Cardano wallet for staking

Choose a wallet that supports Cardano staking. Popular options include the Daedalus and Yoroi. Once you’ve made your choice:

  • Download and install your chosen wallet application.
  • Adhere to the wallet’s setup guidelines, which could include creating a new wallet or restoring a previously existing one.
  • During setup, you’ll be given a recovery phrase. Securely store this phrase, as it is essential for accessing your funds in the future.

Step 3: Transfer ADA to your wallet

After setting up your wallet, transfer ADA to it from an exchange or another wallet. This ADA will be used for staking. If you’re using a centralized exchange (CEX) that supports staking, you can skip step 2 and directly transfer ADA into your exchange wallet.

Step 4: Navigate to the staking section

Within your wallet, locate the section or tab dedicated to staking or delegation. For example, in Daedalus, this is under the “Delegation” tab, and in Yoroi, it’s found in the “Delegation List.”

In a CEX, you’ll select “Cardano” from the list of currencies in the “Staking” section. Most platforms offer the flexibility to choose the duration of staking, which dictates how long your ADA will be committed to the staking process. The chosen duration directly influences the accessibility of your holdings and potentially the staking rewards you’ll earn during this period.

Cardano staking calculator

Step 5: Choose a Cardano stake pool

Look through the available stake pools. Daedalus conveniently displays a comprehensive list of all active stake pools directly within its user interface. In contrast, Yoroi provides users with the same valuable information by seamlessly integrating it with the Seiza blockchain explorer.

Exchanges typically furnish users with a selection of recommended staking pools, giving them the option to pick from these curated options.

Consider the pool’s performance, fees, and reliability. Stake pool operator fees can vary widely, and while lower fees might seem attractive, they don’t always guarantee higher rewards.  High-quality pools may charge more but also offer better returns due to their reliability and frequency of being chosen to produce blocks​​​​.

Step 6: Delegate your ADA

Once you’ve chosen a stake pool, delegate your ADA to it. This process will involve confirming the transaction and possibly paying a small fee. Your ADA remains in your wallet; you’re simply giving the pool the right to stake it on your behalf.

Step 7: Monitor your staking rewards

After delegation, there’s typically a waiting period before you start receiving rewards due to the network’s cycle. Cardano distributes staking rewards at the end of each epoch, with each epoch lasting five days.  You can monitor your rewards directly within your wallet/exchange. These rewards can be reinvested to compound your returns.

Step 8: Unstaking ADA or changing pools

If you decide to unstake your ADA or wish to delegate to a different pool, you can initiate this change through your wallet/exchange. Keep in mind that any changes you make will take effect after the current and the next epoch conclude.

For those with the technical knowledge and resources, running your own stake pool can be a rewarding way to participate in the network. This involves setting up and maintaining a node, securing it, and promoting your pool to attract delegators. It’s a more involved process but offers the potential for higher rewards.

Explore the future potential of Cardano and whether it could reach $1000 by 2040.

Secure your crypto investments

Benefits of staking Cardano

Staking ADA brings a number of advantages. Take a look:

  • Low entry barrier: Unlike proof-of-work (PoW) mining, staking ADA doesn’t require expensive hardware, making it accessible to a wider audience.
  • Security and network support: By participating in the staking process, you’re helping to validate transactions and secure the network against attacks.
  • Environmental friendliness: Cardano’s PoS mechanism is more energy-efficient compared to PoW blockchains, appealing to environmentally conscious investors.
  • Network growth benefits: As the network grows and achieves more adoption, the value of staked ADA could increase, benefiting long-term holders and stakers.
  • Community engagement: Being part of the staking process encourages engagement with the Cardano community, including forums, discussions, and decision-making processes.

Risks of staking Cardano

While the benefits might look tempting, there are also a few risks you need to keep in mind:

  • Validator risks: Choosing to delegate to a pool with poor performance or reliability can result in lower rewards than expected.
  • Market risk: The value of ADA can fluctuate in the volatile cryptocurrency market. While staking offers rewards, it does not protect you from price volatility, and you could potentially lose value if ADA’s price drops significantly.
  • Technical risks: Staking demands a certain level of technical knowledge and involves setting up a staking wallet, managing your ADA, and staying up to date with network changes. Mistakes or vulnerabilities in the process could lead to losses.
  • Opportunity cost: Locking funds in staking might result in missed opportunities to invest in other potentially more lucrative assets.
  • Regulatory risks: Changes in regulations concerning cryptocurrencies and staking activities could impact the ability to stake ADA or require compliance with new laws. Understand the legal implications of investing in Cardano by exploring whether ADA is considered a security and why it matters to investors.
  • Inflation of rewards: If too much ADA is staked, the rewards could be diluted among participants, potentially decreasing individual earnings over time.

Beyond staking, explore other lucrative opportunities in the cryptocurrency market with our guide on the top five ways to make money trading crypto in 2024.

Parting words

In conclusion, as of 2024, staking Cardano to earn rewards has evolved into a well-established and lucrative venture within the cryptocurrency landscape. By following the steps outlined in this guide, you can confidently join the staking revolution and start reaping the rewards of your participation. Remember, the power lies in your hands (and your ADA holdings!). So, take the plunge and experience the benefits of Cardano staking firsthand!

David Heredia