Guide: how to stake ADA in Cardano
0.Cardano / ADA
0.0 What is Cardano?
Cardano is a multi-layered blockhain platform, aimed at solving quick and cheap creation of DApps in a safe and scalable way. It has its own cryptocurrency called ADA, token symbol ₳.
Platform is name after Gerolamo Cardano — outstanding Italian mathematician, engineer, philosopher, doctor and astrologist of XVI century.
In more detail, Cardano is a decentralised blockchain system based of Proof of Stake (PoS) protocol using the Ouroborus algorithm. Compared to other blockchains it provides with significantly higher security standards as Ouroborus is the first cryptocurrency algorithm that is based on scientifically proven research.
The smart contract-based system can be used to run Decentralized Apps (called DApps); their functionality has been recently implemented.
Cardano was designed as a layered system, it has its own blockchain which includes Cardano Settlement Layer (CSL) that supports transactions between ADA cryptocurrency wallets. Second layer, called Cardano Computation Layer (CCL) supports smart-contracts and DApps. Such multi-layered structure allows for simplification of protocol upgrades.
0.1 What is ADA? What is Lovelace?
ADA (₳) is the native token of Cardano. This simply means that ADA is the currency run by the Cardano system which is named after Ada Lovelace; a 19th-century mathematician who developed the first algorithm that could be executed by a machine. She was the daughter of the poet Lord Byron.
Lovelace is the smallest unit of ADA, equivalent to one millionth of one token. A Lovelace is to ADA what a Satoshi is to Bitcoin. 1 ADA = 1,000,000 Lovelace
ADA is a digital currency. Any user located anywhere in the world can use ADA as a secure exchange of value – without requiring a third party to mediate the exchange. Every transaction is permanently, securely, and transparently recorded on the Cardano blockchain.
0.2 How to buy ADA?
The first step to do when purchasing ADA is to open an account on a crypto exchange that supports the Cardano token ADA. If you are unsure which exchange to choose, consider using the biggest and most famous ones, such as Kraken (mostly used in Europe), Coinbase (mostly US), KuCoin, Binance, or Huobi.
As a second step, you have to provide some personal information for your own security. Usually you will be asked to send:
Your full legal name
Your current address incl. proof
An email address and phone number
A payment method to fund your account (most exchanges support both credit cards and direct banks transfers)
A proof of your identity incl. photo (driver’s license or passport)
As soon as your account is validated, you can deposit fiat money ("normal" money, accepted by the government) to your account. Now you can start trading! It might be that you have to buy Bitcoin or another currency first, as ADA cannot be bought directly with every fiat currency. For example, sometimes ADA can be exchanged for EUR, but not for GBP.
0.3 What Guarantees my ownership over ADA?
In the world of cryptocurrencies, the only proof of ownership is the private key. This private key very often comes in the form of a sequence of secret words (12, 15, 24 or other number) also called a mnemonic phrase. This unique phrase is the only way to claim the right to manage your funds; meaning this sequence of words is basically your bank account access.
Please note: Whoever gets their hands on your private key will have access to your funds!
If you forget or lose it, your digital assets will be lost forever. KEEP IT SAFE!
For the case you decide to keep your ADA at the exchange (such as Binance), the wallet in your account also belongs to the exchange and you cannot obtain the private keys. This option goes along with higher risks as it is not you who has the control over the private key. Cardano highly recommends to transfer funds to an own wallet, for example Daedalus or Yoroi instead of keeping it at exchanges.
1.0 What is staking?
Staking is listing one's ADA as available to be selected for signing a block.
Anyone with ADA can participate in writing the Cardano blockchain, in proportion to the quantity of ADA held. The more ADA you have, the more blocks you will be asked to sign. As an incentive for ADA holders to participate, each signed block entitles you to a reward (in ADA).
1.1 What is a stake pool?
Stake pool is a fully synchronised Cardano node which represents collection of ADA staked by a group of individuals. Anyone can participate in an existing stake pool or run an own one.
1.2 What is delegating?
In order to be selected to sign a block, one should run a node with a fully synchronised blockchain and stake their ADA in it. For instance, this is possible by using a Daedalus wallet. The more ADA is being staked, the higher is the chance that this wallet will be selected by the Ouroboros protocol to sign the block.
Stake pools are needed in order to raise the chance of being selected for signing a block due to a bigger amount of ADA staked.
Delegation is the act of handing over the right of staking ADA on your behalf to a pool with more ADA.
(!) Attention: your ADA never leave your wallet in a process of delegation.
1.3 How to choose a stake pool?
There are several factors to consider when choosing a stake pool.
1. Reliability. In order to be selected for signing a block, the pool has to be online. Every time the node is offline during the selection process means losing rewards. That means running a node 24 / 7 / 365.2425 without failures. You should check if the pool operator had considered possible power outage, hardware failure, network outage, node software upgrades, etc.
2. Decentralisation. Most of the ADA holders believe in a decentralised approach – the main idea of the system itself. This is the reason why Cardano is aiming at 100% blocks being minted by community owned stake pools. Out of this perspective, staking with a small pool instead of delegating to big stake pools owned by Binance or huge Cardano pool operators is worthy.
3. Overall appeal. On the long run, the variation in rewards is insignificant from pool to pool. It is most important whether you believe in the work that the SPO is investing, how much of it you like and support. Simply put: do you want more of such pools? If so – delegate to it.
1.4 Is this true passive income? How much can I get?
Yes, it is a passive income in ADA. In general, it is suggested to look at the rewards on a long-term perspective. Namely, Cardano is expecting yearly rewards to be in between 5,5–6%.
For a brief overview, try out the rewards calculator.
When delegating to a pool with other ADA holders, the rewards for signing a block are being shared by all delegators in correlation to the ADA staked. The smaller the pool is – the bigger are the rewards for a delegator, however, the lower is the chance of being selected to sign a block. Signing no block means no rewards at all.
A block is being signed every 20 seconds. This implies that over the course of a year, delegators in a small pool will receive a similar (statistically even slightly bigger) amount of rewards than delegators in a fully saturated pool.
1.5 Is it safe to delegate to a stake pool? Will my ADA be locked?
No one will ever be able to touch your ADA as a result of delegation to a pool. You are only delegating the right to stake ADA, not the right to manage it. You are also not transferring your ADA to the stake pool. Any possible fees will be paid out of delegation rewards, not out of existing funds.
In some other networks it is a common practise to freeze funds while staking to prove loyalty to the network. In Cardano, there is no such lock and you are free to manage your ADA in any way at any moment.
1.6 Can I delegate more/less ADA to a pool?
Yes. When delegating to a pool, you are delegating the right to stake all the funds in your wallet. The moment you add or withdraw some ADA from your wallet, a proportionate amount of ADA will be staked or unstaked automatically.
1.7 How much does it cost to delegate to a pool?
The fee structure of a stake pool consists of several elements.
The fixed fee is the amount of ADA the pool operator will take at the end of each epoch out of the total rewards received by the pool delegators. The fixed fee is mandatory and equals a minimum of 340 ADA per epoch.
Margin (or variable fee)
Besides the fixed fee, stake pool operator can add a margin on top. This margin defines the percentage of the total rewards that operators take after deduction of the fixed fee and before payment to the delegates. The margin is normally set between 0–3%.
Just to make sure: both the fixed fee and variable fee are being deducted from the overall rewards the pool is getting per epoch out of the full amount of ADA staked.
1.8 When do I get my rewards?
It is very simple:
Ok, seriously, what it means is that when you are staking in epoch 1, your rewards will be paid to you in epoch 3. Every time, rewards are distributed two epochs later.
1.9 Can I switch pools?
Yes. The action is called "redelegation", costs a normal transaction fee (usually around ₳0,17) and becomes effective two epochs later. In the transition period you will keep on staking and receiving rewards from the previous pool.
1.10 Can I delegate to various pools?
Yes, but: for that you need to create a new wallet, transfer parts of the funds there and then you can delegate to another pool as well.
1.11 Is there a perfect delegation strategy?
Patience. The expected rewards are calculated per year. Once you have selected the pool, it is important to check it every now and then, maybe once in a month, to see whether the pool is operating, not having technical difficulties, or is not retiring. But the statistics over the rewards are only relevant on a long-term basis such as a year, half a year or at least some months.
2.0 Why to choose HYGGE pool?
1. We believe in Cardano. In fact, this is one of the few projects ever that makes total sense from a rational, scientific point of view. The better the system – the better every part of this system. We prove our statement by investing a high pool pledge as well as community contributions, such as the participation in the Project Catalyst or educational efforts through various groups and chats.
2. Hygge is a small, yet healthy and competely operational stake pool, which is almost a textbook definition of Cardano's decentralisation efforts.
3. Statistically speaking, small pools are offering less frequent, but overall slightly higher rewards.
4. We run with 0% fee.
5. We are strong believers in trans-humanitarian values and are on the war against death. We believe that no one should ever die and that every consciousness is precious due to its potential to contribute to the world in a unique way. We educate people on the art of happiness and are closely monitoring the efforts of defeating aging forever.
2.1 What is the idea behind?
Hygge is a concept of Danish origin and it can be described as a feeling of happiness through simple things and events.
Our idea is to run a completely trouble-free operation, that would allow our delegators and us to never worry about the performance of the pool.
On a conceptional level we also believe that the idea of Cardano will increase the global well-being and lead to an improved situation for individuals.
2.2 Why does HYGGE show 0 expected rewards?
Expected rewards are calculated based on the probability of minting a block. To have the probability close to 100% of signing at least 1 block per epoch, a pool needs to have ~₳1.3mln staked. HYGGE pool has stake of ₳510k at the moment of writing this, which results in ~30% chance of signing a block. Expected rewards don't reflect this, however we have already minted 2 blocks showing it is possible. Moreover, the rewards from these blocks were significantly higher to our delegators, because they were split amongst lower stake.
2.3 Which infrastructure HYGGE is running on?
The pool nodes are hosted on the same racks as the servers of the most successful financial enterprises in Germany. They benefit from the data center perks such as fault tolerance, high availability, redundency and scalability. Software upgrades are made semi-automated (first attemped in a sandbox and depending on the results – deployed in production), all other operations are completely automated.
Some specs of the cluster for the pool are:
AMD EPYC 7702
DDR4 ECC RAM
RAID10-NVMe Storage Arrays (SSD)