Congratulations. You have obtained yourself some ADA. What to do with it now?
Step 1: Secure your tokens. How?
Well, there are number of options. First and foremost, you should secure your ADA as soon as possible. The best way to keep your ADA safe is to use official software or hardware wallets. You could also leave in online wallets, e.g. exchanges, but there is a third party risk involved. There is an old crypto saying - "not your keys not your crypto" regardless of what others may tell you.
You see, one never really holds any physical or other coins. That is just a flawed terminology we have been using by referencing legacy banking and monetary systems, e.g. coins, wallets, exchanges. 'Coins', in your case ADA, never really moves. It is a permanent part of the blockchain.
What you do have, however, are access keys that prove your stake/ownership of this ADA. These keys can be safely stored in your 'wallets'. These can be in a physical form (hardware or paper) or in a software form. Each comes with its own caveats and instructions. Always make sure you follow them closely. If you were ever to loose these wallets and forget your recovery passwords, no one can ever help you. Be diligent in your security precautions.
Luckily, there are number of official wallets to keep your ADA safe. You can use Daedalus, Yoroi, or Adalite. Our favourite place to store ADA is, in fact, Daedalus. Primarily, because it is a full node wallet that downloads a full copy of the Cardano blockchain and independently validates every transaction in its history. Naturally, it does require greater software and hardware requirements. Hence, for everyday casual use, there are 'light' versions as Yoroi or Adalite.
Step 2: Start staking and earning rewards. How?
All right, you heard about staking, right? Well what is it exactly and how to go about it? We've compiled quick FAQ of sorts to get you most up to speed in order to understand the context. Be mindful of the fact that blockchain is evolving at a rapid phase and we might not be able to update this information in a real time. Always check official sources to verify validity of it all. Consider there may be errors, omissions or otherwise dated material in the texts provided. This is intended to be your first holistic overview of the inner workings.
Q: OMG, someone is hard-forking Cardano! What's going on?
A: All the answers you need can be found on IOHK forum update - Link Here. (updated on 28.07.2020)
Q: What is staking?
A: You can take your ADA and stake it with a validator, commonly known as a stake pool. These are network participants ensuring consistent uptime of nodes. This supports Ouroboros protocol based on which Cardano network operates. By doing so, you enable network to function securely and effectively.
Job of every honest stake pool is to ensure security and optimal performance of the network as a whole. In order to do that they need appropriate amount of staked ADA. There are hundreds of independent stake pools that operate worldwide. This is what gives the blockchain a robust decentralised nature.
As the blockchain algorithm works, each pool competes for new blocks (transaction confirmations) during each epoch. If a stake pool operator is awarded the block confirmation, it receives a reward in form of new ADA. This gets then redistributed amongst all stakeholders in that pool.
Q: How much does it cost?
A: Unlike running the stake pool, simple ADA staking does not cost you anything. Other than your willingness to commit your resources to a stake pool and time associated with setting it up. Then, sit back and relax.
Q: Where do I send my ADA?
A: You do NOT send it anywhere. Even if someone asks you to. When you delegate, you do it through official Cardano stake wallet. Thus, ADA never leaves your wallet(s) and is always secure with you. If anyone ever tells your otherwise, they likely have malicious intentions and you should report these individuals/entities immediately. You should also never reveal any of your secret phrases or wallet keys to anyone.
Q: Are there any limits on how much I can stake?
A: No. You can stake as little as one ADA or one thousand ADA. The amount is entirely up to you.
Q: Will my ADA be unavailable during staking aka locked?
A: No. You are free to remove your delegated ADA in part or all together at any given time. There is no minimum stake time or other restrains that would hinder your ability do as you please. Thus, in times of needs, you can freely un-delegate your ADA and spend it or use it elsewhere.
Q: Can I split my ADA amongst multiple pools?
A: Yes, you can split your ADA into as many pools as you find appropriate.
Q: Can I stake on an exchange?
A: In time, yes. However, from a purely practical stand point - staking is a long term commitment. Leaving any tokens on exchanges can have risk associated with it. It is a third party system which can get compromised as history would tell us. Have we mentioned 'not your keys not your crypto,' yet? It is entirely up to you but we recommend using personal wallets instead.
Q: How can I choose the right stake pool?
A: The easiest way is to download your Daedalus wallet and preview the in-wallet ranking mechanism. It uses intuitive traffic light system and ranking to help you make the most optimal decision. Pools that are marked in strong green colours suggest a well performing and ideal pool for you to join. The ranking system takes into account the costs and margins set by the pools owners and their overall performance. Since every pool is limited by a saturation (maximum amount of stakeholders) it will offer you choice of ideal staking scenarios.
Do not be overwhelmed by number of pools. Cardano is a world wide network and many honest and reliable stake pools are required to run it securely and efficiently. There are many good pools to choose from. One of which, we strive to be ourselves. You can find our pool under following ticker and you can learn more about how to stake with us: link here.
Q: What is stake pool saturation
A: There is a practical limit on how much ADA can be delegated to each stake pool. In order to prevent centralising all of ADA in a small number of pools, algorithm caps the amount of ADA that a well performing stake pool benefits from. This amount can fluctuate based on the number of active pools in the system. Greater number of pools means that there will be lower threshold of saturation reached. and vice versa.
Therefore, you should seek those pools that are not yet saturated and are well performant. That's where Daedalus wallet ranking is most helpful. It helps to check every once in a while how your pool is doing. If it becomes too saturated, you may be able to yield better rewards in an alternate stake pool. If you are satisfied with the pool performance, see if the operator hasn't opened an additional pool as well.
Q: What is pledge?
A: Pledge is something that each stake pool owner/operator is required to commit to the stake pool. These are essentially their private resources and are locked in that respective pool. In the simplest terms, it proves how much 'skin' each operator/owner has in their pool. However, not every low pledge automatically means a dishonest pool operator. Since there is no minimum pledge requirement, it allows for anyone with smaller resources to also participate in the securing of the network. Hence, we recommend learning more about each individual operator to understand their story.
Worth noting, that higher pledge amounts are favoured by the algorithm in the lottery of awards. Pools with higher pledges are slightly more likely to produce/mint new blocks and hence produce better rewards for their delegators. This is primarily designed to motive owners to pledge more in lesser amount of pools and thus curtailing efforts of centralisation. It also helps mitigate possibility of Sybil attacks. In such instances, an attacker seeks to take control of the majority of the network by creating many pools with a very low cost.
Q: How do rewards actually work?
A: Stake pools incur cost for keeping blockchain operational 24/7. Awards mechanism helps pay for these expenses in a collective fashion. For every successful block confirmation that any given pool obtains, appropriate awards are assigned and automatically distributed to each stake pool delegators and owners.
After you delegate your ADA, you don't need to take any additional steps to claim these rewards. These rewards are calculated after the end of each epoch. The amount of award will primarily depend on how many stake pools were active, their cost and margin parameters, owners' pledge, saturation levels and historical performance of these pools. You can play with Shelley net calculator to simulate potential rewards.
Q: What is a fixed fee?
A: This is a fee set by the pool operator. It should represent a fixed cost required to keep the stake pool operational. Such as electricity, hardware costs, etc. In order to avoid race to the bottom, algorithm actually requires each operator to set a minimum fixed fee of 340 ADA per each epoch. You are likely to see this in many pools. There is no maximum. If the stake pool is awarded rewards, fixed fees are the first ones to be absorbed before % margin is paid to the shareholders.
Q: What is a pool margin?
A: This is the premium that each operator sets for their services. This can be as little as o%. However, for the long term viability, it is unlikely that such pools will be operationally stable and viable. Generally, you can expect these fees to be up to or around 4 or 5% of the awards that the pool gets. As the project matures, stake pool operators will have greater understanding of their costs and these parameters may change over time accordingly. Especially, should Cardano token appreciate in value in the future.
There is no maximum but rates need to be competitive, too. This means that if a pool has a declared margin of 4%, remaining 96% of all rewards after fixed fees (and treasury taxes) go to the stakeholders and are distributed evenly based on their proportional ADA holdings in that stake pool.
Q: What is epoch and how long is it?
A: An epoch is a time interval within Cardano. It lasts 120 hours or 5 days each.
Q: I delegated to the pool but no rewards are sent my way?
A: There will be delay between your delegation and first reward delivery. You may need to wait 2 epochs to start seeing your rewards. Provided that you have delegated your ADA in a reputable stake pool that operates efficiently. If you don't see any rewards even after multiple epochs have elapsed, consider re-delegation of your stake into another pool.
Q: I have another question, can you help?
A: Absolutely, reach out to us via hello (at) cryptofay (dot) io and let's see what we can do. We are all young community and are constantly learning from one another. We get better together.