Cardano has accomplished a lot since it was first founded back in 2015 and launched in 2017. While some early investors in the crypto project have already been rewarded for their initial belief in the project, many others are currently looking to the future. Even now, Cardano remains one of the most promising projects in the entirety of the cryptosphere. And as Cardano moves further down its roadmap, staking becomes more and more crucial to the operation of the platform.

What are Cardano’s Current and Next Phases?

With the impending, highly awaited Voltaire upgrade, Cardano is aiming toward becoming a permanently self-sustaining blockchain. Cardano’s current Basho era has seen the community make massive inroads into improving the network's scalability and interoperability—as opposed to prior development phases, which were more concerned with decentralization and adding new features like smart contracts.

The Basho era has focused on improving the Cardano network's core performance to better support growth and adoption for apps with high transaction volumes. The increasing transactional volume in turn spurs further need for validation and subsequent collateral.

One of the main developments during Basho has and will continue to be the development of sidechains, new blockchains that can coexist with the Cardano main chain and have a major impact on improving the network's capabilities.

Sidechains can be used as a sharding strategy to increase the capacity of the network by shifting work from the main chain to a sidechain; they can also be used to incorporate test features without endangering the integrity of the main chain. And, interestingly enough, they will play a role in increasing the ability to stake and earn rewards!

Parallel accounting methods have and will continue to be rolled out through the current Basho era. As far as we can tell, the UTXO model will remain the default for the main Cardano blockchain. We should expect additional sidechains to be created to permit toggling between UTXO and account-based models.

Cardano, as a result, will have only greater interoperability as well as enhanced capacity to support new kinds of use cases on the network. And as these new proof-of-stake (PoS) mechanisms were put into place, holders of ADA were offered increasing opportunities to stake their coin holdings.

What is the Cardano Staking Process?

Unlike rival cryptocurrencies like Bitcoin and Dogecoin that depend on proof of work (PoW), Cardano uses a proof-of-stake protocol to verify transactions. Investors in Cardano have the option of staking their ADA holdings in nodes or pools that compete to be the next node selected to create a block for the Cardano blockchain. The likelihood of this happening increases with the amount of ADA staked in a pool.

When a block is successfully created, stakeholders are compensated with ADA based on how much they donated to the pool (it's always comforting to remember that when you stake ADA, the cryptocurrency stays in your Cardano wallet and isn't kept captive in the pool).

Additionally, Cardano has a mechanism known as a Saturation Parameter to prevent specific pools from becoming overly prominent or way too essential to the staking process. The official Cardano’s website's reasoning is as follows: “A pool's awards will start to get smaller as soon as it reaches the point of saturation. The chance of bigger profits at this time should motivate investors to create alternative pools.”

Rewards for Staking Cardano

Cardano's staking rewards are distributed automatically at the end of each epoch, which happens once every five days. Remember that each of these epochs consists of much smaller slots that are somewhat (though not entirely) selected at random.

One’s total income and rewards are based on a number of network parameters at that given time and moment, as well as the quantity of tokens being actively staked. Along with this, we must also take into account any pool fees that the stake pool operator may impose. So what does this actually amount to?

It depends. A pretty awesome rewards calculator may be found on the official Cardano website, along with a wide variety of other useful tools (please keep in mind that any resulting computations that these tools provide are only approximations and not guarantees). For example, at the time of posting, Cardano’s calculator predicted that investors could make 4.6083% annually.

Staking Cardano on Coinbase

The cryptocurrency exchange Coinbase allows users to stake Cardano on its platform by now as well. When ADA staking was introduced last year, Cardano’s larger potential was acknowledged by Coinbase's Senior Product Manager, Rupmalini Sahu, who stated that Cardano’s blockchain "seeks to be more flexible, sustainable, and scalable.”

The Coinbase staking process involves pooling ADA on the Cardano network into larger entities, before distributing a portion of that entity to investors as an incentive for providing collateral. Not to be confused with the above calculation, Cardano’s website states that "The current estimated annual return for Cardano staking on Coinbase is approximately 3.75% APY." Stakers receive incentives in their accounts every five to seven days after an initial holding period of twenty to twenty-five days.

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Does Mining Exist on Cardano?

One of the most recognized ways of validating blockchain transactions is through mining, as with proof-of-work-based platforms like Bitcoin and Dogecoin. This, however, does not apply to Cardano. With Cardano, mining cannot be utilized to verify transactions.

To make it even clearer: it’s not possible to "mine" Cardano because it does not employ a proof-of-work algorithm; instead, it is staked as collateral to encourage validators.

This means that in Cardano's consensus mechanism, known as Ouroboros, the right to validate transactions is given to those who hold a stake in the network. This is why the system is called proof of stake: a group of validators, called slot leaders, are selected to create new blocks and validate transactions; the slot leaders are selected based on the amount of ADA they hold and have staked on the network. This mechanism is more energy-efficient than proof of work, as it does not require the intense computational power that mining does.

Conclusion

And so, to recap: in the Cardano staking process, users hold their ADA in a special wallet and delegate their staking power to a stake pool. The stake pool then participates in the Ouroboros consensus mechanism on their behalf, and in return, users receive a portion of the rewards generated by the stake pool. By participating in staking, users help to secure the network while earning rewards in the form of ADA.

One of the chief benefits of Cardano's proof-of-stake mechanism is that it allows for a more decentralized network. In traditional proof-of-work systems, the miners (or pools) with the most computational power tend to have the most influence on the network. In Cardano's proof of stake, however, the influence is based on the amount of ADA staked by the Cardano wallet holder, making it more accessible to a wider range of users. This promotes decentralization, which has always been one of the key goals of the Cardano project.

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