Because of a dedicated community of developers and supporters, ADA is regularly among the top 10 cryptocurrencies by market capitalization; as of June 2022, it’s the sixth-largest cryptocurrency, or the fourth-largest if you exclude stablecoins (cryptocurrencies whose value is pegged to the U.S. dollar).
Investors who hold this crypto coin have another route to potential gains: staking their ADA, which earns an estimated 4% to 6% annual percentage yield (APY) as a reward. It’s like putting money in a high-interest savings account and earning interest—except that staking rewards are not guaranteed, not paid in dollars and not protected by the Canada Deposit Insurance Corporation (CDIC).
Before we get into more details about staking, though, let’s take a closer look at Cardano and how Canadians can invest in ADA.
What is Cardano?
Cardano is a public blockchain (a distributed digital ledger) built on a foundation of evidence-based, peer-reviewed research in cryptography and blockchain technology. Like the better-known Ethereum blockchain, Cardano is an all-purpose blockchain with smart contract functionality, and it was designed to be scalable and secure. Decentralized apps (dApps) developed on Cardano have applications in education, retail, agriculture, government, finance and health care.
Cardano uses the proof-of-stake (PoS) consensus mechanism, a way of validating cryptocurrency transactions that enables coin holders to earn more ADA by staking it. This involves pledging, or delegating, their coins to the blockchain to help verify transactions, add new blocks of data and create new coins.
Staking is a feature of blockchains that use the PoS consensus mechanism. By staking their coins on Cardano, ADA holders play a part in the functioning of the blockchain, in the hopes that the success of the network will lead to even greater adoption, and thus an increase in the value of the coin.
There are two ways in which you can stake your ADA:
1. Operating a stake pool
If you have the requisite technical proficiency, you can choose to operate a block-producing node. As an operator, you can stake others’ ADA, too, pooling your coins to form a “stake pool.” Although there’s no minimum amount of ADA required to start a stake pool, you’ll need the technical know-how to set it up and run it, and to ensure that your node (computer) is operational nearly 100% of the time. Delegators will rely on you to operate the node properly and to pay them their share of any rewards earned.