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One of the benefits of earning a yield by staking is that you fight the inflation of a token. Many, but not all, PoS networks have inflation. It is how the network pays for security, funds development, or adds more coins into circulation. While we have spent some time in this book discussing how inflation is generally bad, at least with PoS networks, inflation is built into the code of the network and is not subject to the whims of a failing government.
If you were planning to hold ADA tokens in the hope that the price would appreciate over time, then this inflation will eat into the value of your tokens. Whether inflation devalues your tokens will depend on whether the price appreciation because of the adoption of ADA exceeds the price depreciation because of inflation.
The inflation rate of ADA is not straightforward, but a rough calculation puts it at about 5%, decreasing over time until there is almost zero inflation in around a decade. Staking earns between 3.5% and 6%. If you intend to hold your ADA for any time, then staking makes you a part of the community and seems financially sensible.
Cardano automatically rewards stakers every epoch. A Cardano epoch is about a week. Your rewards are automatically compounded and included in calculating rewards for subsequent epochs.
Cardano wallet options
There are many wallets available for Cardano. You can explore them on the Cardano website at https://developers.cardano.org/showcase/?tags=wallet. The official Cardano wallet is the Daedalus wallet. Daedalus wallet is quite interesting as it runs a full copy of the Cardano blockchain, just as all Bitcoin wallets did initially. This complete copy of the blockchain gives increased security for your funds because you are not reliant on somebody else running a full node to tell you about the state of the blockchain as you are with most other wallets.
The wallet we will use for Cardano in this book is the Yoroi wallet. Specifically, we will use the browser extension version. You can view the other options for the Yoroi wallet here: https://yoroi-wallet.com/. Also, note that you can get a version for Android or iOS. Once you have set up the browser version, you can reuse your mnemonic phrase on the mobile version to track your assets on your mobile device. It is the browser version that we will set up next.
Setting up Yoroi wallet
Setting up the Yoroi wallet is straightforward and will take just a few minutes. You will need a pen and paper to write down a mnemonic seed phrase for backing up the wallet.
- Head over to https://yoroi-wallet.com/ using the browser of your choice, click on the Download button, and select your browser’s download option. I am going to use the Firefox browser on this occasion.
- On the browser extension page, check that the add-on is called Yoroi by Emurgo. If so, click the Add button. You might also have to click Allow in a pop-up message somewhere in your browser to confirm that you want to add the extension to your browser.
- Find the Yoroi icon in the top-right of your browser, indicating Yoroi has been added. The following image shows what this looks like in the Firefox browser.
Yoroi browser add-on icon
- Click the Yoroi icon, and the language selection screen will greet you. Select your language and click CONTINUE.
- Read the terms and conditions, check the checkbox, and click the CONTINUE button.
- On the next screen, click the Create Wallet option, then click the PICK A CURRENCY OR PLATFORM option, then in the pop-up option, choose Cardano, then again click Create Wallet.
- Pick an arbitrary wallet name to suit, enter a password for spending when using the app, then repeat the password. For example, the following image shows I have called my wallet Crypto For Beginners, so I can remember why I created this wallet.
Name Yoroi wallet
- Click the CREATE PERSONAL WALLET button. You will now be prompted to ensure you are not being watched. This is because the following screen will reveal the seed phrase allowing access to all your funds in this wallet. When you are ready, check the checkbox and click CONTINUE. This next image shows the revealed seed phrase. I have obscured mine in the image that follows.
Yoroi seed phrase
- Back up your Yoroi seed phrase. I won’t emphasize again how important this is as we have covered this topic many times. When you have written down the phrase, click CONTINUE.
- Re-enter your phrase to verify that you wrote it down correctly.
- Next, you are warned that you alone are the one who can store your seed phrase. Check the two checkboxes and click CONFIRM.
Congratulations, you have set up your Yoroi browser wallet.
Yoroi browser wallet after setting up
If you wish, install the mobile version of the Yoroi wallet by installing it on your preferred mobile device. Then, when prompted, choose Restore Wallet instead of Create Wallet and enter the seed phrase you just backed up. You can get the mobile downloads from the previous link.
At the time of writing, I have a few spare dollars on Binance and Kucoin exchanges. So I decided on which exchange to buy some ADA by comparing the withdrawal fees and going with the cheapest. I logged in to both Binance and Kucoin and located the Withdraw button from the home screens of both exchanges, but most screens on both exchanges show the Withdraw option, the main exception being the various trading screens.
I selected the ADA option from the withdrawal screen of both exchanges and compared the prices. The following image shows the Kucoin and Binance ADA withdrawal options. Kucoin on the left, Binance on the right.
Kucoin and Binance withdrawal options for ADA
In the preceding options, we can see the basic withdrawal options, including the coin, the wallet address field, the network selection field, and, most interestingly, for this exercise, the values at the bottom. I have zoomed in and placed the Kucoin data above the Binance data to clarify them and highlight some points in the following image.
Kucoin and Binance compare withdrawal costs.
To withdraw from Kucoin (top), we must buy at least two ADA plus the withdrawal fee, also in ADA, of 1 ADA. On the other hand, on the Binance exchange, we only need to buy 0.44 ADA plus the withdrawal fee of 0.22 – 0.8 ADA.
We can surmise a few things from this information. Firstly, it is cheaper, and less ADA is required to withdraw from Binance. Second, Binance describes their costs as a Network Fee, implying that they are not profiting and are merely charging the actual costs on the Cardano network. I am not accusing Binance of dishonesty, perhaps they didn’t mean for me to interpret things this way, but I also know from experience that sending ADA on Cardano is much cheaper than this, so Binance is pocketing a small fraction of an ADA to process the withdrawal.
Note that at the time of writing. ADA is around 37 cents each. So the difference in cost is negligible. However, the practice of researching the most appropriate place to buy at any given time is a good one.
Even so, Binance is the cheapest and most flexible, so I will buy some ADA on Binance. If you buy some ADA, your research will determine the best exchange for you. And, if your research suggests you should not buy any ADA, you can learn by following the steps and keeping your money safe and sound.
I cannot stress enough; this tutorial is not a recommendation to buy ADA. Even if ADA does succeed when you are reading this, ADA could be at an inflated price, and you will need to decide for yourself if it is the right thing for you. In fact, at the time of publishing on PlayEarnOwn.com, ADA has just been labeled as a security. This means it is potentially illegal for an exchange to offer it for sale. I am staking anyway but I thought you should know.
Follow these steps to buy some ADA.
- Log in to your preferred exchange.
- Select the marketplace and search for ADA.
- Choose your preferred quote currency that is available with ADA.
- If you have noticed that you don’t have any of your preferred quote currency, you will need to buy some of that first. You might also like to buy a little of the exchange token to get a discount on your trading fees. For example, I am selecting the BUSD stable coin as my preferred quote currency, and I also have a little of the Binance BNB token to get a discount on my trading fees. I can confirm that I am on the ADA/BUSD trading screen in the top right.
ADA/BUSD on Binance
- On the ADA/BUSD trading screen, I selected the Market option as this is a small purchase, and I want to get on with this tutorial rather than try and wait for a better price.
- Select how much quote currency you want to spend on ADA or how many ADA tokens you wish to buy. For example, I have opted to buy 30 ADA in the following image, which will cost me approximately 30 x 0.374 BUSD + fees paid in BNB.
Buy 30 ADA on Binance
- Double check you have filled in all the fields correctly and click the BUY ADA button.
Congratulations, you are the proud owner of some ADA tokens. Let’s practice self-custody and get these tokens off the exchange and into our Yoroi wallet.
Find the withdrawal page on your preferred crypto exchange and continue with the rest of this tutorial.
- On Binance, the Withdraw option can be found from many places, including but not limited to the top-center of the main Dashboard page, by clicking on the Withdraw option next to any crypto that you hold, in this case, ADA or by selecting Wallet | Overview | Withdraw from any screen on Binance. In addition, most exchanges have similar options. When you get to the Withdraw page, you will see the following:
Binance withdraw screen
- The Coin field defaults to BTC. Select the Coin field, and in the pop-up Search field type then select ADA,
- In the Yoroi browser extension, select the Receive option and click the icon to copy your wallet address to the device clipboard. This step is shown in the following image.
Yoroi copy address icon
- Back on the Binance withdrawal screen, paste the Yoroi wallet receiving address into the Address field. On Binance, the Network field is automatically populated with the ADA Cardano value.
- In the Amount field, type the number of ADA to transfer. Testing a new address with the smallest amount possible is always a good idea. It is also true that this action could be viewed as a waste of the withdrawal fee, but it is better than potentially losing the total amount withdrawn. If you are confident, feel free to skip this step, but testing the new receiving address is recommended. As I only intend to withdraw about $11 worth of ADA, I will double-check all the fields and skip the test withdrawal. This is what my withdrawal form looks like with all the details filled out.
Binance withdrawal form with details filled out
- Recheck all the details in the form, especially the address and the network. Remember to check the first and last four to five digits in the Yoroi wallet address and that the address you entered in the exchange Address field matches precisely.
- When you are satisfied, click Withdraw.
- You will need to verify your request. The exact steps you will need to take will vary based on your choice of exchange. For example, I needed to enter a code sent to my email address, a code sent by text to my phone, and a code from the Google authenticator app. Also note that on occasion, the exchange might pop up another reminder asking you to confirm you are sure you want to withdraw and that you are withdrawing to a wallet controlled by yourself. To be clear, this is the exchange verifying your identity and has nothing to do with the Cardano blockchain.
- After completing verification, you will be able to track the progress of your withdrawal. On Binance, this information is directly below the withdrawal form. This is what the tracking data says right after I verified the withdrawal. The withdrawal states 29.2 ADA and not 30 because of the 0.8 ADA withdrawal fee.
ADA withdrawal pending
- When complete, the funds will appear in your Yoroi wallet. Note that transactions on the Cardano network are finished in seconds. Any delay is likely caused by the exchange initiating the withdrawal. Although my funds arrived in less than a minute, it may take longer sometimes. In the following image, you can see that the funds have arrived in my Yoroi wallet.
Yoroi wallet funds arrived from Binance.
- If you made a test withdrawal and not a complete withdrawal, repeat the steps above from step 5 to transfer the remainder of the ADA from the exchange to the Yoroi wallet.
Congratulations, you are now a self-custodian of your ADA tokens, and we can explore staking them to earn a yield and play a small role in securing the Cardano proof-of-stake network.
This small amount of ADA is only cost-effective in the long term because of the transaction fee, but it allows you to explore the process. You can add ADA at any time, increasing the rewards per epoch. Writing this tutorial cost me a couple of ADA tokens, and the 0.01 ADA rewards mean it would take a long time to recoup and make a profit denominated in ADA. Make sure you decide why you are doing this. Are you exploring how things work, or are you looking to make a quick profit from a small amount of money? If the former, you are probably doing the right thing; if the latter, a higher quantity of ADA and, therefore, a higher risk investment is required.
- Select the Delegation List tab in the Yoroi wallet to see the list of delegators running Cardano staking pools available to choose to delegate/stake our ADA with. This is shown in the following image.
Yoroi delegation list
- To choose the appropriate delegator to lend our ADA, consider the following: What is their average return ROA? Do they have much ADA delegated? It would be best to avoid nearly empty pools unless you have done additional research and are confident in their ability to run a pool. Look at the Blocks column. This is how often they have successfully built a block and been rewarded. The Pledge column tells you how much ADA the stake pool operator has personally committed. Are they confident enough to spend their money? The Costs column is the fee (from your rewards, not your deposited ADA) that the operator will receive. There isn’t much to choose from in terms of variation in return. Time staked will likely be more significant than the stake pool operator selected.
- Make your choice and click the DELEGATE button to the right of your chosen delegator. For example, I decided on [CRDNS]CARDANIANS.io. Next, you will see the Confirm Transaction pop-up box. This is shown next.
Confirm transaction Yoroi staking.
- You can see in the previous image that I am delegating approximately 27 ADA, will be paying a 2.18 ADA fee, and I can expect to earn 0.018731 ADA per epoch. The more you stake, the less the impact of the transaction fee but the more significant the exposure to fluctuations in the ADA price. If you want to go ahead, enter your spending password, and click the Delegate button.
- You will see the following image when the process is complete.
ADA successfully delegated
- Click the DASHBOARD PAGE button to return to the main page of the wallet
If the ADA token appreciates, the earned ADA will boost your profits. But ADA, as with all cryptos, can also decrease relative to your native fiat currency.
Congratulations, you have staked your ADA and will earn a regular yield to grow your investment and offset the effects of inflation in the ADA token supply.
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Next: Staking on MultiversX