Cardano (ADA) strike simply explained, how do you earn passive ADA? » Crypto Insiders

Cardano (ADA) is a project that, according to some, has a chance to form serious competition for Ethereum (ETH) and may even catch up with this project. What makes the two projects different is the fact that Cardano proof-of-stake (PoS) is, en Ethereum proof-of-work (PoW). Both protocols are a way to run a decentralized network. But how does that actually work when we look under the hood of Cardano?

Cardano’s PoS versus PoW

The debate on whether PoS or PoW is better has been going on for a long time. Elon Musk and China added fuel to the fire by stating that Bitcoin (BTC) consumes too much energy. It is the miners in a PoW blockchain network that consume all this energy in order to process transactions in a decentralized and censorship-resistant manner.

However, the problem with PoW is that it is not that scalable. As soon as too many transactions are done on such a network, and there is not enough computing power on board, transactions can be processed slowly and transaction costs rise sharply. We have already seen this happen with Ethereum in recent months. There, transaction costs skyrocketed due to the enormous popularity of Decentralized Finance (DeFi) projects.

How PoS differ from PoW is best explained with an analogy. Imagine a supermarket where the cash registers process shopping baskets of transactions. At PoW, these cash registers are the miners. A problem with PoW is that some miners can become very large by joining forces in a mining pool and thus operating as a huge miner. In this way, such a cash register (miner) gets an increasing chance to process shopping baskets (block with transactions) because it is getting bigger. It pushes all smaller miners out of the way. As an individual it is almost impossible to turn a profit if you operate a miner on your own.

With PoS it works differently. There are no miners involved. In Cardano’s case they are stake pool operators that make up these cash registers. Anyone can open such a cash register, but ADA holders can also choose to use their ADA at a different stake pool. This is also known as delegating ADA. A lottery ultimately determines who is allowed to process shopping baskets with transactions.

The more ADA a cashier has behind it, the more tickets the cashier has in hand. And the more tickets, the greater the chance that a cash register will win. But can’t a cash register in this case also become bigger and bigger and wipe out the competition? No, because Cardano’s protocol has a limit on how much ADA a stake pool can have delegated. After this limit is reached, more staked ADA will not result in additional tickets.

Earning passive cardano

Where miners receive a reward as soon as they have processed a block, in PoS networks it is the strikers who get the reward. Should such a cash register on the Cardano network win the lottery to be able to settle the next shopping cart, the staking pool will receive the reward after which all strikers in that pool will automatically receive a share of the reward depending on how much ADA a striker has staked.

You often see in PoS networks that a striker must own a minimum amount of crypto, or hold the crypto for a certain period of time. In that case, you cannot access your crypto for that period. This also works differently with Cardano, because there you delegate your entire wallet. You can at all times with your ADA and therefore also record or send it. This makes staking Cardano a very interesting option for me to earn passively with cardano.

Side note: Ethereum will eventually switch to PoS as well. When is still unclear but the network is already working on this. Also, the above explanation is of course very simplified and eventually even more technical aspects and variables are involved. For questions about a strike you can always contact one of our Crypto Coaches justly.

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