Cardano (ADA -0.23%) is a smart-contracts platform powered by the ADA digital coin, and it's one of the more compelling projects in the blockchain industry. The developer team has moved very methodically in building the ecosystem, frequently publishing research in academic journals. In fact, the Cardano blockchain is secured by the first peer-reviewed consensus protocol, Ouroboros.
The scientific rigor shown by the developer team has captured the attention of investors. There are over 3.4 million wallets registered on the Cardano blockchain, and ADA ranks as the seventh-most-valuable cryptocurrency. Better yet, smart-contract functionality went live last year, meaning developers can now build decentralized software and services on the platform. That could translate into significant price appreciation in the coming years.
In the meantime, Cardano bulls can earn passive income with ADA. Here's how.
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Earning passive income with ADA
Ouroboros is a proof-of-stake consensus protocol. That means you can stake ADA to participate in the network and generate passive income. In fact, there are two ways to earn rewards on the Cardano blockchain. You can either start your own stake pool or delegate to a stake pool run by someone else.
The first option pays more, but you need the time and technical know-how to operate and maintain a reliable server. That means buying hardware, installing software, and keeping the system connected to the network at all times. Fortunately, delegating your ADA to an existing stake pool is less complicated.
Cardano wallets like Daedalus or Yoroi allow users to delegate ADA, as do certain crypto exchanges. If you opt to delegate through a wallet, you will need to do some research. There are over 3,000 active stake pools, and it's important to choose one that will give you the best bang for your buck. That means you should compare metrics like the total stake in the pool, the blocks produced by the pool, and the contribution of the stake pool operator. Those variables impact how much passive income you earn, though the payout typically falls between 3% and 6% annually.
Still too complicated? While most Cardano enthusiasts prefer to support smaller stake pools -- thereby keeping the network as decentralized as possible -- delegating through a crypto exchange is undoubtedly the easiest way to stake ADA.
Staking ADA through Coinbase
In March, Coinbase Global (COIN -0.34%) added support for ADA staking, and it only takes a few seconds to get started. Once you have ADA in your Coinbase account, tap the menu icon in the upper-left corner of the mobile app, then select "earn interest." Coinbase offers staking services for other cryptocurrencies as well, so you will have to choose Cardano and then opt in to the staking service. That's it.
ADA rewards will now show up in your account every five to seven days, after an initial holding period of up to 25 days. The current payout is a 2.6% annual percentage rate (APR). That's less than you'd earn through a wallet, but it's orders of magnitude more than the average savings account pays. Of course, cryptocurrencies like ADA are more volatile than fiat currencies, meaning your U.S. dollars are unlikely to lose significant value while sitting in a savings account.
However, if you're bullish on Cardano -- and there are plenty of reasons to be bullish -- staking ADA through Coinbase is an incredibly easy way to earn passive income.
