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Comparison of staking in Cardano or Ethereum

Some people staken been in Cardano for almost two years. Ethereum is making a transition from PoW to PoS and more and more people are getting interested in the differences between the two PoS networks. Let's get the staking Compare in Cardano and Ethereum.

What is staking?

Staking aims to combine the economic interests of people with the needs of decentralized networks. Networks financially reward those who act in their best interest. The importance of the network is primarily to be secure and decentralized. The network runs on hardware that someone has to maintain. Computing resources are required to process transactions and smart contracts. However, these are not provided by a company but by interested volunteers.

The quality of decentralized and network security depends on the specific parameters and conditions. Decentralization is about dividing decision-making power over the maximum number of participants. Decentralization is a requirement for gaining security, as security increases with higher decentralization.

Network participants

Ideally, networks should have as many block producers as possible. It would be nice if every user could create their own block and get rewarded for it. In practice, however, this is an unattainable goal for many reasons. Block producers must have their own node, and to have skin in the game, block producer networks can require that they have a certain number of coins. Block producers must be experienced professionals and at the same time have a certain amount of resources.

Both Cardano and Ethereum networks are run by block producers and allow people who do not work with their own hardware to participate in staking. This group is called delegates because they somehow delegate their decision-making power to someone else. It works the same way in the Bitcoin network. Pools are block producers to whom miners delegate the hash rate.

Like Bitcoin, the Cardano network works with the concept of pools. In the case of Cardano, that is at the protocol level. The delegates group consists of stakers, people who delegate ADA coins to an elected pool. Pool-operators are responsible for producing blocks and delegates decide which ones pools trust them. Pooloperators can create their own stake (pledge), but this is not a requirement for poolregistration. Pledge increases the rewards for the pool en pools with a larger pledge may be more attractive to delegates.

There are minimum delegate requirements and literally anyone can delegate a few ADA coins from their own wallet. It is necessary to have 2 ADA as a refundable deposit and 0,17 ADA for the transaction fee. If you want to delegate 1 ADA, you can at any time pooland, so that operators are encouraged to behave fairly.

The operator must have 500 ADA as a refundable deposit to get the pool to register. At the time of writing this is about $250 USD. The Cardano network sets minimum financial requirements pooloperators and delegates.

This is different from the Ethereum network, which requires 32 ETH to activate the validator software.

The need to have 32 ETH is a high barrier to entry as it is around $55K at the time of writing. The barrier to entry can fall or rise due to the volatility of ETH, so as the price of ETH rises, there will be fewer and fewer people who can financially afford to be a validator. There is a risk that validator is a matter for the rich.

Ethereum offers other options to buy ETH staken. If a user has 32 ETH and doesn't want to master their own validator, then they can use the option stakinguse -as-a-services. Validation is done on behalf of the ETH owner, but involves counterparty risk. In addition, you have to pay costs for running the node (which also applies in the case of solo staking).

Those who don't have 32 ETH and want to bet a smaller amount have other 2 options. gepoolde staking en staking on centralized exchanges. Pooled staking is a service that stakers gives ERC-20 tokens for ETH. ETH coins are then used to run the validator. Pooled stakingservice is not a native Ethereum feature and is managed by third parties, usually through smart contracts. This involves a counterparty risk.

Gepoolde staking, like staking on centralized exchanges, is disadvantageous from a network perspective because it centralizes power. Whoever owns the ETH also has the decision to make what happens to the value of ERC-20 tokens if the protocol lowers the ETH coin of validators managed by apoolde staking-service. In the case of centralized exchanges, the same question arises. Who will compensate the delegates for the financial loss?

slashing

Slashing is the power of the Ethereum protocol to permanently confiscate coins, forcing validators to behave fairly. Cardano has no slashing, so there is no need to lock in ADA coins for any period of time. Delegators do not risk losing their own coins. The only thing delegates can lose is the reward if the pooloperator fails to produce blocks. The reward is a sufficient financial incentive for delegates to oversee pooloperators and at the same time for pooloperators wishing to retain delegates.

Slashing requires locking ETH coins for specific time periods. Unlike the Cardano network, coins are not liquid during staking. Slashing can staken discourage. For some people, the idea of ​​not selling ETH coins in a bear market, or spending them when necessary can be annoying.

But slashing is especially annoying when combined with trust in third parties. Anyone who entrusts ETH to a third party is at risk of slashing and the third party may not have enough funds to cover the loss. If the value of ERC-20 tokens linked to the value of ETH falls, all token holders will be affected.

The Cardano network does not require delegates to trust third parties. Users always have ADA coins under their own control. This is due to the fact that it does not require a large amount of coins for staking. Furthermore, there is no need to lock coins. Stakers thus constantly monitor their own decision-making power and thereby maintain a high degree of decentralization of the Cardano included in the Cardano network. This is because of how easy and risk-free it is to staken. ADA Coins can be held and used by people in a HW Wallet Trezor or Ledgerstaked. For Ethereum, about 11% of ETH coins arestaked. It can be assumed that many people would rather keep ETH in their wallets than deal with staking and risk losing coins.

The more coins that are wagered, the safer it is for the network. It doesn't look good if only a minority of the coins in circulation are deployed, because there is a risk that an entity holds enough coins to acquire most of the decision-making power in the network.

Digital scarcity

Cardano has limited the number of coins to 45.000.000.000.000 ADA. Ethereum will have an inflationary model after the transition to PoS and 1600 ETH will be produced every day. However, this is comparable to the amount that will be burned as ETH uses a cost burning mechanism. It is difficult to predict whether the total number of ETH coins will grow or decrease. It depends on the use of the network. If the network is heavily used and costs are high, the number of coins may decrease over time. Conversely, if the fees are low, the amount will be higher. It is probably a matter of taste whether a fixed or a variable monetary policy is more attractive to users.

As for rewards for staking, the APR for Cardano depends on many factors and is about 5% (it can be less or more). Ethereum is currently offering about 4,1%. However, the reward can be up to 10%.

The reward depends on many factors. It depends if you are a block producer or a delegate. It also depends on whether you delegate directly and get the reward directly from protocol or through a third party. Going through a third party is generally risky and suspicious.

Conclusion

Not your keys, not your coins. In case of staking this famous rule can be applied to not your keys, not your reward. If you bet on a centralized exchange, you will not own either the coins or the reward until you receive everything in your own wallet.

In the Cardano network you have two options. Or you are a pooloperator, or you can add ADA directly from your own wallet to your chosen pool delegate. Betting on the centralized exchange is not necessary at all, because you gain absolutely nothing extra with it and just take a risk. In the case of Ethereum, you have several options to stakeand you have to weigh the pros and cons carefully. Relying on a third party may be a necessity.

For each PoS network, the stakers should take into account not only their own interests, but also the decentralization of the network. The protocol should be designed in such a way as to align the interests of both parties. In the case of Cardano, this is done slightly better than in the case of Ethereum, at least from our perspective. The reason is that staken on Cardano is more inclusive and that stakers do not have to trust third parties. Staking is almost risk free and coins are liquid. ETH locking and the threat of slashing may put some people off.

Stakers also need to consider reward return, monetary policy and other factors such as the potential for coin value growth, adoption and many other things. Good luck to all PoS fans.

translation from source: https://cexplorer.io/article/comparison-of-staking-on-cardano-and-ethereum

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