Day: 6 June 2021

Centralized stakepools vs. decentralized stakepools – What are the advantages and disadvantages?

Decentralized stakepools

For example Honey Stake Pool.

+ Permanent access to the stowed ADA (ADA do not have to be sent to the pool, but continue to reside in their own wallet).

+ No minimum duration for staking (no lock of the staked ADA)

+ support of the decentralized idea of Cardano

+ no risk for the user to lose his ADA

– smaller stake rewards.

Central Stakepools

+ higher staking rewards compared to a decentralized small Stake Pool.

– No access to the staked ADA, as these must be located on the exchange and cannot be held in the user’s own wallet.

– minimum duration for staking, as the staked ADA are locked for a defined period of time (minimum duration differs depending on the provider)

– high risk for users, as there is never full access to the staked ADA and if the exchange is hacked or closes unexpectedly, the user can lose his ADA

Conclusion

  • Staking on an exchange (central stake pool) offers higher rewards but at the same time an enormously high risk for the user with regard to his staked ADA.
  • The famous phrase in the crypto market “Not your key, not your coins” fits very well in this case. Because you should always store your cryptocurrencies on your own wallet and not on an exchange. This is the best way to avoid the risk of hacker attacks and scams. In addition, you have the opportunity to support decentralized stake pools and promote the decentralized idea of Cardano.

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