What Is Cardano (ADA)?

Cardano is a blockchain platform designed to process transactions using a dedicated cryptocurrency called ADA.

The Cardano platform can handle all kinds of transactions, but the real goal is to become the “Internet of Blockchains,” creating an ecosystem that allows seamless interchangeability between different blockchains.

Let’s examine how Cardano (ADA) stacks against the other major cryptocurrency players.

What Is Cardano?

Cardano is a blockchain, and ADA is the coin that powers the Cardano network. In some ways, this is similar to ether and the Ethereum blockchain.

Think of Bitcoin as Crypto 1.0. It’s essentially digital gold, but the system has scalability issues. Then there’s Ethereum, often referred to as Crypto 2.0.

Cardano, launched in 2017, is Crypto 3.0, which aims to improve upon the functionality that Ethereum was initially missing.

Charles Hoskinson founded Cardano and is a co-founder of Ethereum. In 2014, he disputed with co-founder Vitalik Buterin whether the Ethereum project should be commercial, which caused him to fall out with the Ethereum team.

Hoskinson launched Cardano as a more scalable, interoperable, and sustainable blockchain, intending to improve upon Bitcoin and Ethereum.

“Referred to by supporters as an ‘Ethereum killer,’ Cardano’s ongoing development is supported by the Cardano Foundation and the IOHK research institute, which engage in [resources and development] and peer review via a formal development model,” said Henrik Gebbing, co-CEO and co-founder of Finoa, a digital asset custodian.

One major criticism of Bitcoin and other popular cryptocurrencies is that their blockchain networks, based on proof-of-work consensus mechanisms, waste vast amounts of energy. Cardano uses a proof-of-stake consensus mechanism, offering a more sustainable and scalable blockchain.

What Is ADA?

ADA is the cryptocurrency for the Cardano platform. Its coin is named after Ada Lovelace, a 19th-century mathematician who is known as the first computer programmer.

People use ADA tokens to pay transaction fees for using the platform. It’s also given out to the validators as a reward for running the proof of stake system.

How Does Cardano Work?

With a blockchain network, a way to verify transactions must be verified to ensure people don’t spend the same tokens twice. Given the decentralization, no central authority like a bank is working to handle the job.

Based on proof of work consensus mechanisms, Bitcoin and Ethereum 1.0 miners run computers to solve complex mathematical equations and add new data blocks to the blockchain, receiving crypto in exchange for their work. This is time-consuming and uses up large amounts of electricity.

Cardano uses staking, a process where network participants deposit set amounts of crypto to earn the right to participate in blockchain operations.

“The [Cardano] protocol is designed to minimize energy expenditure during the block production process,” said Daniel Hill, president of Hill Wealth Strategies.

How to Buy Cardano

You do not buy Cardano itself but rather its altcoin, ADA. To buy ADA, you can sign up for an account with one of the significant cryptocurrency exchanges. You can then store ADA on the platform or in a crypto wallet.

Detailed Guide: How to Buy Cardano

Where to Buy Cardano

As one of the most popular cryptocurrencies, ADA can be bought for the Cardano network from most top cryptocurrency exchanges. Binance, Coinbase, Gemini, and Kraken are a few of the major players that sell ADA. To help you find a good fit, check out this review and compare the best crypto exchanges.

How to Use Cardano

You can use ADA like any cryptocurrency. You could hold onto it as an investment, use it for purchases, and exchange it. You can also use your ADA to cover Cardano network transaction fees and stake to earn more tokens. If you want to hold Cardano long-term, pay attention to which wallet you use.

“The two official Cardano wallets are the Daedalus wallet [full node] and the Yoroi wallet [light node]. Both wallets allow users to earn new Cardano by staking their assets and also allow them to vote in Project Catalyst, a fund awarding ADA to Cardano projects,” Gebbing said.

Gebbing also said that developers and institutions can use the Cardano network for projects, even if they don’t use the ADA token directly. “Perhaps most notable is the Atala Prism project, which seeks to issue digital identities to students across Ethiopia, including verifiable information about academic performance,” he added.

There are also plenty of DeFi and non-fungible token (NFT) initiatives within the Cardano ecosystem. Some of these projects include the decentralized exchange Sundaeswap (SUNDAE) and the decentralized and trustless lending protocol Meld (MELD).

Advantages of Cardano

• More environmentally friendly. Cardano is one of the most ecologically friendly blockchain systems. In a 2021 interview with Forbes, Hoskinson claimed that Cardano is 1.6 million times more energy-efficient than Bitcoin.
• Faster transactions. Cardano is also much faster at processing transactions than Bitcoin or Ethereum 1.0, sometimes called Classic Ethereum. Cardano can process more than 250 transactions per second (TPS), compared with around 4.6 TPS for Bitcoin and between 15 and 45 TPS for Ethereum 1.0. This makes the Cardano network very scalable. That said, Ethereum 2.0 is the Ethereum network’s upgrade to address prior security and scalability issues.
• Peer-reviewed network. The Cardano team works closely with academics to generate peer-reviewed research to guide blockchain development. “Its nature as an open-source and peer-reviewed blockchain helps ensure its survival and evolution beyond that of its parent organization,” Gebbing said.

Disadvantages of Cardano

• Catching up to more established competitors. Cardano is trying to create a better version of blockchain, but competitors like Ethereum have the advantage of longer histories of use and more developer uptake. In fact, one of Ethereum 2.0’s upgrades includes a proof-of-stake approach that could negate a key Cardano advantage.
• It could have trouble standing out. The cryptocurrency market is ever more crowded, and it’s not easy to get attention. “It’s not memorable, and there are a lot of competitors in the same space,” said Hill. For example, Dogecoin showed how much crypto could boom based on a popular meme, which the more subdued Cardano brand does not have.

Should You Buy Cardano?

Cardano’s backers believe its innovative and environmentally friendly system could make it one of the leading cryptocurrencies. However, extensive research and resources indicate that Cardano is a high-risk investment.

“If you’re considering ADA, treat it like any other cryptocurrency. Only invest what you’re comfortable losing, and don’t expect huge gains overnight,” Hill said.

Gebbing recommends that if you like the ideas behind Cardano, you should start with small investments.

“Before investing in any blockchain’s token, it’s advisable to gain experience as a user, experimenting with a small amount by transacting between wallets, staking on the network, and using it to participate in governance,” said Gebbing.

Do your research. If you believe in the Cardano approach to blockchain technology, it could be a solid addition to your cryptocurrency portfolio.