What is Cardano (ADA)?
Cardano (ADA) operates as a blockchain network, with ADA serving as its native cryptocurrency. This setup mirrors the relationship between ether and the Ethereum blockchain.
In the realm of cryptocurrency evolution, Bitcoin represents Crypto 1.0, akin to digital gold, albeit plagued by scalability challenges. Ethereum, often labeled as Crypto 2.0, emerged with enhanced functionality.
Launched in 2017, Cardano embodies the concept of Crypto 3.0, striving to rectify the deficiencies initially observed in Ethereum. Charles Hoskinson, a co-founder of Ethereum, spearheaded the creation of Cardano following a disagreement with Ethereum’s co-founder Vitalik Buterin in 2014, regarding the project’s commercial orientation.
Hoskinson’s vision for Cardano was to develop a more scalable, interoperable, and sustainable blockchain, aimed at surpassing the capabilities of both Bitcoin and Ethereum.
Dubbed by proponents as an “Ethereum killer,” Cardano’s ongoing evolution is supported by the Cardano Foundation and the IOHK research institute. These entities engage in resource allocation, development, and rigorous peer review through a formal development model, as highlighted by Henrik Gebbing, co-CEO and co-founder of Finoa, a digital asset custodian.
A key critique directed at Bitcoin and other prominent cryptocurrencies pertains to their energy-intensive proof-of-work consensus mechanisms, resulting in substantial energy consumption. In contrast, ADA employs a proof-of-stake consensus mechanism, offering a more sustainable and scalable blockchain solution.
What is ADA?
ADA is the cryptocurrency native to the Cardano platform, named in honor of Ada Lovelace, a renowned 19th-century mathematician often regarded as the first computer programmer.
ADA tokens serve multiple functions within the Cardano ecosystem. Users utilize ADA to pay transaction fees for utilizing the platform’s services. Additionally, ADA is distributed to validators as a reward for participating in and maintaining the proof-of-stake consensus mechanism, which secures the network and validates transactions. This incentivizes stakeholders to actively participate in the network’s governance and maintenance, contributing to the security and decentralization of the Cardano blockchain.
How does Cardano work?
In a blockchain network, the verification of transactions is crucial to prevent double spending of tokens. Due to decentralization, there’s no centralized authority, like a bank, overseeing this task.
Bitcoin and Ethereum 1.0 employ proof-of-work consensus mechanisms, where miners utilize computational power to solve complex mathematical equations and add new blocks of data to the blockchain. In return for their efforts, miners receive cryptocurrency rewards. However, this process is time-consuming and consumes significant amounts of electricity.
On the other hand, ADA utilizes staking, a method whereby network participants deposit specified amounts of cryptocurrency to earn the privilege of participating in the blockchain’s operation.
Daniel Hill, president of Hill Wealth Strategies, notes that the Cardano protocol is specifically designed to minimize energy expenditure during the block production process, setting it apart from the energy-intensive operations of Bitcoin and Ethereum 1.0.
How to Use Cardano?
ADA can be utilized similarly to any other cryptocurrency. Users have the option to hold ADA as an investment, use it for purchases, exchange it for other cryptocurrencies or fiat currencies, and cover transaction fees on the Cardano network. Additionally, ADA holders can stake their assets to earn additional tokens and participate in voting through platforms like Project Catalyst.
When considering long-term holdings of Cardano, it’s crucial to choose a suitable wallet. The two official Cardano wallets, Daedalus and Yoroi, offer features such as staking and voting in Project Catalyst, providing users with a secure and comprehensive platform for managing their ADA holdings.
Furthermore, developers and institutions can leverage the Cardano network for various projects, even if they do not directly utilize the ADA token. For example, the Atala Prism project aims to issue digital identities to students in Ethiopia, demonstrating the network’s potential for real-world applications beyond cryptocurrency.
Additionally, the Cardano ecosystem hosts numerous DeFi (Decentralized Finance) and non-fungible token (NFT) initiatives. Examples include decentralized exchange Sundaeswap (SUNDAE) and decentralized lending protocol Meld (MELD), highlighting the diversity and innovation within the Cardano ecosystem.
