February 9, 2025
Reviews

Cardano (ADA)

  • Price: $0.3986
  • Market cap: $14 billion

What is Cardano and How Does it Work?

Cardano is a widely known cryptocurrency, a form of digital currency that exists solely online. Founded in 2015, Cardano began trading publicly in October 2017 at just a few cents per coin. As of April 2024, its price is around $0.47, though it reached a peak of $3.10 in September 2021. It ranks as the tenth-largest cryptocurrency by market value, according to CoinMarketCap.com.

Here’s a breakdown of what Cardano is and how it works.

What is Cardano?

Cardano is one of over 10,000 cryptocurrencies currently available. The platform is called Cardano, while the currency unit itself is known as ada.

Created by Charles Hoskinson, a co-founder of Ethereum (the second-largest cryptocurrency), Cardano runs on a decentralized public ledger that utilizes blockchain technology. The blockchain securely records and tracks every transaction, operating like a perpetual receipt. This decentralized system validates each transaction, ensuring accuracy and maintaining a robust, error-free system.

Cardano uses a “proof-of-stake” model, where holders of the cryptocurrency participate in validating transactions in exchange for rewards. This staking process can be a lucrative way to earn income, and some crypto brokers allow participation with minimal fees.

Like many other cryptocurrencies, Cardano isn’t just a currency for transferring money. It serves as a token that powers a wide range of applications on its platform.

What Does Cardano Do?

Cardano offers several features and functionalities on its platform:

  • Currency: Users can send and receive Cardano (ada) or use it to exchange goods and services via a cryptocurrency wallet.
  • Smart Contracts: Cardano supports smart contracts, which are self-executing contracts that fulfill automatically when certain conditions are met.
  • Decentralized Finance (DeFi): Cardano allows users to engage in transactions without intermediaries like banks, enabling peer-to-peer financial interactions.
  • Digital Apps: Cardano supports various decentralized financial services such as lending, trading, insurance, and asset management.

In short, Cardano powers multiple financial applications beyond merely acting as a currency.

Where Do Cardano Coins Come From?

As of April 2024, there are approximately 35.6 billion ada coins in circulation, with a total cap of 45 billion. This fixed supply makes Cardano similar to Bitcoin, which is capped at 21 million coins, but contrasts with Ethereum, which has an unlimited supply but a restricted annual issuance. In contrast, Dogecoin has no cap on the number of coins that can be mined.

Cardano’s proof-of-stake system allows coinholders to validate transactions and earn rewards in ada. Validators who run the system are rewarded for processing transactions, but they can also lose funds if they approve invalid transactions. As a Cardano holder, you can stake your coins with a validator and earn a proportional reward, typically after paying a fee.

Is Cardano a Good Investment?

Like most cryptocurrencies, Cardano’s price is highly volatile. To assess its investment potential, it’s essential to understand that Cardano, like many cryptos, is not backed by tangible assets or cash flow from a business. This is a significant difference from stocks, which represent ownership in a company with the potential for growth, profits, and dividends.

Cardano’s value is driven by market sentiment, speculation, and trader optimism rather than the success of an underlying company. Investors in Cardano hope they can sell it to someone else at a higher price, a strategy often referred to as the “greater fool theory” of investing.

However, once the market runs out of optimistic buyers, prices can crash. This lack of underlying business fundamentals is why some prominent investors, like Warren Buffett, avoid cryptocurrencies altogether.

Bottom Line

If you believe in the future of cryptocurrencies, you could invest directly in them, but there are other ways to participate in the crypto wave. You can invest in companies developing blockchain technology or buy a Bitcoin ETF through a brokerage account.

For those committed to trading Cardano or other cryptocurrencies, it’s crucial to expect high volatility. Given that these assets aren’t backed by any physical value, there’s a risk of losing your entire investment. Only invest money you can afford to lose.