What Is Cardano (ADA)?

Cardano is an open-source, decentralized, proof-of-stake (PoS) blockchain platform designed to be a more efficient and environmentally sustainable alternative to proof-of-work (PoW) platforms like Ethereum and Bitcoin.

The native token on the Cardano blockchain is Ada, named after Ada Lovelace, a 19th-century mathematician. (Cardano itself is named after Gerolamo Cardano, a 16th-century scientist and mathematician.)

Cardano is the sixth largest form of crypto as of January 2022. It was created as a platform for developing decentralized applications (or dApps), and to provide a multi-asset ledger and smart contract capabilities. Cardano’s proof-of-stake protocol is called Ouroboros, a consensus mechanism designed to be highly secure and use minimal amounts of energy by enabling those who own Ada crypto to validate transactions and participate in the platform’s governance.

Keep reading to learn more about this innovative form of crypto and whether investing in ADA might be right for you.

How Does Cardano (ADA) Work?

Rather than launching with a white paper outlining its vision and business case like many other cryptocurrencies, Cardano was established in 2017 to bring scientific rigor to its framework, protocols, and products. The aim was to establish a peer-reviewed decentralized network that could validate transactions in a scalable, secure way — paving the way for dApps and smart contracts — while ensuring that the Cardano platform would be as energy efficient as possible.

To that end, the Cardano blockchain relies on a proof-of-stake algorithm called Ouroboros (a reference to the mythic serpentine symbol of renewable life). Rather than using a network of miners racing to solve a puzzle like PoW systems, Cardano’s PoS uses a network of participants who stake their own Ada. Stake pools are designated nodes that run the protocol, hold members’ Ada, validate transactions, and produce new blocks. Validators are rewarded based on the amount of their stake.

Cardano is divided into two layers: the Settlement Layer (which contains the ledger of accounts and where transactions are validated); and the Computing Layer (where smart contract operations enable the functioning of apps on the blockchain). This two-layer design was set up to increase efficiency and enable the network to process up to a million transactions per second.

Advantages and Disadvantages of Cardano (ADA)

As innovative as Cardano is, there are some pros and cons to consider when deciding whether to buy Ada crypto. Let’s consider some of the advantages first.

Advantages

Because the Cardano blockchain relies on a PoS consensus mechanism, it’s considered more environmentally sustainable than cryptocurrencies that use PoW — which consumes vast amounts of energy. According to an estimate by Charles Hoskinson, one of Cardano’s founders, in February 2021 the network was using only 6 GWh (gigawatt hours) per year, which was less than 0.01% of the estimated 110 TWh (terawatt hours) used by the Bitcoin network.

Another potential upside for investors is that New Cardano products and updates are research-driven, peer-reviewed, and tested to minimize bugs and maximize security.

In addition, Cardano has faster transaction speeds than other platforms and typically charges lower fees. That has given it an edge over other coins and tokens in terms of scalability.

Disadvantages

Nonetheless, the Cardano platform faces some challenges. Although Cardano is well-known as the first and still the largest crypto using proof-of-stake, it has yet to gain the momentum that would allow it to compete with the bigger players.

And although its scholarly bent gives Cardano a lot of credibilities, the emphasis on peer review and testing may have slowed the network’s growth. It has been difficult for the platform to make notable progress in areas like smart contracts.

For this and other reasons, ADA does not yet widely accept another crypto for payments and other transactions.

Who Created Cardano (ADA)?

Charles Hoskinson, the co-founder of Ethereum, began the development of Cardano in 2015 with Jeremy Wood. The two had also founded IOHK (Input Output Hong Kong), a tech company that designed the Ouroboros algorithm. They launched Cardano in 2017. Cardano has positioned itself as an updated version of Ethereum, defining itself as a third-generation platform versus Ethereum’s second-generation status.

Today, Cardano is maintained by three separate organizations:

• The Cardano Foundation – a non-profit responsible for overseeing the development of the Cardano blockchain.
• IOHK – IOHK built Cardano and designed Ouroboros, the proof-of-stake algorithm Cardano uses to operate its network.
• Emurgo – The company charged with helping encourage enterprises and larger organizations to adopt Cardano’s technology

Why Does Cardano (ADA) Have Value?

Ada has value because users need to buy ADA to facilitate transactions and participate in governance on the Cardano blockchain. How much ADA investors own determines who gets to be a slot leader or validator, adds new blocks of transactions, and earns a percentage of the transaction fees.

Ada tokens are also used for voting on software and other policies, such as the crypto’s inflation rate, giving participants an incentive to hold ADA and ensure its future value.

With a recent platform upgrade release, Cardano enabled delegated staking. This allows ADA owners to allocate votes to other users and earn Ada rewards on its live blockchain.

Price of Cardano (ADA)

As of Jan. 15, 2023, the price of ADA is $.35, with a market cap of $36.38 billion and a circulating supply of 33.55 billion.

Since its inception in 2017, ADA maintained a low of just a few cents throughout most of 2018, 2019, and 2020, the price began to rise significantly in February of 2021. It reached a high of about $3 in September of 2021.