This weekend, a not-so-new altcoin has been doing the rounds and has become one of the hottest crypto coins to own. Cardano (ADA), which was founded six years ago by Ethereum co-founder Charles Hoskinson, is currently the biggest market cap of all altcoins (so it’s third behind Ethereum and Bitcoin) according to Coinbase. And in the last couple of weeks, it has hit an all-time high. As a result, it’s gaining even more interest from investors. These include the self-proclaimed “first Dogecoin Millionaire of 2021” Glauber Contessoto, who has recently decided he’s going to go all-in (with newly earned money, not his dogecoin bucks) on ADA.
What’s ADA? Well, Cardano, like Etherum, is the blockchain (Ether is the currency), while the coin doing bits is a token called ADA (it’s named after the mathematician Ada Lovelace) and is the native token/currency for Cardano’s blockchain.
Okay, so why is ADA doing the rounds?
Because it’s newer, cheaper and generally less valuable. But also, it’s a third-generation coin, which means it has been developed to have more uses than first-generation coins such as Bitcoin (which is basically just a coin you hold, buy, or sell) and second-generation coins such as Ethereum.
Also, given Ethereum is doing well, and the co-founder made Cardano, the token holds a certain amount of clout. The team around Cardano are generally well-respected in this world. This boom is down to Cardano announcing a big upgrade (called Alonzo) that will launch in September, allowing for smart contracts, and more decentralised finance (DeFi) options on its blockchain.
So what does a third-generation coin mean?
Ethereum is a second-generation blockchain, which means it has features that first-generation blockchains such as bitcoin doesn’t. These features include being able to make decentralised apps, NFTs, smart contracts and more. The usability of Ethereum is a big part of why it has started catching up with, and could even surpass, Bitcoin. However, Cardano is third-generation as it has even more usability. More-or-less everything Ethereum can do, but more. It’s not suddenly on the same level as Ethereum and Bitcoin because not as many people have heard of it.
What will Cardano do that Ethereum doesn’t?
A lot, really. But some of the most exciting aspects are in the final stage of Cardano’s launch plans (it hasn’t yet launched or finalised all of its features). The ‘Voltaire’ era (Cardano has given names to all of its update phases, Voltaire is the final one). It aims to ensure a voting and treasury system is in place. The idea is that people who own ADA will be able to make improvement proposals, which other stakeholders can vote on.
Therefore people who own ADA have full autonomy over how Cardano continues to be used. There’s also a proof-of-stake element that makes Cardano a little different to the proof-of-work method many other blockchains, such as Bitcoin, use.
What’s proof of stake, then?
So with proof of work, miners try and solve a complex sum, and the fastest miner to do it gets the reward. This means to get the most returns, you need the most powerful (and therefore energy consuming) gear. With proof-of-stake it’s essentially chosen at random, but the more you’ve staked, the more probability you have of winning. So it’s fairer, and better for the planet (because everyone isn’t scrambling to be first).
In short, it’s just a better system – and it’s better to the extent that Ethereum is working on moving from proof-of-work (where miners race to create new blocks for the blockchain the fastest) to proof-of-stake (where the more you stake in the new block, the more likely you’re going to be the miner who creates it) for Ether 2, the updated version of Ether.
So what’s the risk?
Timing, basically. Cardano has had a super-lengthy research and release period, which is still ongoing, and has generally been a bit of a slow burner. The risk is that people have Ethereum, and while there are a few new bits going on with Cardano, it’s just that people might not really care enough about the new features, and are happy keeping the coins they already have.
As it’s still in the middle of its research phases, technically it isn’t a fully-formed blockchain or token yet. So a lot of the good stuff and value is all potential (the developers have outlined their aims) as opposed to results. There’s also every chance an existing coin develops all of these features quicker. You can see Cardano’s ‘roadmap’ here.
So, is it as volatile as other crypto coins?
Yup, it’s an altcoin. They are very volatile, like all crypto. One Cardano is (at the time of writing) worth £2.02, by contrast, one bitcoin is £34,466. So it costs a lot less, meaning people are taking punts and selling small gains in profit constantly, and aren’t shitting themselves about doing so, and therefore, the coin is going to fluctuate a lot. That’s without the usual issues of new launches, social media propaganda (for or against) the token and more.
Where can I get it?
If you’re considering investing in Cardano (ADA), make sure you do research first. This article isn’t financial advice, it’s just some reportage. However, should you decide to go through with it, you can get Cardano on most cryptocurrency exchanges, and even more mainstream brokerage companies like eToro.
As always, good luck!
Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.
Key crypto terminology you need to know
Decentralised Finance (DeFI)
This is a general term for financial activity on the blockchain. The same sorts of things you can do in a bank, but completely decentralised. These features include smart contracts, which are very secure contracts. Ethereum has this option, and it is part of why Ethereum has boomed. In Cardano’s case, you may well even be able to loan money and much more.
Proof-of-work (PoW) is a consensus mechanism where miners have to complete a complex crypto puzzle (this is the work aspect) in order to validate a block in the blockchain. The miner that solves the puzzle first is rewarded with crypto. The slower miners will then validate the result, in order to provide a consensus on what the puzzle was. This means that if anyone was trying to tamper with the solution, their work will look different to everyone else’s – it would be seen as fraudulent, and blocked. When this is all sorted, the block (which holds transaction information among other things) is added to the blockchain.
With proof-of-stake, a random miner is assigned to mine a block and rewarded for it. Other miners will then be chosen to validate the mining to make sure everything is legitimate. The probability of being selected depends on how much you stake (how many of that coin you own). The fact that miners aren’t all rushing to solve the puzzle first means a lot less energy is used.
Fungible tokens are a currency created on a blockchain that can be held, traded, or used to buy things. In Cardano’s case, ADA is the native token made on Cardano’s blockchain. Fungible just means there are many of them, so you can swap for something of identical value – like a tenner. Non-fungible is when it’s a unique piece and has a value, like an artwork.