By CryptoGlobalNews

After a brief hibernation this summer, cryptocurrencies are surging again. And this time, traders are abuzz about Cardano’s ada token.

But what is it and how did it become the third-largest cryptocurrency? Here is what you need to know:

What is Cardano?

Cardano is a decentralized blockchain platform launched in 2017 and spearheaded by Ethereum co-founder Charles Hoskinson. Its self-described mission is to become a more environmentally sustainable and scalable blockchain network, in part by relying less on energy-consuming cryptocurrency miners.

What is ada?

Ada is a digital token, or cryptocurrency. It runs on the Cardano blockchain. It is named for Ada Lovelace, a 19th-century mathematician who is often regarded as the first computer programmer.

Price of Cardano’s ada token in U.S. dollarsSource: KrakenAs of Aug. 30, 3:18 a.m. ET
2021Aug.00.250.500.751.001.251.501.752.002.252.502.753.00$3.25
Why is the price climbing?

In general, altcoins—or alternatives to bitcoin—have been surging lately as individual investors pile back into cryptocurrencies. Cardano’s ada token has emerged as a recent favorite in the pack.

Behind some of its recent momentum is enthusiasm over what is expected to be a September upgrade to Cardano that will provide for smart contracts, which many believe will enable Cardano to better compete with the Ethereum network. Smart contracts are digital agreements, written in code, that can be executed without an intermediary once certain conditions are met. Smart contracts make popular nonfungible tokens, better known as NFTs, possible, as well as decentralized finance applications.

How is Cardano different from other blockchain networks?

One of the primary differences between Cardano and other mainstream blockchain networks is that it relies on a different consensus mechanism—a system that verifies transactions—than other platforms.

Blockchain networks need consensus protocols because there is no central authority, yet they still need to verify and record transactions.

The bitcoin blockchain, for example, uses a system called proof-of-work, which requires miners hunt for hidden numbers to validate bitcoin transactions before they are recorded on the blockchain ledger. In return, miners are rewarded with bitcoin.

That process has come under increasing scrutiny due to its energy use and environmental impact—including from Tesla Inc. chief executive Elon Musk. In May, he tweeted that the electric-vehicle company had suspended accepting bitcoin as payment based on concerns about “rapidly increasing use of fossil fuels for Bitcoin mining and transactions.”

Cardano uses what is known as a proof-of-stake mechanism that doesn’t rely on energy-intensive mining. On the Cardano network, ada holders themselves can participate in verifying transactions. A common way this is done is by ada owners “staking” their holdings with pool operators who fill the function of miners by processing transactions and producing new blocks.

Pool operators are chosen, in part, based on the amount of stake delegated to a pool. Each time a pool is selected and successfully produces a block, the operators—and typically the ada holders who delegated their stake to them—are financially rewarded, according to Cardano’s website.

The Ethereum network is in the process of moving to a proof-of-stake model from proof-of-work.

How has Cardano’s ada token performed?

Ada’s price has more than doubled over the past month. It traded early Friday afternoon at $2.85, according to CoinDesk, up from around $1.28 a month ago. That gives ada a market capitalization of more than $90 billion, making it the third-largest cryptocurrency. Ada’s market capitalization is eclipsed only by bitcoin and ether, according to Coinmarketcap.com.

On a year-to-date basis, ada has surged nearly 1,500% after starting the year hovering below 20 cents. Bitcoin, in contrast, is up about 67% in 2021, CoinDesk figures show, while ether has gained almost 340%.

Still, ada’s rise hasn’t matched that of dogecoin. That cryptocurrency was created as a joke, but has since gone mainstream. It has gained about 5,900% this year.

What do people say are the advantages of Cardano? How about its drawbacks?

Advocates for Cardano say one of its strengths is the research team behind it. It was developed by blockchain engineering company IOHK. As of March, that firm had about 300 employees and contractors, Mr. Hoskinson told Bloomberg in a March article.

“Someone in the bitcoin world might say, ‘That looks really centralized’…But at the same time, you do have a dedicated workforce that’s building it,” said Garrick Hileman, head of research at blockchain.com, a cryptocurrency transactions company.

Among the other benefits, advocates say, are Cardano’s lower transaction fees. A surge of activity on the Ethereum network this spring created growing network congestion and more expensive transaction fees.

Others have questioned the limits of Cardano and ada, especially in the absence of smart-contract functionality. In a conversation with Mr. Hoskinson on Twitter, in May, billionaire Mark Cuban asked, “Where do you use ADA on a daily basis? How should or could I use it today?” He added that he is able to answer those questions for all other cryptocurrencies he owns.

Meanwhile, some say that the proof-of-stake mechanism that Cardano uses hasn’t been time-tested in the same way that proof-of-work has.

“It’s fair to say proof-of-stake is a bit more experimental. There are good reasons why Ethereum has been slower to transition to it,” Mr. Hileman said. “Proof of work has been working, and it’s the one thing that’s demonstrated to remain secure” on sizable networks such as bitcoin and Ethereum.

How can I buy ada?

Ada can be purchased on cryptocurrency exchanges such as Payward Inc.’s Kraken or Coinbase Global Inc. Retail-investing platforms including Israel-trading platform eToro Group Ltd. and SoFi Technologies Inc. allow users to trade ada.

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