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ADA, Cardano’s Native Token

Introduction to ADA 

ADA is the native token of the Cardano blockchain. Launched in 2017, ADA has two main functions; It is used as a transfer of value. ADA is named after Ada Lovelace, the nineteenth-century mathematician who is widely considered to be the first computer programmer.

What is ADA? 

Third-generation blockchain, Cardano differs from Proof of Work (PoW) blockchains like Bitcoin and Ethereum in that it runs on a Proof of Stake (PoS) consensus mechanism. This gives Cardano, and subsequently, ADA, many benefits over its predecessors.


What is Proof of Stake?

We’ll make this a quick explanation as we have other articles that explain Proof of Stake in more detail.


A Proof of Stake blockchain relies on holders of the native coin to validate transactions; it is much quicker and hugely more energy efficient than Proof of Work Blockchains (like Bitcoin and Ethereum). ADA holders also earn rewards for staking their tokens.

The Limited Supply of ADA

Launched in 2017, ADA is designed predominantly as a digital currency that can be used as a secure and speedy exchange of value without requiring a middle man taking his slice of the pie! (more on this later)


Like Bitcoin and now Ethereum has a fixed maximum amount that will ever be produced. ADA has a maximum supply of 45 billion ADA, at the time of writing there are just over 33 billion ADA in circulation. 


So, why is this a good thing?


Well, think of it like this. You fancy hanging a Picasso painting in your house; you have two options, buy a cheap replica print from Ikea or stump up the cash for an original...which one is going to hold its value or even be worth more in years to come? 


Bingo!


There is a limited supply of original Picasso paintings (Pablo Picasso died in 1973) but the replica prints can keep being produced infinitely.


This analogy can be used for cryptocurrency, tokens with a supply that is not capped are less likely to hold their value and thus their long term adoption is less likely. 


We see the same thing in fiat currencies, like the US$ (the term fiat is Latin and means a “determination by authority”, in this case, a government decides how much it is worth rather than being based on the value of another asset). 


The US government can keep printing fresh new dollar bills all day long, but because the total supply keeps going up, the purchasing power of the fiat currency goes down.

What is the ADA Coin Used For? 

ADA has two main uses; digital payments as we mentioned above but ADA also allows people to utilise smart contracts to create dApps (decentralised applications) and decentralised exchanges (DEXs).


Both offer the Cardano blockchain opportunities for huge growth and adoption. While the smart contract functionality is still (at the time of writing) in its infancy, there are a bewildering amount of dApps and DEXs (like Cardax for example) being built natively with ADA.


In addition to this, as a result of the high fees on Ethereum, I expect a substantial amount of dApps that currently run on Ethereum, to migrate to Cardano and ADA.


This is truly a very exciting prospect!

Staking ADA

Whilst staking isn’t a direct use-case of ADA, it’s a pretty cool incentive for using it!


In short, staking ADA is an essential component of the way the Cardano blockchain works. To keep the network running, holders stake their ADA tokens, this then enables the PoS mechanism to verify transactions on the blockchain.

The more holders that stake, the more transactions can take place.


As an incentive to stake their coins, holders receive around a 5% reward (paid in more ADA tokens). ADA tokens can be kept in your own wallet (see below) and are not locked up.


The minimum amount of ADA a holder needs to be able to join a stake pool is only 10 ADA (currently around $20USD), making it more accessible for everyone. Other PoS blockchains do offer staking but they either require a much larger holding or they require your tokens to be locked up for a predetermined amount of time (or both).

Storing ADA

While you can store and stake your ADA on a centralised exchange, such as Binance, it is much more secure to store them in a dedicated cryptocurrency wallet. If your ADA is on a centralised exchange, you are not in control of your cherished tokens!

Types of ADA Wallet

Cardano themselves have developed two main wallets to securely store your ADA tokens.

Yoroi Wallet

The Yoroi wallet is a “light wallet” (it doesn’t require a full copy of the blockchain to be downloaded). Yoroi is available as a web-browser based extension or a downloadable app, that is a perfect solution for holding your ADA.

Daedalus Wallet

The Daedalus wallet is a “full-node” desktop wallet, (it stores a full copy of the blockchain and independently validates every transaction you make). Because no third-party servers are needed it makes it one of the most secure methods of holding your ADA.

Hardware Wallets

Hardware wallets are the most secure method of storing your ADA as they are not connected to the internet. Ledger and Trezor are well known and trusted hardware wallets. (Hardware wallets like these should only ever be bought over a trusted store or directly from the companies themselves.)

Is ADA Better than Bitcoin? 


The short answer is that it depends on what you want it for, but this doesn’t help you very much so I’ll explain what I mean. 


Comparing Bitcoin and ADA is a little like comparing a family car and a race car, they both do similar things but are used in a different way.


Put simply, Bitcoin is evolving into a store of value (like gold), whereas ADA is designed to be an exchange of value (like a regular fiat currency). However, both can be used for either role.


We know what you’re thinking, that doesn’t clear things up at all! Well, let’s look at how well they work rather than what they can do.


This is much clearer!


Transactions with ADA are much cheaper, much faster and much more energy-efficient than those using Bitcoin, and the holders of ADA, get rewards just for staking their coins.


Yep, based on those reasons, ADA wins hands down!


So how about ADA versus Ethereum?

Is ADA Better than Ethereum? 

When it comes to Ethereum, it’s a bit easy to make a comparison. Both blockchains are layer one, smart contract enabled solutions, meaning they are built to have dApps built upon them but as we said earlier, ADA is also designed to be used in transactions as an exchange of value.


Whilst Ethereum has had over a two-year head start on ADA (ETH went live in July 2015, ADA in September 2017), ADA has used this time to work out how to do things better.


Do you see where this is going?


True, Ethereum has many more dApps already utilising smart contracts but its growth has caused BIG problems.


Ethereum is a Proof of Work blockchain, the more activity that is performed on the network, the slower it gets and the higher the transaction fees go.


ADA fixes this by being a Proof of Stake blockchain. Like our earlier comparison to Bitcoin, ADA does it all faster, cheaper and more environmentally friendly.


That’s two wins in the bag for ADA!

Final Thoughts

While ADA mass adoption is still (at the time of writing) building momentum, it is clear that the time spent researching how to do things right is paying off.


The future acceptance of crypto with the mainstream relies on currencies such as ADA and that future looks great!

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