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What is Cardano? An Overview of ADA and Its Uses

Henning Taeger
Henning Taeger
Henning is a writer and editor here at Dollargeek who is passionate about personal finance and cryptocurrency. He enjoys sharing his knowledge about financial management and cryptocurrency with readers, helping them make informed decisions about their money. In his spare time, Henning can be found playing the latest video games or jamming on his guitar. He is constantly on the lookout for new ways to improve his financial literacy and stay up-to-date on the latest trends in the world of cryptocurrency.

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What is a Cardano?
Table of Contents

Introduction

Cardano is one of the latest additions to the crypto market, and the blockchain network has one of the biggest coins today by market cap.

The Cardano blockchain and its token (ADA) are new, and like popular digital currencies, such as Bitcoin and Ethereum, people can store the coin or trade with it. So what is Cardano? In this article, we’ll discuss Cardano – its blockchain, token, uses, and how it works.

What is Cardano (ADA)?

Cardano is also known as the Ethereum of Japan. Ethereum co-founder, Charles Hoskinson, created Cardano in 2015.

He established a company called IOHK, which later developed ADA as an alternative platform to the Ethereum blockchain. The blockchain platform also aims to provide banking services to unbanked people worldwide.

Since its launch in 2017, the decentralized blockchain (similar to the Ethereum blockchain) has made the market more flexible and scalable for traders to run smart contracts and developers to build DeFi apps (DApps).

The blockchain also permits peer-to-peer trading using its native cryptocurrency, ADA. And it uses the proof-of-stake consensus mechanism to validate transactions.

Just like Ethereum’s native token (ETH), people can buy and sell ADA on crypto exchanges and also hodl the token to store value.

You can also use ADA to pay for goods and services or receive it as a form of payment if you’re a merchant with an online business. Similarly, traders can stake ADA or use it to pay transaction fees on the Cardano blockchain.

The coin traded for as high as $3 in the past, and there’s a forecast of it reaching $6.39 in 2027.

How Does Cardano Work?

As earlier mentioned, ADA creators set out to make it a new-generation Ethereum-like blockchain platform that’s more sustainable. But how does Cardano work?

To make transactions more secure, sustainable, scalable, and efficient on its blockchain network, the Cardano blockchain validates its transactions using a proof-of-stake (PoS) consensus mechanism known as Ouroboros.

Unlike Ethereum and Bitcoin blockchains’ energy-consuming proof-of-work mechanism, PoS is more efficient, faster and more secure because validators on the network process more transactions and pay lower transaction or gas fees.

In other words, validators complete transactions on the ADA network instead of miners solving complex tasks and running on high-end devices in PoW.

These validators are also Cardano owners who add some of their tokens to the liquidity pool for secure and efficient transactions – and they get rewards in the form of ADA tokens when they validate transactions.

Now, let’s talk about how this works on the blockchain.

The Cardano blockchain has two layers;

  • Settlement Layer: As the name implies, the settlement layer allows the exchange of ADA tokens from a sender’s Cardano wallet to a receiver’s wallet. This is similar to how people can send and receive ETH.
  • Computation Layer: The computation layer is responsible for smart contracts. It’s this layer that allows people to enter and run smart contracts.

How is Cardano Created?

Remember the validators that verify and complete transactions on the Cardano blockchain? They are the reason there’ll be more ADA tokens in circulation. You’re probably still wondering how this works. We’ll explain.

With the proof-of-stake mechanism the system runs on, the validators must first buy and stake ADA tokens before the blockchain assigns transactions to them. At the same time, they get free crypto for work done. This way, there’s always ADA in circulation.

However, just like Bitcoin, ADA’s total supply is capped at 45 billion coins, and there are currently over 33 billion ADA in circulation. In other words, the network will stop issuing new coins once the 45 billion mark is reached.

Uses of Cardano

Like ETH, you can use ADA for:

Digital Transactions
You can store Cardano in your wallet and use it to buy and sell other cryptocurrencies. You can also use it to pay vendors that accept crypto payments for their goods and services.

Smart Contracts
Like every other DeFi cryptocurrency, you can enter smart contracts with Cardano. This involves staking your Cardano token in the blockchain’s trading pool and getting rewards in the form of ADA tokens.

Decentralized Finance (DeFi)
The Cardano blockchain allows direct peer-to-peer trading. In other words, traders don’t need any middlemen or financial institutions to carry out transactions.

Decentralized Apps (DApps)
People can use Cardano to build DeFi apps (DApps) and also access the network through such applications. This means with Cardano, you can carry out financial transactions like lending, borrowing, trading, and insurance on supporting DeFi applications.

What is a Cardano Wallet?

A cardano wallet is a digital wallet in which you can store and manage ADA after buying it. The wallet also allows users to send and receive Cardano tokens from one person to another.
In other words, you may liken a Cardano wallet to a traditional bank account where you store, manage, send and receive money.

Usually, ADA wallets are available on crypto exchanges, and you’ll find them in software, hardware, and online formats.

How to Buy Cardano

To buy ADA, you need an exchange that sells the token. Usually, you’ll need to register or sign up on the exchange to get started.

Afterward, you’ll log into your account on the exchange’s app or website, then proceed to buy the amount of ADA you want and pay with fiat currency or another crypto. Once the purchase is successful, you’ll receive the equivalent amount in your wallet. And that’s it!

Ensure that you are certain about an exchange’s security before registering on such a platform to buy Cardano. This will save you from losing money to fraudsters. Also, great exchanges are fast, easy, and with an excellent user interface. So, you should be on the lookout for these as well.

Conclusion

Since its addition to the cryptocurrency market, Cardano has been an alternative blockchain platform for running smart contracts, storing value, and making digital payments.

We believe you now know what ADA is, how it works, its uses, and how to buy Cardano.

It’s important to note, however, that it’s still the early days for ADA. We can be optimistic and wait for what the future holds for the Cardano blockchain and ADA token. It can certainly make a good investment in a diversified portfolio.

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