August 3, 2021

How to Invest in Cardano

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Cardano is the fifth-largest cryptocurrency by market cap, making it one of the premier altcoins on the market.

Cardano, a popular Ethereum competitor, could see huge growth as it implements smart contracts.

But what does Cardano really have going for it? Is it worth your investment?

Below, take a deep dive into Cardano and fully understand its advantages and risks. Then, learn how to invest in Cardano and how to stake it for a nice yield.

What Is Cardano?

Cardano is a public, decentralized, open source blockchain platform. Its native token is ADA which, at the time of writing, is the fifth biggest cryptocurrency by market cap and worth about $1.33.[1]

Cardano is also commonly described as an "Ethereum killer."

Ethereum was the first "programmable" blockchain, but it still suffers from slow transaction times and high energy consumption. Cardano was specifically engineered (and extensively peer-reviewed) to fix these issues.

For example, the most infamous issue with Ethereum right now is the platform's high gas fees. Gas fees are charged whenever a user transfers or transacts on the Ethereum blockchain. Cardano's fees are drastically lower than Ethereum's and offers better speed and energy efficiency.

How? Cardano uses a proof-of-stake model, meaning only a fraction of the people who own Cardano can mine ADA. That cuts back on energy consumption by a lot. It can also handle a high volume of transactions (257tps), unlike Ethereum's blockchain (15tps).

Cardano soon plans to implement "smart contracts" (i.e., pieces of code that can be executed without human intervention). These allow developers to build automated tools and conditions onto the blockchain.

Ethereum vs Cardano
Charles Hoskinson, the founder of Cardano, actually co-founded Ethereum back in 2013 with Vitalik Buterin.

Charles left Ethereum and started Cardano over disputes about venture capital and governance structure. Today, Charles is gaining a big following on his YouTube channel and other social media platforms.

4 Reasons to Invest in Cardano

As more concerns are raised about the environmental impact of crypto mining, "eco-friendlier" options like Cardano are becoming popular. Should you invest? Consider these four factors.

1. Cardano Has Lower Fees

The Ethereum team has long delayed addressing the issue of high gas fees, which has caused a lot of frustration in the Ethereum community.

Many crypto investors speculate that, if Ethereum does not resolve this issue, developers may leave and flock to other blockchain platforms with lower fees, such as Cardano. In turn, this would cause ADA to become more popular and increase in value.

It's worth mentioning that high fees are not unique to Ethereum. Bitcoin has also come under fire for its high fees and longer transaction times. Similarly, this has led speculators to invest in Bitcoin "competitors" with lower fees, like Bitcoin Cash and Litecoin.

2. Cardano to Soon Implement Smart Contracts

One of the biggest opportunities in cryptocurrency are smart contracts. You can think of smart contracts as simple "if-then" programs that run a blockchain when predetermined conditions are met.

Essentially, they allow two parties to agree on terms and form a contract, without the need for a third party.

Smart Contracts Example
Let's say that Brian agrees to pay Ken a 5% fee to borrow $2,000 worth of Bitcoin from Ken for 150 days. Using a smart contract, this agreement can run via code on the blockchain, rather than relying on a third-party financial institution to enforce it (and likely charge the two parties extra fees).

Currently, smart contracts are used mostly for borrowing and lending cryptocurrency. However, many people think that everything from stock options to real estate deals will eventually migrate onto the blockchain with the help of smart contracts.

So far, Ethereum is still the premier player in the smart contract game. But if their high gas fees continue, it's reasonable to expect that Cardano will steal some market share as they roll out their own smart contract system.

3. Cardano is More Energy Efficient

Elon Musk recently announced that Tesla would stop accepting Bitcoin as payment because its excessive energy consumption is problematic.

Since then, many cryptocurrency investors are piling into Cardano, which is much more energy-efficient thanks to its Ouroboros protocol.

Ouroboros is a proof-of-stake technology that improves the security of the blockchain platform, all while using a fraction of the energy cost of proof-of-work blockchains like Bitcoin.

Because this staking mechanism results in far less energy consumption, many believe that it's only a matter of time before Elon declares his support of Cardano.

Will Elon support Cardano? We've seen Musk's ability to sway the market (just look at the Dogecoin hype), so it's not unreasonable to predict his support given the headway Cardano is making into sustainable blockchain technology.

4. Cardano Africa and Cardano's Management

Cardano Africa is the biggest blockchain deal ever. Essentially, Cardano is trying to create a digital financial identity for millions of people in Africa, many of whom have no access to basic banking technology.

This deal illustrates the vision of the Cardano management team. The brilliance of Cardano Africa is that it combines many trending and increasingly important investment themes, including:

  • ESG
  • Emerging markets
  • Demographics
  • U.S. regulatory issues

In striving to create financial equity for millions of people in Africa, Cardano Africa is tapping into the ESG investing trend. Firms as big as BlockRock have noted that ESG will be one of the biggest investing themes of the coming years.

Cardano Africa is also tapping into an emerging market with better economic opportunities than the west. Plus, the population of the west is rapidly aging and has low birth rates, while in Africa, the opposite is true.

Lastly, if any extreme regulations get passed in the U.S. that punish cryptocurrencies, Cardano now has robust exposure to other markets and populations.

Risks to Consider When Investing in Cardano

Even with all of the above factors, it's important to acknowledge that Cardano is still a highly speculative investment. Most development and smart contract activity still happens on the Ethereum blockchain, despite its issues and fees.

This is because Cardano is still rolling out full smart contract functionalities. In other words, Cardano is playing catch-up in the smart contract game.

For these reasons, an investment in ADA is largely a bet on Cardano's and Charles Hoskinson's vision and future execution, rather than a bet on the current value of the ecosystem.

You'll have to do your own due diligence and decide for yourself whether an investment so dependent on future outcomes is something you're comfortable with.

How to Invest in Cardano

Cardano's native cryptocurrency ADA is available for purchase on a wide variety of exchanges. The following three exchanges are some favorites of ours; here are the pros and cons of each:

Coinbase
Coinbase is arguably the fastest and easiest exchange to use when it comes to cryptocurrency investing. Coinbase added ADA to their platform back in March.

For those who are new to crypto investing, Coinbase offers an easy way to get started and a simple interface. You are also able to transfer off the platform (which isn't the case with platforms like Robinhood).

The biggest con to using Coinbase is that their fees can be high. If you're doing lots of trading, these fees can really add up. But if you're more of a buy-and-hold investor (or "HODLer"), the fees may be less of an issue for you.

Read more: Coinbase Review

Binance
Are you more experienced, and looking to save some money on fees? Binance may be the better choice for you.

Binance's international platform is more robust, making it an easy choice for those worldwide, but luckily, binance.us also allows you to buy and sell Cardano (ADA).

Experienced crypto investors tend to prefer Binance over Coinbase for their low fees and superior customer service. U.S. investors have roughly the same number of coins available to them on each platform (52 on Binance vs 51 on Coinbase). Try both platforms and see which you prefer.

Read more: Binance Review

Kraken
In terms of fees, Kraken falls somewhere between Binance and Coinbase. Kraken offers access to many different cryptocurrencies (56 at last count).

However, Kraken's user interface is best suited for more experienced traders and investors. As such, we recommend new investors get their feet wet using Coinbase or Binance, and then move on to platforms like Kraken if they want to up their game.

Read more: Kraken Review

How to Stake Cardano

Now that you've bought some Cardano/ADA, you have a decision to make. You can leave your ADA on the exchanges above, and easily be able to trade in and out of your position. For many, this liquidity is attractive.

However, most exchanges still don't offer ADA staking. Staking means you essentially lend your ADA to a stake pool, and can earn a yield as a reward. Typically, this yield hovers around 5%.

For those who have larger investments in Cardano and plan to hold it for long periods of time, staking is worthwhile, as you are essentially paid a 5% dividend while you wait for ADA to go up in price.

For example, a $10,000 investment in ADA would pay you a yearly yield of $500 if you staked your full holdings.

If you want to stake ADA, the best way to do so is by using the Daedalus Wallet or Atomic Wallet. You will need to purchase your ADA on one of the above exchanges, and then transfer it to one of these two wallets. Once your ADA has been transferred, it can easily be added to a stake pool in these wallets.

The process varies slightly for each wallet, but is generally simple:

The Daedalus Wallet is the "official" Cardano wallet and was designed for Cardano specifically. If you're a Cardano purist or fanatic, this is probably the better wallet to go with.

However, it ONLY supports Cardano currently. If you wish to hold multiple coins in the same wallet, and also earn a yield on your staked ADA, the Atomic Wallet offers more flexibility and versatility.

Bottom Line

So, is investing in Cardano right for you? Only you can decide! While Cardano is certainly a speculative investment with several risks, it also has many bullish factors working in its favor. These include energy efficiency, low fees, and the possibility of conquering the smart contract market.

Cardano is also led by a visionary leader with a clear grasp of investment trends. Hoskinson appears to be positioning the network for great success going forward.

So, there is significant risk, but also significant potential for reward. Investors must weigh all these factors for themselves before making their decision.

References

  1. ^ "Cardano (ADA)": coindesk, 2021.

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