What is Cardano?
Cardano is the first blockchain network to implement Ouroboros, the first peer-reviewed blockchain protocol with the goal of sustainable scalability and security. Guaranteed by proof-of-stake with network control distributed across stake pools, with stakers earning rewards to incentivize participation, Cardano takes a new approach with random leader selection. Each slot leader, as they are called, is asked to “settle” their transaction block by reviewing preceding blocks. Cardano describes their use of game theory and philosophy as the method behind a more fair and environmentally conscious way of validating transactions and keeping the Cardano network secure.
Cardano prioritizes openness and transparency and publishes weekly updates on its roadmap. Its blockchain development consists of five eras, namely: Byron (Foundation), Shelley (Decentralization), Goguen (Smart contracts), Basho (Scaling), Voltaire (Governance). Each era focuses on a specific functionality related to the goal of the platform.
The Cardano Foundation is an independent non-profit organization that oversees the development of Cardano. Its team is distributed all over the world, and the Foundation works closely with Input Output HK (IOHK) and EMURGO, two blockchain research and technology companies providing investment and development support to the Cardano community. The founders of IOHK, Charles Hoskinson and Jeremy Wood, are the original brains behind the Cardano project, but they have prioritized—and achieved—decentralized governance of the protocol.
What is ADA?
ADA is the native token of the Cardano protocol. It can be exchanged as a store of value, with each transaction validated by the Cardano network, and it can be staked to earn incentives. The Cardano roadmap includes additional use cases for ADA, with enhanced governance processes.
ADA tokens were initially distributed via token sale, with rounds of sales taking place between 2015 and 2017. The three supporting entities mentioned above, Cardano Foundation, IOHK, and EMURGO, all received a percentage of ADA (about 20% of total supply) with most ADA distributed to investors and set aside for future network incentives. There is a max supply of 45 billion ADA tokens, which has not yet been reached.
How does ADA compare to Bitcoin?
ADA differs from Bitcoin in a few key ways.
First, ADA powers the proof-of-stake process for Cardano, a blockchain entirely separate from the Bitcoin blockchain. Since Cardano uses proof-of-stake instead of the proof-of-work method of Bitcoin, ADA tokens are staked as part of the validation mechanism, in contrast to BTC which are mined as a result of the proof-of-work algorithm.
The second major difference between ADA and Bitcoin is their age. ADA was launched in September 2015, with Cardano’s mainnet launching in September 2017, compared to Bitcoin’s 12 or so years. Despite this difference in age, however, Cardano has reached decentralization relatively rapidly and as of September 2021 holds the third spot in terms of market cap behind only Bitcoin and Ethereum, but still trails behind Bitcoin by a significant amount.
Additionally, the Bitcoin blockchain does not perform any other functions besides processing transactions. ADA, however, allows developers to use the Cardano blockchain to create and design self-executing/enforcing contracts, and exchanges and staking pools to integrate with the Cardano blockchain.
Just like Bitcoin, ADA is decentralized. No single entity maintains the ADA network, meaning that the token is divided between a potentially unlimited number of users, none of whom have ultimate control over the system.
However, it should be noted that although ADA is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that ADA will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in ADA’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about ADA, including an opinion that ADA is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of ADA prior to making it available on Wealthsimple Crypto and has concluded that ADA is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated ADA based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of ADA, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Cardano;
- The supply, demand, maturity, utility and liquidity of ADA;
- Material technical risks associated with ADA, including any code defects, security breaches and other threats concerning ADA and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with ADA, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of ADA.
Like all other crypto assets, there are some general risks to investing in ADA. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. In addition to these general risks, ADA presents an elevated short history risk. Further, the Cardano community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of ADA have no recourse to Cardano or Wealthsimple if ADA declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading ADA. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.