Investing in Cardano? What to Know About ADA Cryptocurrency

Cardano, led by an Ethereum co-founder, has become one of the most highly valued cryptocurrencies.
Dec 22, 2021

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Cardano is a fast-growing blockchain network that fashions itself as a next-generation competitor to Ethereum.

Investing in Cardano involves buying the network's native cryptocurrency, known as ADA, which has grown in recent years to become one of the most highly valued digital assets on the market.

Cardano tokens can be used to pay for services on the network, or they can be bought or sold with U.S. dollars. Many buyers of Cardano also consider the tokens an investment, hoping they will rise in value as more people use the technology.

Buying Cardano also involves a considerable amount of risk. Cryptocurrency is a novel, volatile space in which the fortunes of any particular asset are difficult to predict.

Here are some details on how to buy Cardano. To evaluate whether that's a good decision for you, you'll need to understand how Cardano works, how it compares with other blockchain technologies and what you can do with Cardano.

How to buy Cardano

To buy Cardano, you'll need to follow four basic steps:

  1. Decide whether to invest in Cardano.

  2. Find a place to buy it.

  3. Add value to your account.

  4. Buy and store Cardano.

Is Cardano right for you?

Cryptocurrencies have historically been prone to rapid shifts in value, and Cardano is no exception. That means that if you're looking at Cardano or any other digital asset as a way to make a quick buck, you could be disappointed just as easily as you could be rewarded.

Generally, if you're investing in cryptocurrencies, it's best to keep them in a small cluster of high-risk investments in your portfolio. A general guideline for investors is to hold off until they've made more pressing financial moves, such as shoring up retirement and paying off short-term debt.

If you are in a position to purchase Cardano, it's also worth thinking about its prospects for long-term growth.

Cardano is among several projects aiming to carry out a range of complex transactions without the help of a middleman such as a bank or a broker. If Cardano can grab a significant share of this market, demand for ADA cryptocurrency could rise — potentially increasing its value.

That said, Cardano is still in development and critical features, such as "smart contracts" that execute automatically when certain conditions are met, are only just rolling out. Competing networks such as Ethereum, Solana and others may wind up dominating the market, leaving little room for Cardano to grow.

Where can you buy Cardano?

Cardano is a widely circulated cryptocurrency, so you have several options if you choose to buy it. A common way to purchase cryptocurrency is on a centralized exchange.

Decentralized exchanges, where cryptocurrency is traded in peer-to-peer exchanges, are also an option that can carry lower costs. But these generally require more technical expertise and may be difficult for new users to navigate.

Of the platforms reviewed by NerdWallet, seven carry Cardano: Binance.us, Coinbase, Coinmama, Crypto.com, Kraken, SoFi and Webull.

How do you pay for Cardano?

There are two main ways to pay for cryptocurrencies.

Cash: Most cryptocurrency exchanges accept fiat currency such as U.S. dollars. If you're a first-time investor or want to increase your overall exposure to cryptocurrencies by buying Cardano, you'll have to convert your cash into ADA.

Exchanges commonly accept ACH, or Automated Clearing House, transactions from banks, as well as wire transfers, debit cards and credit cards. However, be aware that using high-interest debt such as a credit card balance to buy cryptocurrency is especially risky. If your investments lose money, you could find yourself with significant interest payments and no way to pay back your principal.

Cryptocurrencies: Another option in many crypto marketplaces is to trade some of your existing digital assets for Cardano. Not all exchanges offer this option, so make sure you review the details for the platform you intend to use.

Trading existing cryptocurrencies may be an option if you're looking to diversify your crypto holdings without tying up more of your cash in the space. It can also reduce costs associated with converting cash into crypto in some marketplaces.

One factor to consider is that the relative values of cryptocurrencies (say, Bitcoin to Cardano) tend to fluctuate even more than their cash values. That might be OK if you're carefully observing the market and want to convert some of your gains into Cardano.

If you'd like to avoid the complexity while keeping your transactions in crypto, however, you can consider using stablecoins, whose values are pegged to currencies such as the dollar.

Where can you store Cardano?

Like with other cryptocurrencies, owners of Cardano have the option of storing their holdings in a digital wallet or leaving them in the custody of an exchange.

Using an exchange: Storage services offered by exchanges are the most straightforward option for beginning crypto investors, but they also involve some trade-offs.

The private keys that give you ownership of your cryptocurrency will not be in your possession with many of these services. That means you have to trust a centralized third party's security protocols and business practices.

And though most reputable exchanges have taken steps to secure, and in some cases insure, assets held on their platforms, the threat of hackers is never far away given the high value of some digital assets.

Use your own wallet: Digital wallets provide secure storage of the private keys you will use to access, spend or trade your cryptocurrency.

The trade-offs here are the opposite of what you face with storing on an exchange. First, your assets are in your control, which means it's on you to keep track of them. If you lose your private keys, your cryptocurrency is gone.

There are two major kinds of digital wallets.

  • Hot wallets: These are digital wallets that can connect in some form to the Internet. These can be convenient, but they also carry some risk because their connectivity makes them theoretically reachable by hackers.

  • Cold wallets: These are digital wallets that store private keys on some sort of removable storage device. They involve physical hardware that you must be careful not to lose.

Whatever digital wallet you choose, make sure it's compatible with the Cardano network and the exchange where you intend to buy the cryptocurrency.

Pros and cons of Cardano

Cardano differs from other cryptocurrencies in several ways. But if it succeeds, it could become one of the leading networks used by decentralized applications designed to cut out intermediaries, and their associated costs, in fields such as finance and computing.

Here are the pros and cons to consider when deciding whether to buy ADA.

Pros

Well-known leadership: Cardano founder Charles Hoskinson was also a co-founder of Ethereum. He has said his latest project is a logical next step of the ideas that have been simmering in the blockchain space.

Academic review: Cardano presents itself as a product of unique academic rigor. The platform's developers say it is the first of its kind "to be founded on peer-reviewed research and developed through evidence-based methods."

Cardano staking: Cardano is among a new generation of crypto projects underpinned by a concept called "proof of stake." This is a complex subject, but generally, proof-of-stake cryptocurrencies encourage owners to "stake" their holdings to help verify transactions on the underlying blockchain network. This gives owners an option to earn cryptocurrency without buying more. Crypto staking can also be a more environmentally friendly alternative to the energy-intensive "proof-of-work" process pioneered by Bitcoin. (Curious about staking? See our list of the best crypto platforms for staking and rewards.)

Cons

Still in development: The creators of Cardano are taking a deliberate approach toward rolling out features on the network, and some key features that will define its potential are just in their infancy. For instance, the network only recently introduced the ability to carry out smart contracts. As a result, it will have to play catch-up to more established smart contract protocols like Ethereum and Solana.

Stiff competition: While Hoskinson believes that Cardano is the best way to carry out the vision that began with Ethereum, the older protocol still has many fans. And it is continuing to roll out updates that will help it compete with newer entrants. Other well-known developers are targeting the space as well.

Blockchain risks: Many people believe blockchain technology will underpin a massive economic shift that eliminates the costs and impediments of centralized services. But this transition has not yet played out, and there is no guarantee that it will. Centralized services may remain the dominant way to establish trust and reliability in transactions.

The author held no positions in the aforementioned securities or cryptocurrencies at the time of publication. NerdWallet is not recommending or advising readers to buy or sell Cardano or any other cryptocurrency.

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