Cardano, the first third-generation blockchain to emerge out of a research-first approach, uses ADA as its native cryptocurrency token. Despite ADA being at the center of the Cardano ecosystem, the reason for its existence may not always be clear. For newcomers and veterans of Cardano, it is important to understand the purpose of this cryptocurrency. Why is ADA important? What is it needed for? In this post, we’ll look at the core reasons why ADA is critical to the Cardano ecosystem and how EMURGO is building products to support a mature Cardano ADA ecosystem.
Cardano ADA is Needed for Staking
Firstly, ADA is needed for staking. Staking exists because Cardano is a Proof-of-Stake (PoS) blockchain. To understand how this works simply, we previouslyused the example of a supermarket. In a supermarket, there are multiple checkouts. Each checkout is run by a cashier. These cashiers scan baskets of goods and cashiers are rewarded with money or assets for doing so.
Within Cardano, each cashier is a stake pool operator . Each checkout is a stake pool . A basket of goods is a bunch of transactions that are grouped together into a block, which are added to the Cardano blockchain permanently once they’re scanned by the cashiers and are validated to be correct. Within the Cardano supermarket, there is room to support 1,000 cashiers and checkouts. These cashiers will need to use special equipment to operate a checkout 24/7 and keep the Cardano blockchain up-to-date. The Cardano blockchain is a supermarket that never closes.
However, not everyone who owns ADA wants to run a checkout. Some people will want to help the checkouts operate, without starting one themselves. This is why staking is important. Normal, daily users of Cardano can delegate their ADA resources (their stake) to certain checkouts. This allows cashiers to widen their checkouts to a healthy size and increase their chances that a customer with a basket of goods will visit their checkout. For their effort, the cashiers (stake pool operators) are rewarded with ADA. Without this reward, the cashiers who work hard would quit and the Cardano blockchain wouldn’t be able to continue. For people who stake their resources (coins) to these checkouts, they also receive a reward. This means people earn ADA from staking as an incentive mechanism.
Cardano ADA Allows Transfers of Value
After being rewarded with ADA, cashiers have the right to transfer or hold onto it as they choose. The cashiers (the stake pool operators), the people who help the cashiers (stake delegators) and anyone else who owns ADA has the right to transfer value to anyone with an ADA address. The ADA holder simply needs to know the public address of the person they’re sending value to, much like sending value to an email address.
There are many examples of transfers of value that could happen. Recently, EMURGO brought crypto payments using ADA via EMURGO-developed Yoroi ADA Wallet to the famous Japanese Comedian Kenji Tamura’s restaurant, “Charcoal Grill BBQ Tamura.” This means that anyone can pay for an item on the menu with some ADA. There are many other examples of merchants, restaurants and outlets that have accepted ADA as a form of payment, including EMURGO’s ADA Crypto Card campaign that successfully sold out in South Korea earlier this year.