The Pricing of Ada and Use Cases

Good Afternoon Everyone,

I am a new member of the community but I have started in the deep end, I have purchased some Ada and am now operating a stake pool NASEC with my partner. We really want to participate and be an active part of the community but I have some questions I haven’t been able to find answers to yet.

People want to make quick money and so they dream of the price of Ada hitting $35 tomorrow, given how much I now own I would be happily too. I also understand the need to protect from a 51% attack.

As I understand Crypto currencies and from as much information from Charles as I can gather there is a goal to help people from locations such as Asia and Africa. This would be done through the use of Ada as a currency in and an entire monetary system from what I understand. Something that is concerning me is that $1 is a lot of money in these locations and so it brings me to my questions.

  1. Volatility
    I have been told that Ada isn’t designed to be a “stablecoin” i.e. there isn’t really a mechanism for prices to remain stagnant. Doesn’t this make the use of the coin akin to trading in Venezuelan bolivar or Zimbabwean dollars or any other currency with massive fluctuations where you can arrive at a restaurant and potentially not be able to pay for your meal by the end of it? How could such a currency be considered for use in any meaningful way?

  2. Price
    Given that Charles mentions helping people in Africa and Asia this is the one I really don’t understand and I am sure that IOHK must already have an answer. Prices of even say a meal in these locations are sometimes well below a single dollar so how could Ada be used in such a place assuming the price does in fact go up? In fact I’d be interested even to know how it can be used now even at $0.12.

  3. Goal
    Is there a “goal” for the price of Ada, something that is sufficient not to render it vulnerable to a 51% attack but to remain useful in locations outside of first world nations?

Looking forwards to trying to wrap my head around what I don’t yet understand.

Thanks so much to the community I wish everyone happy staking!
Alex

1 Like

Others might reply in more detail but IMO it’s not about ordinary people using ada, it’s about Cardano supplying financial infrastructure, digital ID, supply chain tracking etc. Oh, and stable coin(s).

2 Likes

I believe Charles have thought about a stable coin backed by ADA and that would be a game changer not only for that particular problem but for much more!

1 Like

Well ADA can be partitioned so if ada goes up someone can pay for a meal with a fraction of an ADA.

1 Like

Thanks for the reply RobJF, can you please elaborate a little more on each of your points?

I believe I understand the notion of Cardano being used as financial infrastructure, it’s incredibly competitive right now when transaction fees are so low in value but in the future with a higher price this would also make Cardano more expensive than traditional cashless FIAT solutions such as VISA.

I am not sure I understand what your other points mean. Apologies.

It’s not vulnerable because it’s too expensive and counterproductive to make an attack on the system.

Ah this could explain everything if you can transfer a single lovelace but from my current Daedelus wallet I cannot transfer less than a single ADA. This would be the most embarrassing explanation for me as I just am not aware than sub Ada transactions are possible!

Can someone just for my clarity confirm if you can transfer less than a single Ada?

When the value of ADA changes substantially transaction fees will be adjusted accordingly.

On the other points, I don’t just want to fob you off, but others have already written screeds, I suggest you google “digital identity” and “supply chain tracing”.

I like to think of Ada as the fuel that powers the Cardano Network! Since Cardano will soon be controlled by ‘we the people’ it is a true global currency the likes of which we’ve never seen!

Hey Welcome! Glad to have you in the community! Yah sounds like you have some reading to do! Regarding a 51% attack a single entity or coordinated group would have to own or control 51% of all the Ada. Buying that much would be economically unfeasible as the more you buy the more you drive the price up and the more expensive it gets. Also if it were to somehow happen the honest minority could fork the chain and cut out the dishonest actors. A coordinated group of pools could conceivably control 51% of delegated Ada (that is called a Sybil attack) but the pledge mechanism was introduced to prohibit that. Here is an article about it:


Regarding transaction fees and using Ada for currency it’s important to think about why decentralized blockchains have a crypto currency component at all. There are a lot of reasons the development of Bitcoin is amazing but one of the things I think is the coolest is it introduced the notion of paying miners a reward (Bitcoin) as an incentive to maintain the network. So this notion of paying stake pool ops and Ada holders a reward (Ada) for maintaining a decentralized blockchain is at play with Cardano as well. I wouldn’t necessarily think of this as a currency but as a token of value that represents the work involved. Most of the coins minted to pay staking rewards comes from inflation (creating new coins). Like Bitcoin Cardano has a halving period and a fixed total supply that will ever be minted. Unlike Bitcoin a portion of rewards go to the Treasury system. There is a secondary use for Ada as well which has been taken from Ethereum which is using Ada for gas fees on the network. The concept here is there needs to be a fee for all transactions. These fees go to stake pool ops and stake holders as well as the Treasury. Having fees insures that people don’t abuse the network with useless transactions and further incentivizes pool ops and stake holders to maintain the network. As others have said there is a mechanism to raise and lower fees as Ada gets more valuable. Also as others have said each Ada is made up of Lovelaces just as Bitcoin are made up of Satoshi so yes you can have transactions in fractions of Ada. With this said the value of Ada vs other currencies like USD is a reflection of scarcity being there will only be so many Ada ever made and the Utility of the network as the more transactions there are the more valuable Ada will be as gas and of course speculation. As we progress through time and the network becomes more and more useful value will be more inclusive of utility and less about speculation. Regarding using Ada as an actual currency most likely there will be a stable value coin that will be a token on the Cardano Blockchain that people can use. Look into Cardano multi asset standard. We have an improved version of the ERC 20 standard coming out very soon to people can create new tokens on of all varieties. Check out the IOHK YouTube channel for a variety of videos on a multitude of topics. Here is a good one to start with:

The IOHK research library is also interesting to peruse:

5 Likes

Well said!

1 Like

You cannot transfer less than a single Ada right now. IOHK is concerned about chain bloat so they temporarily put that in place. I’ve heard there is a plan in the works to change this.

Price is a function of utility, and utility is a function of mass adoption and relative appeal of the network’s services and products. It doesn’t matter if the price will not act like a currency in which a central authority has control over it’s supply and demand. The thing is utility will drive up price, and if it behaves like a blue-chip stock or gold in terms of price, that won’t bother me. ADA is a digital ‘hard’ commodity because of its scarcity, so the more people that use it, the more scarce ADA becomes, and the higher the value goes - similar argument applies to Bitcoin, although I don’t see much utility in the latter beyond a means of hedging one’s native fiat currency against hyperinflation and occasional large-valued purchases or cash-outs when the price is high, or as a means of making profit from trading.

3 Likes

I think it’s also worth noting, at least in my opinion, that currently, the price of ADA is still quite strongly coupled to the respective prices of Bitcoin & Ethereum as they are the main two trading pairs. Although there have been some signs of decoupling over the past 6 months or so and the trajectory of ADA has started to move on its own at times - I feel complete decoupling will take longer and it requires of course more and more exchanges/sellers to provide ADA for FIAT.

I believe, as we move forward into the future, the price will become more stable over time and whilst I hope ADA becomes #1 and I, like many, want the price to increase, I suspect that in the long term, and I’m talking 10-15-20 years the big spikes in price will be less common and there will be more gradual/smaller levels of annual appreciation in the value of ADA.

These are just my opinions, I’m not an expert on economics or even ADA and I’m happy to be told I’m wrong if someone has a different prediction/explanation because as it is to all investors and believers, accurately forecasting the likely future trends is important to me and it’s extremely difficult.

4 Likes

ADA and other ‘coins’ like it with a finite supply are not meant to be spent like regular currencies. They are ultimately deflationary, and as such it would be like using a valuable coin collection to make purchases of everyday items - it doesn’t make sense.
I think of these ‘coins’ as ‘utility’ coins/tokens. Like a game machine or laundromat, or even vending machine, in which the tokens (assume these machines don’t use fiat) have value only for the purchase of particular services, not to be used for everyday purchases, like fiat currency, and because they’re additionally deflationary, you want to save them, not spend them unless you need to purchase a service. Not any financial advice, just an opinion.

2 Likes

Removed my dumb comment :sweat_smile:

Because the finite amount of ADA ‘deflates’ relative to the increase in world population and new technologies that ADA can leverage to become more valuable, like AI for example - think of new users of ADA, and the relative increase in the utility of ADA because of new services provided by the Cardano network as time goes by, making ADA more versatile in terms of the variety of services you can purchase, and thus more valuable, and there’s always the deflation, also due to lost ADA. At least, this is my opinion, not financial advice.

1 Like

Sorry but seems like I’ve had too many Old Fashioned’s tonight. For the past 10 minutes I’ve been thinking of inflation as the price of ADA rising but you are completely correct, it’s appreciation of the price but the value of 1 token increasing relative to the price (deflation).

1 Like

Ahh, don’t sweat it. I make what I regard as cringy posts every day related to Cardano node installation because I don’t understand what I’m doing, editing my posts too many times because of my misunderstandings. I just started this stuff about two weeks ago - the technical node installation stuff. I’m not saying yours was cringy…I’m just making a comment about my posts related to stuff I don’t know. We’re here to share opinions and ideas and hopefully learn from one another, so we can grow this community and Cardano ecosystem. :slight_smile: lol, I don’t even care about my ‘cringy’ posts anymore. Yeah, it’s embarrasing for me, but I’d rather succeed and be embarrased by my cluelessness and learn rather than be quiet and clueless and remain clueless to avoid embarassment. Just speaking for myself. Besides, all my posts are just my opinions, even the ones that sound good. lol It’s nice to see others with differing opinions because sometimes your line of reasoning can be flawed, and you can see the valid reasoning behind their opposing arguments and learn something new.

4 Likes

Don’t worry mate, it was cringy :rofl: I even studied Economics for a few years during high school. :sweat_smile: It was just a moment of low brain power given that it’s 0315 here, a little frustrating because I do actually know what inflation is, or at least, I used to lol.

Totally agree, I’d rather be corrected by someone and embarrassed then live in denial, delusion or simply in a state of incorrect/lack of knowledge.

I do a lot of technical IT work with programming/development and server administration/management and I still look at new things from time to time and think: :sweat: so I feel your pain. I feel a little guilty that I haven’t started my own Stakepool but I just haven’t had the time to even think about it.

2 Likes