- What are Cardano and ADA?
- Yet another coin? Why do we care?
- Costs of Getting Started
- What’s next?
What are Cardano and ADA?
Cardano is a public blockchain project. ADA (₳) is the cryptocurrency that runs on it.
This is similar to the distinction between Blockchain/Bitcoin and Ether/Ethereum.
Yet another coin? Why do we care?
That’s a very valid question. While I have played around with a few coins over the years, I am in no way an expert on the landscape. What I can talk about is why I am paying attention to it.
When Bitcoin came onto the scene, it had a lot of promise for decentralizing banking and financing. This was really important at the time because the public was being made aware of some, let’s say issues, in the banking industry.
In the early days there wasn’t much we could do with it. There were a lot of early try-your-luck games and get-spammed-with-ads-for-a-taste sites; but not many places that would take it. That’s obviously changed now. You can use them locally to buy food or at places like Performance PCs to buy some components for your rig.
Unfortunately, the cost of using it has also grown quite a bit. And the delays. Trying to mine it from home is also a very expensive proposition. It started splitting into different coins like Bitcoin Cash.
Ethereum came along and offered smart contracts. While great in concept, it was always very slow. Fees on it were also very high. Trying to mine it on low-end hardware (like a laptop) is pretty much a joke. It also started splitting into other coins.
There were other coins as well. Monero offered privacy, at least until the authorities break that. Namecoin was going to fix DNS. Insert random ICO from random startup that will disappear in 5 years as well.
Even with all of that, I still try to keep an eye/ear out for anything that is somewhat different.
Proof-of-Work vs Proof-of-Stake
The most obvious difference is that Cardano is based on Proof of Stake.
What does that really mean for you?
In a proof-of-work system, you really have three ways to make money:
- Sell things/services and receive the coin in payment
- Mine the coin directly
- Mine the coin as part of a pool
- Run a pool
The first one is pretty straight forward.
Mining a coin directly requires that you keep the hardware very new to have much chance of competing. You also have to utilize a lot of power and bandwidth. It is very very hard to do - but if you succeed, the rewards are very high.
Mining on behalf of some pool means that you are giving your compute power and bandwidth to that pool. That pool will be more likely to solve a block that an individual at home, meaning they are more likely to share the reward. Easier to do, but much lower rewards – and it still requires your network and electricity.
Running a pool yourself could garner more rewards than contributing to one; but will likely also have much higher costs as you need to guarantee uptime, handle larger amounts of bandwidth, etc.
In a proof-of-stake system, the options are similar but distinctly different:
- Sell things/services and receive the coin in payment
- Delegate your coin to a stake pool
- Run a stake pool
These seem very similar don’t they?
The selling one is identical, assuming vendors are willing to take the coin. Transaction fees may be different, however.
There is no concept of mining a coin as an individual.
When you delegate your coin to a stake pool, you are in essence voting for them to get the right to mine/mint the block. If that pool wins that right, you share in the profits, based on how much coin you voted with. You don’t lose your coin in this case (minus the transaction fee discussed below), but it determines how much of a vote you get - and therefore how much of a reward as well. VERY IMPORTANT here though – your personal machine does not need to be connected or even powered on. You cast your vote and walk away. They are working on your behalf – ie: delegates.
Running a stake pool is very similar to running a standard pool. You need to have the machine up and running at all times, thus incurring some costs. If you win any minting rights, you are guaranteed a stipend to help maintain the costs. You will also share in the proceeds of any rewards.
There are some mechanisms built in to try to ensure that pools stay decentralized and smaller; but for now this is enough.
Currently, Cardano has low fees. At the current exchange rate, it’s about 20 cents per transaction. These fees go into a special fund that is used to pay for projects. The community votes on which projects to fund.
Since your vote is based on how much ADA you have, I do have some concerns that government or institutional actors could control what protocol changes are funded by buying a lot of staking power. I’ll need to look into this more as I have not had a chance to vote yet. The next round of voting takes place in a couple weeks.
Ignoring my misgivings there for a moment, I really like the idea behind this. The idea that you, as a developer, can say “I think we should invest in this change to the system” and people can vote to fund that; and that the money is there because it came out of the transaction fees. Sure, that sounds like a tax - I get that. However, I don’t get that much say in how my taxes are spent.
As can be expected of any cryptocurrency and blockchain these days, it’s open source.
I was a bit surprised that it was written in Haskell. I do know one developer that uses Haskell; but I guess it’s time for me to pick up another language.
Costs of Getting Started
Ok, it sounds interesting! I’d like to dip my toes in… but, how much will it cost me?
That’s a very good question. Since I just did that this week, let me give you a rundown of my experience doing just that.
Which wallet should you use? There are two “Official” wallets.
- Daedalus is a Linux/Windows/Mac desktop app. It is a full node wallet, validating every transaction.
- Yoroi is a light wallet. They have mobile and browser integration; but it is not full-featured.
While they brag about Daedalus running in Electron, I see that as a negative. Electron apps tend to have bad performance and be a potential weak spot when it comes to security. With the exception of the Stake Pools tab in the app, however, it seems to be pretty snappy.
I did install both of the official apps, but Daedalus is the one I used for my testing.
You can’t currently buy ADA from the wallet, which would definitely drive up adoption. For that, we’ll have to take a few extra steps.
First, you’ll have to decide where to get ADA from. I expected some services, like ShapeShift, to have it listed - but they did not.
I chose to use Kraken to purchase the ADA. I didn’t already have an account there, so had to jump through some KYC hoops.
Kraken provides three tiers
- Tier 1 - Can swap crypto, but can not use fiat
- Tier 2 (requires ID) - Can use fiat
- Tier 3 (requires 100k+ transactions) - OTC desk
My existing BTC was locked up in an interest-bearing account, so I decided to buy some ADA using USD. For that, I needed Tier 2 due to Know Your Customer laws. After creating my account, I had to upload a picture (front/back) of my ID and also allow them to take a picture of my face using the webcam.
USD -> ADA
Transferring money from my bank was not as straightforward as I would have liked. Unlike buying crypto from other sites, Kraken does not talk to your bank. They do not support ACH. In fact, they do not even support the Android app being used from inside the USA; even though they are a San Francisco company.
They give you instructions to wire the money from your bank. This is similar to the Western Union idea. Sending money from my credit union to the bank Kraken chose took a day and cost me $20.
Once the money was in the Kraken account, it was pretty straight forward to swap it for ADA.
However, you can’t withdraw funds (after your first fiat deposit) for 72 hours.
Because of this, the ADA sits in the Kraken account for 3 days while you wait to withdraw it. If you look at it over time, it seems to be on a vesting schedule as the max withdraw is not 0 ADA the entire time.
BTC/XBT -> ADA
After realizing it was going to take 3 days to see the ADA, I went ahead and decided to cash out some of my BTC from the interest account and try a coin swap.
The hosting exchange said it was going to take 2-3 days and cost me a fee to take it out of the interest bearing account. From what I can tell, it took a couple hours and I was not charged a fee.
Once it was in the normal wallet, then I could transfer that BTC to Kraken, which lists it as XBT. That had a $5.50 fee.
Once the 10 confirmations had once again gone through, then I could convert it to ADA for another couple dollars.
These funds were available for withdraw immediately, though the site gave me errors a few times as it settled.
Kraken -> Daedalus
Each time you want to transfer money from Kraken to Daedalus, you use Daedalus to generate a new address to send funds to.
Kraken charges 0.6 ADA for the transfer.
Once that process is initiated, it goes through much quicker than the BTC confirmations. Maybe a couple minutes.
Staking your ADA
There are different places in Daedalus that allow you to start the process of staking your ADA.
My recommendation is to watch some YouTube videos that explain how staking pools work before you make your first choice.
In Daedalus, on the Stake Pools page, there is an option to view the pools as a list or a grid. It defaults to a grid. If you change it to a list, it is much easier to work with. You can sort them by whatever criteria you want (most rewards, lowest margin, whatever). You can also search for a particular pool if you want to support someone specific.
When you find the one you want, select the Delegate button.
This will take you through a couple screens verifying which wallet you want/etc…
Then you are charged 2 ADA for a Cardano Delegation Certificate. This happens one time for your wallet.
You are also charged a transaction fee. For me it was 0.175137. At the time of this writing, that was around 20 cents.
I’ve read that after this, it should just be the transaction fee.
I’m currently delegated to a pool that starts in about 7 days. Each Epoch is 5 days. So in a couple weeks, I should be able to see whether I got any rewards and report back on that.
Also, in a few weeks, there should be a round of voting on funding proposals.
I might also try my hand at writing a contract or working on the codebase itself.
I’ve also noticed that the Shift button no longer works. Maybe I should make an ADA replacement for that? ;)