When you do, you will notice that the ADA-USD pair is riskier than you would have thought.
First and foremost, anyone thinking about buying Cardano should evaluate the volatility. The 52-week range for ADA is 7.6 cents to $2.46, according to Yahoo Finance. That’s a 32X differential, which means you’re in for a ride, but who knows if it’ll be a nice one?
Second, and more crucially, investors must distinguish between Cardano’s speculative component and its core thesis. True, the two paths have a logical link in some circumstances. For example, many investors trust Cardano because of its proof-of-stake (PoS) protocol as opposed to proof-of-work (PoW). This idea has undoubtedly benefited ADA.
However, the blockchain business is still in its infancy since it fails to address a fundamental driver of decentralized platforms: who would pay for them. That is, after all, the million-dollar issue underlying this current obsession with PoS protocols.
According to Coindesk writer Christine Kim, the new PoW protocol for Ethereum (CCC:ETH-USD) would be beneficial for crypto miners, but only just. Of course, the Ethereum 2.0 protocol garnered a lot of love from its blockchain users, but it received mixed reviews from miners.
To put it another way, blockchain networks require a certain amount of inefficiency to make it viable for miners to work. Otherwise, if a platform is very efficient, there will be less demand (need) for miners. As a result, miners are discouraged due to a lack of profitability. As the mines dry up, the much-heralded decentralized system will become a digital ghost town.
For the time being, Cardano draws all types of contributors to the network because of the high price. But what happens when the price inevitably falls? If previous bouts of volatility are any indication, the miners will flee, even selling their high-end mining equipment for whatever they can get.
One of the common misconceptions among novice crypto investors is that the blockchain is a miracle discovery with the ability to cure all of humanity’s problems. No. It is a corporate solution in which administration changes from centralized to decentralized accountability.
In theory, this appears to be the most efficient answer to any business problem. However, this just considers one side of the equation. On the other hand, the public contributors who provide the answers must be compensated.
At the most fundamental level, blockchain users offer something to the network, whether it is processing power, digital equity (i.e. stake), or storage space. None of these items are free, yet they all have a monetary value (as in U.S. dollars in our case).
Network contributors get cryptocurrency in return for their computer power, equity, or capacity. The appeal is that these coins might be worth a lot more than the contribution cost. On the other side, there is a risk that the value of these coins may collapse.
It is, in my opinion, the ultimate counterparty risk. Trading cryptocurrency is like to playing nuclear football. You can make a lot of money based on people’s speculative views by moving risk around on each other’s books. But, eventually, the nuclear football explodes.