Emurgo, the commercial arm of Cardano, has just revealed in a report that the Cardano’s ADA, due to its profound features can be likened to sound money.
In the report titled “Blockchain Primer: The Path of Cardano’s ADA Towards Sound Money,” Emurgo added that ADA is as finite in supply as ‘minable gold on earth’.
Cardano is mostly regarded as third generation Blockchain technology. ADA, its digital token, occupies 12th position among other cryptocurrencies in terms of market capitalisation. Looking into what is meant by sound money, Emurgo affirmed that Cardano’s ADA shares alike characteristics with the former.
The Bottom Line of Sound Money and Why Fiat Currencies Cannot Be Termed as Such
Going down the memory lane, Gold was once regarded as the standard and representation of money until 1971, when the then President of United States, Richard Nixon, announced an event that’s capable of turning economic table globally.
This event initiated the abandoning of sound money, and transitioning into fiat currency monetary system. Before this event, country’s currency used to be pegged to its gold reserves.
Transitioning to fiat currency gave Nations avenue to print and spend money without restrain, hurting the value of the nations’ currency.
The unrestrained printing and spending have often caused countries to experience hyperinflation, initiating rise in debt level, especially in underdeveloped countries of the world.
This major side effect and feature of fiat currency monetary system, aided the system’s failure of being regarded as sound money. The major characteristic of sound money is limited supply.
Striking out the Features of Sound Money and How It Relates to Cardano (ADA)
As aforementioned, the first and major feature of sound money is its finite supply. Precious metals like Gold, coupled with digital currencies possess this feature. This finite supply, which eventually causes scarcity of such asset, sometimes enhances the growth of finite assets, and makes it a viable store of value.
In this regard, Cardano holds its head high, due to the fact that the supply of its digital currency ADA can never exceed 45 billion ADA, which simply makes it as finite as Gold, the report affirms.
In considering another characteristic of sound money in terms of longevity of asset (ability that an asset has to maintain its market value), cryptocurrencies such as Cardano (ADA) also passed the test.
However, years of existence also matter – that’s where Gold would unanimously carry the day, due to the test of time it has since passed.
Accepting Cryptocurrencies Such as Cardano (ADA) as Sound Money
Cardano (ADA) and other cryptocurrencies are actually digital or intangible (no physical presence), unlike precious stones. This aids the conclusion at some quarters that they can’t have permanent value, or they could end up being abjectly devalued.
Howbeit, the increase in their global adoption has been driving their market values towards the upside, just how the internet became globally adopted after a host of criticisms years ago.
An asset termed as “sound money” has to appreciate in value steadily, for such to play out, its network must be widely functional (used by many people around the world). Actually, Cardano (ADA)’s network is doing well in this regard, due to the steady growth of its network.
In conclusion, when we have to consider the traditional options of sound money, we swiftly refer to Gold and Silver, but the daily growth of cryptocurrencies especially Cardano’s ADA hints the possible takeover of nascent “sound money”.