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Cardano and Ethereum are the next generation blockchain platforms which not only enable peer to peer transfer of value but also enable the development of Smart Contracts and Decentralized applications (Dapps). This guide is focused on the roaring debate of Cardano vs Ethereum-starting from the very scratch of what exactly Cardano and Ethereum are, their use cases, then moving further to a detailed comparison between the two and finally concluding for which one between the two is better suited for investments and developments of Dapps.
Who am I? A warm welcome to you, to my website where I write about blockchain concepts and try to make them simpler to understand. I am a Computer Engineer and an Ex-KPMG.. I have been studying blockchain since 2018 and have a firm belief and understanding that blockchain is going to disrupt most of the industries (in fact, it already has disrupted most of them) be it finance, healthcare, government, real estate, music, art, and more.
Let us kick in.
What are Ethereum and Cardano?
Both Ethereum and Cardano are blockchain platforms. Cardano was developed (September 2017) by two developers (Jeremy Wood and Charles Hoskinson) who helped in the development of Ethereum (white paper was published in 2013 while the platform went live in July 2015). Ethereum was primarily developed by Vitalik Buterin and Gavin Wood.
Hence both (Ethereum and Cardano) share some similarities yet are very different operationally and in terms of the protocols that they follow. Let us see first some similarities, before talking about the detailed differences.
- They enable peer to peer and secure transfer of cryptocurrency (Ether for Ethereum and ADA for Cardano).
- These blockchain platforms also enable the development of Decentralized Applications (Dapp) on them. These Dapps (in theory) can run forever without any downtime and and censorship. In Dapps, the code and the database is distributed or decentralized across different member computers. Hence Dapps,
- have no single point of failure
- have no whatsoever manipulations or compromises possible for the data and code
- and have no mechanism to censor anyone from using these Dapps.
The figure below depicts an analysis of the features, advantages and disadvantages of Decentralized Applications (Dapps).
- Smart Contracts can be coded or written and deployed on these blockchain platforms. Smart Contracts enable automated transactions between any two parties in the world, without the need for any third trusted party. Besides, once written and deployed on the blockchain, these Smart Contracts cannot be changed or tampered. Thanks to the cryptography used to make these blockchain platforms ultra-secure.
|Note: Traditional applications have their codes and databases hosted on a centralized server. For example, Facebook has all the codes and database stored at the central server of Facebook. This may lead to manipulations, compromises, and hacking. Unlike these traditional applications, Decentralized applications have their codes and databases stored in a distributed manner in the member nodes of the blockchain. Hence there is no single point of failure. Also, if one of the member nodes stops working the application continues to work using the other member nodes.|
Cardano vs Ethereum : Use cases
As we might be knowing, Ether and ADA are the cryptocurrencies of the Ethereum and Cardano blockchains respectively. Ether and ADA fuel their respective blockchains by enabling transactions, Smart Contracts’ execution and Dapps development on these platforms. Let’s have a quick look at the different use cases of these cryptocurrencies, one by one.
Ether Use Cases:
- Trade for goods and services (as money): Unlike fiat money, where you need a third party like bank (and associated fee) to facilitate payments to a person, cryptocurrencies like Ether and Bitcoin can be sent directly peer-to-peer to anyone in the world to trade for goods, services, other tokens/cryptocurrencies or even fiat money. This process of Ether transfer is
- Cryptographically Secure
- Minimal fee
- Direct peer to peer
- Fuel the Ethereum blockchain: Transactions are primarily of two types in Ethereum. First is the simple transaction of sending Ether or other Ethereum supported tokens from person A to person B sitting anywhere in the globe. Second type are the transactions initiated to execute Smart Contracts.
For any of these transactions whatsoever, Ether is used to pay transaction fee also called Gas fee. With the wider and wider adoption of Smart Contracts and numerous Dapps coming to the scene, Ether will be used as a transaction fee to use these features. Paying network transaction fee is the largest use case of Ether.
- As a collateral in DeFi: Almost 70% of the DeFi applications out there are hosted in the Ethereum blockchain. This makes Ether the reserve currency (exchange currency) for these DeFi applications. Uniswap for example (one of the largest decentralized exchanges in the world), processes billions of dollars’ worth of trades with Ether as the base token for most pairs.
- Staking for gaining passive income: Since the January phase 0 upgrade of Ethereum 2.0, one can lock his/her Ether in staking pools and earn passive income as interest. As Ethereum upgrades to Ethereum 2.0 (somewhere in 2022-23) the network will transition to Proof of Stake consensus mechanism in which miners will be chosen basis the amount of Ether they have staked or locked in the Ethereum staking pools. Anyone with a minimum of 32 Ether can join an Ethereum staking pool and earn interest.
ADA use cases:
ADA is gradually rising to be employed in so many different ways. For now ADA is limited to being used as a cryptocurrency plus a staking asset.
- Trade for goods and services (as money): Just like Ether, Bitcoin or any other cryptocurrency, ADA is used as money to trade for goods and services. You can exchange ADA for another cryptocurrency, token or even fiat money. But unlike Ether, the speed and cost of the transaction are much higher (due to the dual layered structure of Cardano-discussed below).
- Fuel for Cardano blockchain: Just like Ether (in Ethereum), ADA is used to pay for transactions in the Cardano blockchain. Though the fees are relatively lower due to lesser traffic (thanks to the dual layered structure of Cardano).
- Staking for gaining passive income: Like Ether, one can stake ADA in a stake pool (either join one or create one of his own) to gain interests.
Cardano vs Ethereum-A detailed comparison
- Speed, scalability, cost of transactions: As of now, while we do not have the Ethereum 2.0 completely rolled out, Cardano offers greater speed of transactions and Dapps development. Cardano is more scalable capable of verifying around 250 transactions per second as against 30 transactions in Ethereum. Also the cost of a transaction either for tokens’ transfer or for Dapps development is lesser in Cardano than Ethereum.
One of the reasons for this is the dual layered structure of Cardano as against the single layered approach been followed in Ethereum.
From a broader perspective there are two categories of transactions in blockchains like Ethereum and Cardano. First are the transactions that are initiated when someone transfers cryptocurrency to someone. The other type of transactions happens when a Smart Contract is executed. All these transactions are verified and added in the next block of the blockchain by the miner.
Ethereum has logically a single layer to handle all the transactions whether it is a cryptocurrency transfer or a Smart Contract execution. This jams the miners with a huge list of transactions to verify and add to the blockchain. On the other hand, Cardano has separate logical layers, for managing transactions related to ADA transfer and Smart Contracts and Dapps development. Hence miners manage the validation of these two types of transactions separately. This reduces the transaction traffic which in result reduces the transaction fees and increases the speed of verification of transactions.
|Note: Ethereum 2.0 is expected somewhere around 2022-23. Ethereum launched the phase 0 phase called beacon chain in early 2021.|
- Monetary Policy and Vision: The number of Ether (cryptocurrency in Ethereum) to be produced is limitless. In Ethereum 2.0 the annual increase in the total number of Ether in circulation will be limited to 4.5%. This will prevent uncontrolled market flow of Ether and give it scarcity and hence more value. ADA on the other hand will be limited to 45 billion in total making it much scarcer. By early 2021, 31 billion of ADA had already been minted.
- Energy consumption: Until now at the time of writing this article, when Ethereum 2.0 is not completely live, Ethereum uses much more energy for processing transactions than Cardano. This is owing to the consensus mechanism of Proof of Work employed in Ethereum as against Proof of Stake in Cardano. In Proof of Work (employed in Ethereum), miners use electric energy of their computers to solve computational puzzles. The miner who solves the puzzle first gets to verify and add the next block in the blockchain and is rewarded with Ether. This consensus mechanism (which is also used in Bitcoin) consumes too much energy which is not energy efficient and hence environment friendly.
Ethereum is planning to transition to Ethereum 2.0 which will use Proof of Stake consensus mechanism. Under this mechanism, anyone with minimum 32 Ether can lock these Ether in the Ethereum to get a chance to be chosen as the next miner. This will reduce the energy consumption to approximately 99% as compared to the situation now.
On the other hand, Cardano used Ouroboros, a consensus mechanism similar to Proof of Stake consensus mechanism. Under it, at a specific time slot, slot leaders are chosen based on their volume of staked crypto assets in the system and their capabilities. These leaders verify and add the next block of transactions in the blockchain. In the next time slot the slot leader is selected by the previous slot leaders. Charles Hoskinson estimates Cardano’s energy usage at a mere 0.01% of Bitcoin’s 110.53 TWh.
- Forks in the blockchain: Forks are the changes or diversions in the rules or protocols of a blockchain (like Ethereum and Cardano). In Ethereum forks are dictated by voting by the members of the blockchain. Whereas, in Cardano the forks are based on academic and market research by peers. Forks are decided on the basis of these research by deciding which decision suits the blockchain academically and as per the market.
- Market outreach and popularity: No doubt Ethereum has a first mover advantage here and has gained much more market traction than Cardano. Ethereum has a long track record, is tried and tested and hence is a safer option for investors and even developers to design their next Dapp.
Cardano vs Ethereum-Which one is better suited for developers and investors?
Both Ethereum and Cardano are next generation blockchains which not only enable peer to peer and secure transfer of value, but also facilitate the development of Smart Contracts and Decentralized Applications. As the Dapps and DeFi (Decentralized Finance) markets will grow, consecutive growth in Ether and ADA prices is almost imminent. Although it depends on their overall adoption and other factors discussed below.
Let us underpin a detailed analysis of the facts that are in favor of Ether and ADA.
Facts in favor of ADA:
Speed and scalability: Cardano (the blockchain for ADA) offers much higher speed of transactions and greater number of transactions processed in one second (scalability) compared to Ethereum. This means that you can transfer ADA, run Smart Contracts and hence run Dapps at a much higher speed as compared to the same functions in Ethereum. This makes Cardano preferable to users.
Energy efficiency and sustainability: As we discussed, Cardano uses much lesser energy than Ethereum, making it more sustainable and environment friendly. Hence a surge in adoption is most likely soon.
Monetary Policy: The number of ADA to be minted is limited to a maximum of 45 billion. Post 45 billion, no more ADA will be minted. This makes ADA a scarce reserve of value like Bitcoin.
Science focused approach. That means the Cardano code is open to peers for reviews and suggestions for improvement. These suggestions are strictly backed by academic and market research and evidence for betterment of the blockchain platform. This is a better approach to implement forks as compared to the forks based on voting in Ethereum.
Cardano’s vision and focus for developing nations might give ADA a global currency status. Cardano is following the vision to turn developing nations to blockchain based economies. Cardano is spreading education, fostering bankless blockchain based economies, Smart Contract implementations and tokenized assets in these nations. This alludes towards ADA being a currency for these developing nations and eventually also for the world.
Facts in favor of Ethereum:
Mass adoption and first mover advantage: Ethereum has a first mover advantage. Ether is the second largest cryptocurrency in terms of market capitalization. Ethereum is the undisputed leader in hosting most of the DeFi, DAOs and NFTs created till date. Cardano, Solana and other new blockchain platforms have a large gap to cover to reach the adoption level already achieved by Ethereum.
Transition to Ethereum 2.0: The biggest drawback of Ethereum on which Cardano and other similar Smart Contract enabling blockchains like Cardano and Solana were banking upon was the Proof of Work consensus been used in Ethereum. The Proof of Work makes Ethereum anti-environment, slow and less scalable. Ethereum 2.0 which will be live somewhere in 2022, will transition Ethereum to Proof of Stake.
What are Ethereum and Cardano exactly?
Ethereum and Cardano are the next generation blockchain platforms, which not only allow peer to peer transfer of value, but also facilitate the development of Decentralized Applications.
Are Ethereum and Ether the same?
No. Ethereum is the blockchain platform whereas Ether is the cryptocurrency that fuels the Ethereum blockchain platform.
Are Cardano and ADA the same?
No. Cardano is the blockchain platform whereas ADA is the cryptocurrency that fuels the Cardano blockchain platform.
Cardano vs Ethereum, which platform has higher fees?
As of now, when the Ethereum 2.0 is not completely live, Cardano users enjoy lesser transaction fee than Ethereum users.
Cardano price, how can I check it?
You can check the price of ADA (the cryptocurrency of Cardano) here.
When will Ethereum 2.0 rolled out?
Ethereum 2.0 is expected somewhere around 2022-23. Ethereum launched the phase 0 phase called beacon chain in early 2021.
If you ask me, both Ethereum and Cardano are promising projects. Ethereum has a first mover advantage which has gained much traction in the DeFi and Dapps spaces. Most of the Smart Contract developers are trained in the Ethereum blockchain which is adding to the already large list of Dapps created on Ethereum blockchain. Cardano which offers higher speed, reduced costs and is environmental sustainability has yet to cover the gap mainly for market reach to attain the spot enjoyed by Ethereum. But going by the science based approach that Cardano follows to make required forks or modifications in the blockchain, their focus on fostering growth of Cardano in developed countries and the Ouroboros ( a type of Proof of Stake) consensus model adopted for transaction verifications, it is much likely that Cardano will rise to the level of Ethereum and become a serious competition to Ethereum. But I do not foresee this as an act of dethroning Ethereum from the scene.
If you are a young investor and have some risk apetite, go for ADA as it is still available at nominal rates. But if you are more conservative opt Ethereum. For developers I believe one should first learn Ethereum and Solidity (the computer language for writing Smart Contracts in Ethereum). This will introduce you to the always expanding ecosystem of Dapps, DeFi, DAO and NFT. Once you have mastered Ethereum then only learning Cardano and Haskell (the programming language in which Smart Contracts in Cardano are written) is a good idea.