Ethereum Vs. Cardano: The Race To The Top

ETH vs ADA future looks promising and bright
ETH vs ADA future looks promising and bright

Thesis Summary

Cardano (ADA-USD) has recently become the third-largest cryptocurrency by market cap, surpassing Binance’s token, (BNB-USD). The question is why? ADA is a relatively new coin, founded in 2017, by one of the founders of Ethereum. Since its inception, it has returned over 7000%.

In this article, letš see the ongoing battle between ADA and Ethereum (ETH-USD). Both are imperfect networks that will be undergoing big changes in the coming months.

A Roadmap To The Future

There are thousands of different cryptocurrencies and tokens out there, and although they are unique, they can be classified according to the protocols that they run on. The biggest difference between cryptocurrencies is the process by which their blockchains are created and verified. Bitcoin (BTC-USD) uses Proof-of-Work, ADA uses Proof-of-Stake, and Ethereum uses PoW but is transitioning to PoS.

PoS vs PoW has become the most relevant topic when discussing cryptocurrencies, especially now that their use is much more prevalent. Mining Bitcoin through PoW takes up energy levels comparable to those needed to run a small country. This “waste” can be avoided by using PoS, which uses existing coins to create new coins.

This is one of the reasons why Ethereum is moving to a PoS system, with big moves towards this reality happening with the London hard fork. The Ethereum network has already been trying out PoS in the Beacon chain. Now, the challenge is to “migrate” everyone to this PoS system. To do this, the London fork introduces protocol EIP-3554, which has moved up the difficulty bomb to December. What this means is that, in December, miners will have a much harder time mining Ethereum. The idea is to disincentivize people from the PoW system.

On the other hand, we have ADA, which is competing head-on with Ethereum. ADA is already a PoS network, and this has been a big “selling point” for it. However, ADA is behind in terms of functionality. The Cardano network does not yet support smart contracts, but this is also about to change thanks to an upgrade to the Cardano network; Alonzo.

The Alonzo hard fork is planned for September 12th and will serve to allow the creation of smart contracts on the network. A key part of this process will be allowing the conversion of ERC20 tokens so that they can function on Cardano’s PoS network. ERC20 tokens are behind most of the smart contracts on the Ethereum network. They can act as payment units, rewards, incentives, rights to votes, transaction units, etc.

To keep things simple, it seems like both Ethereum and Cardano are moving in a similar direction. Ethereum is introducing PoS, which ADA has, while ADA is allowing smart contracts, which Ethereum has.

Race To The Top

So who will be crowned king of crypto? There’s a lot to break down here. Firstly, we must separate between Bitcoin and ADA/ETH. It’s quite clear that these cryptocurrencies are moving in different directions. Could Bitcoin be dethroned by Cardano or Ethereum? Maybe, but I believe that Bitcoin offers a different appeal than these other cryptocurrencies.

Bitcoin is still based on Proof-of-Work, which from my understanding, makes it ultimately more secure. The fact that it takes so much energy to mine, also means that it would take a lot of energy to “hack” or “undo” a part of the blockchain. Meanwhile, PoS systems could be more susceptible to centralized control and overtake. Bitcoin, therefore, is the base and ultimate store of value, but Cardano and Ethereum are working to be the network on which most of the crypto activity will happen. Therefore, ADA and Ethereum are in direct competition, as they essentially tackle the same use case.

Which will come out on top? Is there room for both to co-exist?

The simple answer to the first question is that the cryptocurrency to come out on top will be the one that offers the most value. Of course, there are a lot of things that go into this equation, including functionality, costs, and network:

One of the biggest reasons why Cardano has seen so much interest in the last few months is the fact that it can solve one of the largest problems of the Ethereum network; gas prices and scalability.

Source: Ethereumprice.org/gas/

Gas is used to pay for transactions on Ethereum’s blockchain. As we can see above, gas prices can be very volatile, and they have also been increasing steadily in the last few years. This issue should be addressed with Ethereum’s move to Ethereum 2.0, specifically through the process of sharding, which involves breaking up the network into smaller more manageable fragments.

ADA currently boasts more stable and lower fees, starting at around 0.17 ADA. However, this could change as the network becomes more congested.

Ultimately, we don’t know which of these two cryptocurrencies will be superior, since they are unfinished projects. Both are imperfect, but the question is which one will improve sooner. If ADA manages to integrate smart contracts in September, as it promises, we could see a big move into the Cardano network.

ETH vs. ADA

To understand which is the “better” cryptocurrency, we have to look at how each of these was created, their “philosophy” and the technical specifications that set them apart.

Starting with Cardano, the network was created by Jeremy Wood and Charles Hoskinson, the latter being a co-creator of Ethereum. ADA was created with a research-driven approach. This means that everything on the blockchain is peer-reviewed, which is made easier by the fact that Cardano is programmed using Haskell, which was chosen precisely because of how easy it is to audit.

Ethereum, on the other hand, uses Solidity, which is highly specialized, making it much harder to peer-review.

Another interesting difference between ADA and ETH is that Cardano uses a dual-layer design. In simple terms, this means that computations and settlements are done separately. Ethereum is a single layer environment, where computations, smart contracts, and settlements, token transfers, occur at the same time. In theory, this separation should allow ADA to run more efficiently, meaning faster transactions at a lower cost.

In terms of energy efficiency, ADA consumes almost no energy due to its PoS system. Cardano uses an algorithm known as Ouroboros, which references an ancient symbol of a snake biting its own tail. This is an accurate physical depiction of the PoS process because ADA uses a closed-loop system.

ETH, for now, runs on PoW, but once it has fully migrated to PoS it should be as efficient as ADA. Of course, this is not expected to happen fully until 2022-2023.

Lastly, it is also worth noting the differences between the monetary policy of Ether and ADA. Ethereum has an unlimited supply of Ethereum, with supply programmed to increase by 4.5% each year. Meanwhile, ADA, like Bitcoin has a limited supply. So far, there are 31 billion ADA in existence, with about 14 billion left to be mined.

To sum up, let’s look at the pros and cons of each cryptocurrency:

ETH Advantages

  • Largest smart contract network in existence
  • Host to the most tokens and NFTs
  • First-mover advantage
  • Pending move to ETH 2.0 will increase efficiency

ETH Disadvantages

  • Network congestion due to high volume
  • High gas prices
  • 1 layer system
  • ETH development is inefficient and hard to peer-review

ADA advantages

  • Dual-layer makes transactions more efficient
  • Already on PoS which is environmentally friendly
  • Gaining traction with new user cases
  • Limited supply
  • More inclusive and easily peer-reviewed programming language

ADA Disadvantages

  • Few decentralized applications on its network for now
  • Slow to introduce smart contracts
  • Slow adoption as an actual currency

To sum up, it does appear that ADA has some stronger “fundamentals” going forward. The dual-layer system, already established PoS and more friendly programming language should make for a better environment to host tokens and DApps.

However, Ethereum does have something going for it that ADA doesn’t, first-mover advantage and network effects. Ethereum is the place to be, already boasting thousands of DApps. It simply makes more commercial sense, at the moment, to build an app on Ethereum.

With that said, what is more important, fundamentals or being at the right place at the right time?

Can ADA And ETH Coexist?

The last important question to answer is: Can ADA and Ethereum coexist? This is also a tricky question. At its most basic level, there’s no real reason why there should be two blockchains that essentially do the same thing, as it would be inefficient in many ways. Arguably, each platform could carve out a “niche”. Ethereum right now is mostly used for DeFi, but other use cases can be tackled. Having said that, isn’t the point of these platforms that they empower developers to do virtually anything? How exactly would they differentiate themselves?

Lastly, if we compare blockchain platforms to other markets, it doesn’t seem like we would have such a centralized system. Technically, wouldn’t it be more efficient to just have McDonald’s Corporation (MCD) or Burger King (QSR)? Perhaps, but humans also like choice, even if their products could be deemed perfect substitutes. Furthermore, competition is what pushes innovation and keeps excessive profiteering in check.

Ultimately, I think that there is room for both platforms to exist. Once PoS becomes prevalent, there won’t be a concern over energy usage, so both can run without excessive cost to society. There will be other inefficiencies, but these should be outweighed by the fact that having competing ecosystems will force developers to keep working and improving each platform. It also ensures there is a backup if anything were to happen on one of the networks.

Takeaway

So which is better, Cardano or Ethereum? I currently hold both in my crypto portfolio, but I am more excited about ADA’s prospects at the moment. In a way, I think Cardan’s fundamentals are better to support DApps, so they will have an easier time allowing for smart contracts than Ethereum will have transitioning to a more practical PoS system.

In theory, the Alonzo update should introduce smart contracts by the 12th of September, while Ethereum won’t go fully PoS until 2022-2023. This means there could be a space of time where ADA does indeed offer developers a much better ecosystem, with lower fees and faster transactions. However, this is all up in the cards, and very much dependent on the success of each update.

To get a sense of ADA’s potential, bear in mind that, for ADA to surpass ETH market cap, the cryptocurrency would have to quadruple in value, which would put it around $10.

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