Cardano VS Ethereum


Introduction: Cardano and Ethereum are often compared to each other because both their networks provide similar offerings.

Developers can use both the Ethereum (ETH) and Cardano (ADA) blockchains for similar features, including running custom programming logic (smart contracts) and building programs (decentralized applications).

The heart of any blockchain platform is the algorithm it uses to create blocks and validate transactions. Cardano and Ethereum use different blockchains.

The major difference at the moment is that Ethereum’s Proof-of-Work blockchain is proving less flexible than Cardano’s Proof-of-Stake Ouroboros consensus protocol.

Ethereum and Cardano are blockchain platforms that were both created to function as decentralized application platforms. This distinguishes them from cryptocurrencies like Bitcoin which functions as a medium of exchange and a store of value.

Where Bitcoin is seen as a first-generation cryptocurrency, and Etherum is generally considered a second-generation cryptocurrency, Cardano is setting itself up as a third-generation cryptocurrency. The reason for this is the safety and scalability of its Proof-of-Stake (PoS) protocol.


Ethereum: Features and Applications

  • Ethereum is a blockchain platform created in 2015. Ethereum was created by 19-year-old Vitalik Buterin (with many others contributing to its code). Buterin was previously a founder at the publication Bitcoin Magazine and a 2014 Theil Fellow. Ether is the cryptocurrency of the platform. Ethereum has its own programming language, called Solidity.

  • ETH is the ticker for Ethereum (Note: ETC is an earlier version of the Ethereum software, now managed separately).

  • Ethereum was created with the intention of becoming a global, open-source platform for custom assets and new kinds of economic applications. Considered to be one of the most ambitious blockchain projects to date, Ethereum seeks to leverage blockchain technology to decentralize products and services in a wide range of use cases beyond money. To date, Ethereum has seen a few distinct phases that have emphasized different aspects of its capabilities. First, entrepreneurs flocked to Ethereum in 2017 during its famous “ICO boom”, where creators would try to raise money for new projects using new assets on the Ethereum blockchain. During this time, Ethereum was seen as something of a global capital allocator and funding mechanism. A new phase of Ethereum, called decentralized finance (DeFi), has started garnering attention in 2020. This movement saw the creation of decentralized applications (dapps) intended to automate financial services like lending or borrowing without the need for a traditional bank or intermediary.

  • Vitalik Buterin envisioned Ethereum as a “world computer” on which anyone could launch and run an application. This idea was propelled forward by a non-profit, the Ethereum Foundation, which sold 72 million ETH, Ethereum’s cryptocurrency, in a crowdsale, to raise $18 million at the time. However, what would distinguish Ethereum early on was the vibrant developer community that would soon spin up around the project. Meaningful contributions to its technology would be made by developers like Gavin Wood, Jeff Wilke, Joseph Lubin and Charles Hoskinson, who all would go on to become prominent voices in the blockchain ecosystem.

  • In order to create dapps, developers write programs, called smart contracts, and deploy this code to the Ethereum blockchain. These dapps are essentially large constructions of smart contracts that can be set in motion if and when specific outcomes are met. Similar to Bitcoin, Ethereum employs Proof of Work (PoW) mining to power its blockchain. However, the network is in the process of migrating towards Ethereum 2.0, at which time it plans to alter its consensus mechanism to an alternative called Proof of Stake (PoS). Under this model, any user who owns a minimum of 32 ETH could lock those funds in a contract and earn rewards for solving computations needed to add new blocks to the blockchain.

  • Ether (ETH) is the main cryptocurrency powering Ethereum. Similar to Bitcoin, ETH is minted in every block and distributed to its miners. However, where Bitcoin has a limited supply, Ethereum does not place a limit on the amount of ETH that can be minted, and its supply is programmed to increase by 4.5% each year. Notably, changes to the monetary policy are proposed by developers and voted on by nodes and miners running the software. The Ethereum blockchain is also powered by another cryptographic function called “gas,” which is a special computational unit used for the computation fees. Of note, the more complex the computation, the more gas a given program will require.

  • Ethereums is a much faster blockchain than Bitcoin, making blocks very easy to mine. It is also not a capped cryptocurrency. But like Bitcoin, its blockchain relies on a Proof-of-Work (PoW) protocol to mine blocks and verify transactions. Currently Ethereum is in the transition phase from PoW to PoS consensus protocol.

  • Although Ethereum can function as a medium of exchange similar to Bitcoin, its main purpose is to act as a decentralized application platform. As a blockchain network, Ethereum is a decentralized public ledger for verifying and recording transactions. The network’s users can create, publish, monetize, and use applications on the platform, and use its Ether cryptocurrency as payment. Insiders call the decentralized applications on the network “DApps.”

  • The Ether token acts as the medium for contracts and applications built on the platform. Users can create smart contracts on the Ethereum blockchain. Smart contracts are the main feature of Ethereum and what sets it apart from other players in the crypto space.

  • Ethereum Virtual Machine: Ethereum provides the underlying technology—the architecture and the software—that understands smart contracts and allows you to interact with it.

  • Decentralized autonomous organizations (DAOs): Ethereum allows you to create these for democratic decision-making.

Cardano: Features and Application

  • Cardano is a blockchain platform created in 2017. Cardano was created by technologists Jeremy Wood and Charles Hoskinson, one of the co-founders of Ethereum. Ada is the cryptocurrency of the platform. Cardano runs on the Proof-of-Stake Ouroboros consensus protocol.

  • ADA is the ticker for Cardano.

  • Cardano’s primary use case is to allow transactions in its native cryptocurrency, ADA, and to enable developers to build secure decentralized applications powered by it. However, Cardano differs from other blockchain projects by emphasizing a research-driven approach to design, aiming to achieve an academic rigor it believes will propel adoption of its technology. While Cardano may not promise new ground-breaking features, users and developers may find its cryptocurrency offers appealing optimizations based on scientific research and formal verification, a process by which its code is verified mathematically. Further, Cardano is released in phases and has seen 5 major platform upgrades since 2017, including Byron, which enabled the transfer for ADA cryptocurrency for the first time and Voltaire, which introduced a new model for how users could fund development for software changes.

  • Cardano is maintained by three separate and independent organizations. The Cardano Foundation oversees development of the Cardano blockchain. IOHK built Cardano and designed Ouroboros, the proof-of-stake algorithm Cardano uses to operate its network. Emurgo helps encourage enterprises and larger organizations to adopt Cardano’s technology. At the time of its launch, approximately 31 billion ADA were created, nearly 26 billion of which were sold to investors by a Japan-based company hired to manage the sale. Participants were able to purchase vouchers that could later be exchanged for ADA on the software’s release.

  • To secure its network, Cardano uses Ouroboros, a consensus mechanism similar to Proof of Stake (PoS) ones that enables users to validate transactions and earn newly minted ADA. Ouroboros divides time into epochs and slots, where epochs are the overarching time frames, and slots are 20-second increments within epochs. Within each slot, a slot leader is randomly chosen and is responsible for choosing the blocks that get added to the blockchain. Once the epoch has ended, the previous slot leaders elect the slot leaders of the next epoch.

  • ADA is the main cryptocurrency powering Cardano, is minted every block and distributed to slot leaders as rewards for verifying transactions. ADA is the main cryptocurrency powering Cardano, is minted every block and distributed to slot leaders as rewards for verifying transactions. In early 2021, 31 billion ADA were in circulation, with the remaining 14 billion scheduled to be issued through minting.

  • The heart of any blockchain platform is the algorithm it uses to create blocks and validate transactions. Cardano uses Ouroboros, an algorithm that uses Proof-of-Stake (PoS) protocol to mine blocks. The protocol is designed to reduce energy expenditure during the block production process to a minimum.

  • Cardano aims to be a decentralized application (DApp) development platform with a multi-asset ledger and verifiable smart contracts.

  • Foundation, decentralization, smart contracts, scaling, and governance are the five stages of Cardano development.

  • The Cardano Foundation, IOHK, and EMURGO are all responsible for Cardano's governance.

Differences between Cardano and Ethereum:

  • Cardano has positioned itself as an alternative to Ethereum. Both platforms are used for similar applications, such as smart contracts, and have goals of building a connected and decentralized system.

  • The heart of any blockchain platform is the algorithm it uses to create blocks and validate transactions. Cardano and Ethereum use different blockchains.

  • Ethereum’s Proof-of-Work blockchain has a well-established record. A network of miners computes complex calculations to keep the blockchain running. Proof-of-Work allows Ethereum to attach a physical value to its transactional system. An Ether is worth a certain amount of computing power.

  • A Proof-of-Stake consensus, like Cardano’s Ouroboros, replaces miners with validators. Proof-Of-Stake mining requires a lot less energy and fewer resources than Proof-Of-Work systems since Proof-Of-Work miners have to do much more ‘work’ to mine blocks. Ouroboros requires a small number of Ada holders to be online and maintain good network connectivity. This means that transactions can be validated quickly and cheaply.

  • Scalability, interoperability, and sustainability on PoW networks like Ethereum are limited by the infrastructure burden of growing costs, energy use, and slow transaction times.

  • Seeing the advantages of a Proof-of-Stake mechanism, Ethereum 2.0 intends to move from a PoW to a PoS model. Cardano does have the advantage of being the first-mover in this field and Ethereum will have some catching up to do.

If you are investing in cryptocurrencies, which should you choose? To see which side of the Cardano vs Ethereum debate you fall on, read the considerations for each blockchain platform below.


Cardano Considerations:

  • Ouroboros consensus protocol – The Cardano platform runs on the Ouroboros consensus protocol. Ouroboros, created by Cardano in its foundation phase, is the first PoS protocol that was proved to be secure. When choosing to invest in Cardano, the success of the Ouroboros protocol is a huge plus.

  • Scholarly academic research – Cardano’s development has been unique in that it has been informed by scholarly academic research. Each of Cardano’s development phases is supported by a research-based framework, incorporating peer-reviewed insights with evidence-based methods. This creates a strong foundation from which to make progress toward the future of both the blockchain network and the Ada token.

  • Current price – In the short to medium term, Cardano appears to be a better purchase. Its price is more affordable than Ethereum’s price right now. As the DApp market grows, both Etherum and Cardano are likely to see an increase in value.

Ethereum Considerations:

  • Longevity – Ethereum is the second-largest cryptocurrency worldwide. It also offers smart contracts and other decentralized applications on its network. This makes it a very appealing asset for clever investors.

  • Ethereum 2.0 – The Ethereum 2.0 update will address some of the concerns with its PoW protocol. Long-term, this should increase Ethereum’s value.

  • Current price – As the DApp market grows, both Etherum and Cardano are likely to see an increase in value (don’t forget cryptocurrencies are also subject to tax). Ethereum has shown that it is a major market player and is likely to continue to increase in value.

Conclusion:

Cardano and Ethereum are often compared to each other because both their networks provide similar offerings.

Developers can use both the Ethereum (ETH) and Cardano (ADA) blockchains for similar features, including running custom programming logic (smart contracts) and building programs (decentralized applications).

The major difference at the moment is that Ethereum’s Proof-of-Work blockchain is proving less flexible than Cardano’s Proof-of-Stake Ouroboros consensus protocol.

Ultimately, as an investor, the Cardano vs Etherum debate is a false dichotomy. These two blockchain networks are not going anywhere, and are both likely to increase in value in the long term.

In the short to medium term, Cardano seems like a good buy. It is reasonably priced and as the DApp market grows, both are likely to see an increase in value.

In the long term, Ethereum, with its large market share and the improvements expected in Ethereum 2.0., is likely to be a good cryptocurrency to hold.



References:

  1. Cardano Official Website: Discover Cardano

  2. Ethereum Official Website: What is Ethereum

  3. STILT blog: Cardano vs. Ethereum: Comparing the Two Cryptocurrencies

  4. Kraken's Crypto Guides: Cardano vs. Ethereum




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