08 February 2022 • 8 min read
Cardano (ADA), also known as the Ethereum killer, has had its ups and downs in recent times. In early September 2021, Cardano hit an all-time high of $3.10 with a market capitalization of $97.52 billion amid speculations of smart contracts launch. It managed to position itself as the third cryptocurrency by market cap, topped only by Bitcoin and Ethereum.
However, as most traders took profits, Cardano’s price retreated from its all-time high, slipping from the third cryptocurrency to the sixth crypto by market capitalization. Despite this fall in price, experts believe that Cardano could rally to a new all-time high in 2022.
Optimistic crypto investors think Cardano will eventually be an Ethereum killer, becoming the second cryptocurrency despite the huge price difference between it and Ethereum. Historically, however, nothing is 100% certain in the crypto world and you cannot rule out ADA’s steady and quiet growth.
But will Cardano replace Ethereum?
Let’s take a look!
Cardano positions itself as one of the biggest cryptocurrencies by market cap. It’s hardly surprising to think of it as an Ethereum killer considering the fact that Charles Hoskinson, a co-founder of proof-of-work (PoW) Ethereum, went on to create Cardano as an alternative. Its native token ADA is used to pay transaction fees on the network and staking rewards.
The Cardano blockchain is built on a proof-of-stake (PoS) consensus mechanism called Ouroboros, which is considered to be the most energy efficient and secure PoS protocol available today. Unlike Bitcoin and Ethereum, which are first- and second-generation blockchains, respectively, Cardano is a third-generation blockchain designed to address the drawbacks of its predecessors. Charles Hoskinson started developing Cardano in 2015 after studying the limitations of proof-of-work (PoW) systems, such as scalability, sustainability, and interoperability, eventually launching Cardano in 2017.
As their documentation indicates: “Cardano is a decentralized third-generation proof-of-stake blockchain platform and home to the ada cryptocurrency. It is the first blockchain platform to evolve out of a scientific philosophy and a research-first driven approach. [...] It has a strong focus on sustainability, scalability, and transparency. It is a fully open source project that aims to deliver an inclusive, fair, and resilient infrastructure for financial and social applications on a global scale. One of its primary goals is to bring reliable, secure financial services to those people who do not currently have access.”
The Cardano blockchain has two different layers: the Cardano Settlement Layer (CSL), a value ledger where digital asset transactions are settled (ADA lives here), and the Cardano Computation Layer (CCL), which allows for the creation “of a special purpose token held by delegates of that ledger who could be regulated entities, thereby creating a permissioned ledger.”
Whereas Bitcoin serves as a medium of exchange or a store of value, Ethereum promises so much more. Ethereum is a decentralized, open-source blockchain that is “home to digital money, global payments, and applications,” and its native token is Ether (ETH). Created by Vitalik Buterin to solve some of the shortcomings of Bitcoin, Ethereum is currently the second biggest cryptocurrency by market cap.
However, the widespread adoption of Ethereum led to an increase in transaction (gas) fees. In February 2021, for example, the fee incurred to process a transaction on the network hit a record $21. While this was satisfying news for miners, most traders find such high fees prohibitively expensive. By design, Ethereum operates using Proof-of-work protocol (PoW), which consumes a large amount of energy when validating transactions, leading many to seek out more environmentally friendly crypto alternatives. As a result, Ethereum gas fees vary based on network traffic, obviously climbing during peak periods when network activity is high.
In order to solve this congestion, Ethereum has gradually started the process of upgrading to ETH 2.0, which uses the proof-of-stake (PoS) protocol. However, Cardano poses a threat to Ethereum due to the cheaper transaction fees on its network, making it more efficient in executing smart contracts.
If recent developments are any indication, 2022 is poised to see stiff competition in the world of dApps, with many observers viewing Cardano as a major force in the space. But can Cardano be the Ethereum killer as believed by many experts?
Let’s look at different aspects of both blockchains to get a clearer picture, if not a definitive answer.
Ethereum and Cardano are decentralized platforms, but they differ in a number of key ways, including their implementation and development approaches. Ethereum is known for the relatively quick pace of its developmental approach, but there can be certain drawbacks to moving too quickly. As one analyst noted, “Ethereum prioritizes faster development, but that comes at the cost of a more fragile set of software implementations.”
Cardano, on the other hand, prefers to take its time in order to properly assess and update its tech through a peer-review process before implementing anything. While some view Cardano’s approach as unnecessarily slow, founder Charles Hoskinson prefers instead to view it as a necessary part of the process in order to ensure reliability and stability. One consequence is that there are fewer projects on Cardano, although this is also due to Ethereum’s “first mover” advantage.
By validating transactions using a Proof-of-work consensus mechanism, Ethereum is still using the exact same consensus mechanism as the one used by Bitcoin, which requires a great deal of energy in order to validate transactions on the blockchain. Many experts continue to argue that, while quite secure, the Proof-of-work protocol is environmentally unsustainable, which is one of the reasons why Ethereum is transitioning to a Proof-of-stake mechanism.
As a third-generation blockchain employing a Proof-of-stake mechanism, Cardano has been engineered from the outset to be more efficient and therefore more environmentally friendly than second-generation Ethereum. One major effect? Bye-bye, miners.
As Mark R. Hake of InvestorPlace explains: “The key way that a proof-of-stake system like Cardano works is that certain ‘validators’ put up a stake of their cryptocurrency to attest to the validity of a block in the blockchain. Through this staking system, validators earn a certain amount of the crypto as a reward.”
Smart contracts are programs stored on a blockchain that run when predetermined conditions are met. As Jake Frankenfeld writes on Investopedia, “Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.”
Decentralized applications, or dApps as they are commonly known, refer to digital applications or programs that run on a blockchain or peer-to-peer network of computers. They can promote privacy and be resistant to censorship, but can be difficult for beginners to use due to rather complicated user interfaces. Use cases include financing, gaming, and social media, among others.
All the rage lately, NFTs have received an endless amount of news and social media coverage. As unique cryptographic tokens that exist on the blockchain,NFTs cannot be replicated. As Nick Szabo has suggested, you might think of them as a digital vending machine: essentially anything that you store on your computer, you can enclose in an NFT, such as artwork, media, documents (e.g., real estate contracts, deeds, personal identification).
Ethereum describes smart contracts on their blockchain in the following way:
“Smart contracts are a type of Ethereum account. This means they have a balance and they can send transactions over the network. However they're not controlled by a user, instead they are deployed to the network and run as programmed. User accounts can then interact with a smart contract by submitting transactions that execute a function defined on the smart contract. Smart contracts can define rules, like a regular contract, and automatically enforce them via the code. Smart contracts cannot be deleted by default, and interactions with them are irreversible.”
Cardano, on the other hand, uses an extended unspent transaction output (eUTXO), an upgrade to Bitcoin UTXO. Unlike Ethereum's balance model, you cannot split the UTXO, making each transaction verification easier (the eUTXO model facilitates the execution of ADA smart contracts). It also enables developers to easily create decentralized applications, compared to Ethereum's account-based model. As Cardano describes it, “Cardano (like Bitcoin) is an Unspent Transaction Output (UTXO)-based blockchain, which utilizes a different accounting model for its ledger from other account-based blockchains like Ethereum. Cardano implements an innovative Extended Unspent Transaction Output (EUTXO) model, which is introduced by the Alonzo upgrade to support multi-assets and smart contracts.”
However, Cardano only recently enabled its smart contracts and, by comparison, has yet to run a significant amount of dApps and NFTs on its network. Among the two, Ethereum still seems to be the preferred blockchain for smart contracts, but this could change in the future if Cardano smart contracts take off.
Ever since the halcyon days of Bitcoin, scalability has been a challenge to Proof-of-work (PoW) blockchains. ETH 2.0 will probably enable Ethereum to process up to eventually “scale to as many as 100,000 transactions per second using sharding and other tactics.”
On the other hand, Cardano promises to execute up to 2 million transactions per second after implementing the Ouroboros Hydra update. Currently, Cardano processes more transactions per second than Ethereum. According to Yahoo Finance, “If everything goes as planned, the future could see the Cardano network processing up to 1 million transactions per second (TPS). Considering Visa (NYSE:V) processes approximately 24,000 TPS, it’s a massive step up in scalability.”
As the use cases for crypto increase, businesses will likely shift to wider adoption, making the issue of scalability a potential hurdle for Ethereum in the future.
Well, like anything else, it depends on who you ask. For Cardano founder Charles Hoskinson, the question is not one of if but when. Scour the internet and you’ll turn up countless articles speculating on the competition between Ethereum and Cardano.
Coindesk, for example, ran the article “Cardano vs. Ethereum: Can ADA Solve Ether’s Problems?”, noting five key problems that Cardano seeks to solve: scalability, interoperability, sustainability, governance, and a fundamental shift in philosophy regarding the position, role, and potential impacts of a global cryptocurrency ecosystem.
As we reported in our article “Best Cryptocurrencies to Invest in 2022,” Cardano is seemingly loved and loathed in equal measure, not least because many view its founder Charles Hoskinson as either a misunderstood genius or a cult leader. Naysayers see it as vaporware or even a ghostchain, but many people underestimate the strength of the Cardano community, which has proven itself to be extremely loyal. And then there are other chains out there, ones such as Solana, which many see as having the potential to surpass both Ethereum and Cardano.
Although experienced enthusiasts are working to improve Cardano-based smart contracts, developers will need to test its functionality.
For some, even with its 2.0 upgrade, Ethereum is showing its age. There is increasing concern about the high gas fees and slow speeds in processing transactions on its blockchain, which has prompted users to search for greener pastures. For the time being, though, Ethereum is still king of the hill amongst developers when it comes to dApps.
So, will ADA replace ETH? The short answer, which is the only credible answer at this point given the known unknowns and unknown knowns: it depends.
Ethereum and Cardano continue to be top-ten coins in terms of market cap. Ethereum is viewed as the silver to Bicoin’s gold, which means that many traders have at least some ETH as part of their portfolio.
ADA, however, is seen by some as more of a wild card—tremendous potential, but slower to develop and deploy. It’s still in the mid-phase of its development, with the launch of self-executing agreements, which has set the foundation for what is to come. Nevertheless, they are taking time to build blocks on which real growth will occur.
Historically, many investors have made significant profits from speculating on the next big coin and some feel that Cardano has the resources and use value to go the distance. Some are “going all in” on ADA, while others are forecasting that Ethereum will surpass its all-time high and even surpass Bitcoin.
The struggle for prominence between Ethereum and Cardano remains a hot topic among crypto pundits, traders, and media outlets, with both possessing their own mix of advantages and disadvantages. Given the volatility and relative newness of cryptocurrencies and the cryptocurrency space in general, it can be difficult to gauge with any degree of certainty the extent to which any given coin will perform in the future (What are Ethereum price predictions for the years ahead?).
Despite this fundamental uncertainty, though, one thing is clear: ETH and ADA will be part of the future of cryptocurrencies if they continue to evolve and demonstrate their use value across a range of industries.
Whatever you decide about the viability or supremacy of either the Cardano or Ethereum blockchain, remember the golden rules of investing: always do your own research and never risk money that you can’t afford to lose.