Cardano vs. Ethereum in 2022

ResearchApr 05, 2022
Cardano vs. Ethereum in 2022

The ranks of Ethereum killers are growing along with congestion on the veteran blockchain. Cardano is a prominent contender along with Solana, Tezos, and Polkadot. Its aims are different, but its community is just as fiercely loyal. In this guide, we will juxtapose Cardano and Ethereum — in particular, their blockchains, assets, and philosophies.

Fundamentals of Cardano vs. ETH

Aside from their decentralized nature and the same founders, these blockchains are dramatically different. Ethereum is a rather chaotic environment with an abundance of conflicting hard forks and a disorganized token economy. Its younger rival is a peer-reviewed system focused on security and science. Here is the lowdown on Ethereum vs. Cardano.

What is Ethereum?

The Ethereum blockchain, which went live in 2015, is a platform for smart contracts. It was launched by a star-studded cryptographer cast, including founders Vitalik Buterin, Gavin Wood, and Charles Hoskinson.

Ethereum’s market cap is over $375 billion, which makes it the runner-up to Bitcoin. As of now, over 1 billion transactions have been recorded, with 1+ million new operations daily. However, high gas fees coupled with low Ethereum TPS hamper growth. By 2023, the platform is due to accelerate and solve scalability issues with ETH 2.0.

How is ETH used?

The Ethereum network is primarily used for creating and hosting finance Dapps (decentralized applications) and programmable tokenized assets. The ETH coin, or Ether, is a valuable cryptocurrency traded at around $3,400.

ETH’s Purpose and Value as of March 29, 2022. Source: ethereum.org
ETH’s Purpose and Value as of March 29, 2022. Source: ethereum.org

What is Cardano?

Cardano, a general-purpose blockchain launched in 2017, is the brainchild of Ethereum’s co-founder Charles Hoskinson. It was named after Gerolamo Cardano, an Italian polymath and mathematician. Like its competitor, the platform supports decentralized transactions and applications based on smart contracts.

Cardano is the 7th cryptocurrency by market cap (over $36 billion). As of March 27, 2022, only around 107,500 transactions were recorded daily. Their total number is approaching 36 million. As of this writing, the native ADA token is worth $1.21.

How is Cardano used?

The Cardano blockchain primarily facilitates financial settlements with ADA. It was devised as a DeFi solution to bringing financial freedom to developing countries. The Cardano Foundation did not launch smart contracts until late 2021. We will zoom in on the ADA vs. ETH digital currencies below.

Cardano's Official Philosophy. Source: cardano.org
Cardano's Official Philosophy. Source: cardano.org

What makes Cardano different from Ethereum?

  • The Cardano coding language (Haskell) is widely used and easy to audit. Ethereum’s Solidity, in comparison, is highly specialized, so few developers can write or review it.
  • Due to more experts auditing the code, this blockchain technology is inherently safer. By eradicating coding errors, they prevent security flaws.
  • Unlike other Ethereum killers, Cardano does not boast about massive throughput. It is, above all, a peer-reviewed system focused on security and scalability.
  • The Cardano blockchain is more energy-efficient than Ethereum.
  • The dual-layer design makes it faster and cheaper to use.

Comparison of Cardano Ethereum smart contracts

While Bitcoin is the pioneer and leader by market cap, its usability is limited to programmable cash. The introduction of pre-programmed, automatic, and self-executing agreements is the biggest contribution of the Ethereum Foundation. Smart contracts expand utility, giving networks new applications beyond cash.

How do smart contracts work?

In essence, blockchain networks become decentralized virtual computers where every contract is a separate program. It is lightweight and follows rules that are carried out autonomously. These contracts are unalterable and incorruptible. They make trust implicit in a transaction.

In layman’s terms, these programs or protocols work like a vending machine where you insert cash and select a product. Based on pre-programmed inputs (X, Y, and Z), a smart contract produces the desired outputs (A, B, and C). Here is how ETH and ADA smart contracts compare.

Smart contracts on Ethereum — key facts

  • Ethereum is the biggest blockchain platform based on smart contracts.
  • Dapps built on Ethereum contracts can run trustfully independently, without an intermediary or operator.
  • When a contract executes a command, this triggers a transaction. Simultaneously with contracts, Ethereum powers transactions involving the ETH transfer between users.
  • Every transaction has a price — a gas fee in the form of Ether.
  • Contract computations occur on the same layer as financial settlements (that is, ETH transfers). Large volumes of traffic cause jamming. Miners get mobbed, and gas prices shoot up.

Key differences of smart contracts Cardano

  • Unlike Ethereum, Cardano did not support self-execution until September 2021, when the network entered the Goguen era. This is the third of its five stages named after historical figures. Check out this official guide with smart contracts Cardano explained.
  • Computations and settlements exist on different layers of the blockchain. Therefore, neither contracts nor decentralized applications interfere with the ADA tokens transfer.
  • Cardano fees for network use are significantly lower.
  • The number of deployed contracts is growing, but Ethereum still reigns supreme. In January 2021, it saw half a million new contracts monthly, while the total number of contracts on Cardano only reached 1,000.
The Official Cardano Roadmap. Source: roadmap.cardano.org
The Official Cardano Roadmap. Source: roadmap.cardano.org

Speed and cost comparison

As of now, transactions on Hoskinson’s network are faster and cheaper. It appeals to users frustrated with Ethereum’s delays and costs. That said, the ETH 2.0 update is expected to be a game changer, so it is worth discussing in-depth.

How fast is Cardano blockchain compared to Ethereum?

At present, Cardano processes approximately 250 transactions per second (TPS). This is a breakthrough compared to 12-15 TPS on the older platform. Ethereum’s current consensus algorithm (Proof-of-Work) is to blame, but ETH 2.0 TPS will help it forge ahead. According to the developers, it will speed up to 100,000 TPS.

Does ADA have gas fees?

Yes, and despite the surge in daily traffic, Cardano is relatively cheap to use. Its gas fees are currently 0.19 ADA per transaction. The costs depend on three factors — fixed ADA amount, ADA cost per byte, and transaction size. As of this writing, the token is trading at $1.15, so the ADA gas fee equals around $0.22 USD.

Average Gas Fees on Cardano. Source: Cardano Blockchain Insights
Average Gas Fees on Cardano. Source: Cardano Blockchain Insights

Ethereum uses a special system with wei as a unit of measurement. 1 ETH equals 1 quintillion wei. Gas fees are normally calculated in gigawei (gwei), or 1 billion wei. As of this writing, the average base gas fee for any transaction is 31 Gwei, or $2.03 — nearly ten times more than for the Cardano transactions.

Why is Ethereum so slow?

Ethereum’s main problems stem from the Proof-of-Work protocol it borrowed from Bitcoin. In 2013, when PoW was implemented, its stability, security, and decentralization were deemed sufficient. In this consensus mechanism, miners or nodes validate transactions. Each node processes all of them, which explains the meager ETH TPS.

While its following was relatively modest, the PoW protocol let Ethereum keep up with the traffic. Then, cryptocurrencies became mainstream, and the demand soared. With the advent of NFT and decentralized applications, network limitations became obvious. Today, Ethereum is lagging far behind the Cardano TPS.

On some days, the blockchain sees 500,000+ transactions, although it can officially process 15 per second. It desperately needs to scale and speed up. While Cardano ADA smart contracts are running on Proof-of-Stake (PoS), Ethereum is only transitioning to it.

How PoS could save the Ethereum blockchain

The Ethereum 2.0 update, which replaces the consensus mechanism with PoS, is being rolled out incrementally. Its benefits could change the correlation of forces in the ADA Ethereum competition. Here is why.

Three Key Advantages of ETH 2.0. Source: ethereum.org
Three Key Advantages of ETH 2.0. Source: ethereum.org
  1. Upgraded with PoS, Ethereum will be more energy-efficient. It will need fewer computing resources to validate transactions.
  2. Adoption of sharding will reduce the burden on validators — each of them will only check cryptocurrency activity on a network segment.
  3. The number of transactions per second will soar — as we have mentioned, the projected Ethereum 2.0 TPS is 100,000. Acceleration will allow the platform to serve billions of users, essentially turning into a world computer.

As of now, ETH still uses the PoW mechanism while every ADA smart contract runs on PoS. It is impossible to transform the blockchain overnight, and only the first stage of the update has been completed.

  • Phase 0, slated for release in 2019, was delayed until December 2020. It created the Beacon Chain, a hub for coordination and PoS consensus.
  • Phase 1 is expected to go live in 2022. The mainnet will merge with the Beacon Chain to facilitate full staking and transition to PoS. On March 15, this merge was successfully completed on Kiln — the final testnet before the deployment on public testnets.
  • Phase 2 is scheduled for 2023. The network will be enhanced with 64 new chains for state execution. The existing Ethereum 1.0 chain will also become a shard.

Comparison of assets — ETH vs. ADA

ETH and ADA power all activities on their respective blockchains. The former has more use cases as Cardano shifted to automatic contracts less than a year ago.

ETH — basic facts

ETH is the native currency of the Ethereum blockchain ecosystem. Compared to Bitcoin, it is versatile as its utility is not limited to money.

ETH Price Chart. Source: CoinGecko
ETH Price Chart. Source: CoinGecko

Gas fees

This is the largest use case. Before a wallet can initiate a transaction, be it smart contract execution or a stablecoin transfer, it must pay a fee. Gas fees paid in Ethereum’s cryptocurrency go to miners as a reward for validating transactions.

Collateral in DeFi

Most DeFi apps are built on the Ethereum blockchain. Unlike ADA, ETH plays the role of reserve currency in the majority of liquidity pools. For instance, it is the base token for most pairs on Uniswap. This biggest DEX processes trades worth billions of dollars.

MakerDAO, a crypto lending system, requires users to deposit ETH into smart contracts as collateral. This lets them take out loans in the form of DAI, a crypto-collateralized stablecoin. The more Ethereum they lock, the more DAI they can mint. After gaining Uniswap or DAI, users can place them in vaults or interest accounts and earn APY.

Earning ETH staking rewards

Staking on Ethereum was ushered in by Phase 0, and it is being introduced on the Beacon Chain. This is an exciting prospect for holders, as they can earn interest by keeping their assets in the native ecosystem. The best staking pools provide sizable rewards, but the rates may decrease or increase over time.

ADA — basic facts

Cardano’s native blockchain currency was named after 19th-century mathematician Ada Lovelace. The only child of Lord Byron, she is also recognized as the first computer programmer in the world.

In terms of use, ADA is more limited than ETH. Since Cardano is primarily a platform for DeFi interactions, its token is, essentially, decentralized cash. On the upside, it already supports staking.

ADA Price Chart. Source: CoinGecko
ADA Price Chart. Source: CoinGecko

Using ADA as money

As all tokens exist on a dedicated layer, Cardano transaction fees are lower while the speed is higher. ADA is an almost instant medium of exchange with the potential to become a global currency.

Stake ADA for passive income

The Goguen update in 2021 brought new use cases, including the creation of Dapps. With increased activity, validators will have more work, and staking rewards may grow.

Compared to staking on Ethereum, Cardano’s policy is more convenient:

  1. Users do not have to lock their state tokens.
  2. They can unstake them at any moment.
  3. They can delegate ADA stakes based on these principles:
  4. The ADA holders who do not have the time, skills, or resources to run a stake pool can use their wallets (for example, Daedelus) to delegate their ADA stake to a validator who will maintain it on their behalf.
  5. Any user can contribute to the consensus and earn passive rewards.
  6. The bigger the stake in a pool, the bigger the reward.

Energy efficiency of ADA vs. Ethereum

The Bitcoin network is notorious for its power consumption. It requires over 130 TWh per annum, nearly as much as the Netherlands. Ethereum requires around 112 TWh. Cardano uses a fraction of this amount — merely 6 GWh annually, or roughly 0.01%. Sustainability is one of its key strengths.

How Ouroboros reduces energy consumption

Cardano’s PoS system is more lightweight than Ethereum’s. The reference to the emblematic serpent of ancient Greece and Egypt is highly relevant. Cardano’s design creates a closed-loop system. Ouroboros with its tail in its mouth represents a perpetual cycle of destruction and re-creation.

This model makes this cryptocurrency network dramatically different from Ethereum — the latter is mainly powered by miners who need a lot of energy to secure the network. Resources are constantly reused thanks to the principle of delegation, which brings the energy costs down. ADA holders do not have to run the node online continuously.

Definition of Ouroboros. Source: cardano.org
Definition of Ouroboros. Source: cardano.org

Cardano or ETH? Summary of pros and cons

Cardano vs. Ethereum in 2022

Present and future of Ethereum vs. ADA

These decentralized blockchains have little in common except founders. Cardano’s biggest advantages over Ethereum are its superior security, energy efficiency, scalability, and throughput. Thanks to separate layers and the closed-loop Ouroboros consensus, it reuses network resources perpetually.

On the downside, innovation is hampered by the need to formalize minor updates. Cardano is stiffer, and its smart contract functionality is nascent. At present, developers cannot adapt Ethereum contracts effortlessly, but interoperability will grow.

Cardano’s current market cap and penetration are both inferior to Ethereum. It may be a while before we see the bulk of its Dapps. By that time, ETH 2.0 could be live, so it is reasonable to revisit this comparison in the near future. Cardano vs. Ethereum 2.0 will be a whole new ball game.

Disclaimer:

The information provided by CoinLoan (“we,” “us,” or “our”) in this text is for general informational purposes only. All investment and financial opinions expressed by CoinLoan in this text are from the personal research and open information sources and are intended as educational material. All outlined information is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in this text.

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