Why Cardano Could Be an 'Ethereum Killer'

The Cardano-Ethereum race is a marathon, not a sprint.

Cardano (ADA) and Ethereum (ETH) have a lot in common. Both are types of digital currencies that also function as programmable ecosystems. That means other digital currencies and applications can be built on their networks.

These cryptocurrencies are both traveling toward the same endpoint. But they are taking very different routes.

Different approaches

The main man behind Ethereum is Vitalik Buterin. Cardano was launched by Charles Hoskinson, who also co-founded Ethereum. Both are highly respected in the cryptocurrency industry.

Ethereum launched two years before Cardano, and it hit the ground running. It is developing its technology as it goes along, and is currently rolling out a much-needed Ethereum 2.0 (Eth2) upgrade in stages. In contrast, each step Cardano takes is peer-reviewed by experts. This thorough testing means it's developed much slower than Ethereum.

Cardano calls itself a third-generation blockchain. It wants to solve some of the scalability and other issues faced by Ethereum and Bitcoin (BTC). Rather than layer solutions on top of the existing technology, it started from scratch and built a whole new blockchain.

Two factors to watch

Two concepts illustrate the different challenges Ethereum and Cardano face right now: Smart contracts and proof of stake.

Smart contracts

Smart contracts are small pieces of self-executing code that live on the blockchain. Without smart contracts, the blockchain can only record transactions. With them, it can actually execute deals. For example, you might be able to take out a smart insurance policy that automatically pays out when certain conditions are met.

Smart contracts are the secret sauce behind non-fungible tokens (NFTs) and decentralized applications (Dapps).

How Ethereum and Cardano stack up

Ethereum is winning the smart contract race. Not only does it have smart contracts enabled, but over 2,800 decentralized applications are also already using its network. According to State of the Dapps, about 80% of Dapps run on the Ethereum network.

In contrast, Cardano is testing its smart contract capabilities right now and hopes to launch them fully in August.

Proof of stake

Without getting too technical, blockchains are sophisticated databases that don't need a third party to authenticate the data. They secure themselves. But, for them to work, they need a process to validate transactions and make sure nobody tries to trick the system.

Bitcoin and Ethereum do this through a system of mining called "proof of work." This has been criticized recently because of its high energy consumption. And, although it is super secure, it is also slower and more expensive than other ways of validating transactions.

Proof of stake is a popular alternative to proof of work. It limits the amount of energy the currency consumes and is faster and cheaper.

How they stack up

Cardano was designed to use proof of stake from the outset. It's an eco-friendly crypto that uses a fraction of the energy of Ethereum and Bitcoin and will be able to process about 1 million transactions per second.

Once it launches, Ethereum 2.0 will be able to process an estimated 100,000 transactions per second and will use 99.95% less energy than it currently does. To put those transaction speeds in context, Visa processes about 1,700 transactions per second.

Could Cardano overtake Ethereum?

This year is crucial for the Cardano-Ethereum race. Cardano plans to launch smart contracts and Ethereum will move to a proof of stake model. A lot depends on whether they can both do so without any technical issues.

Ethereum's first-mover advantage cannot be overstated. Even if Cardano's technology eventually turns out to be superior, it won't mean much if people don't use it. Cardano may be comfortable playing the long game, but it won't reach the end of its technical roadmap until at least 2025. And four years is a long time in the quickly developing cryptocurrency industry.

However, Ethereum is congested and transactions are expensive right now. Some developers have already moved away from Ethereum because of the network congestion. It will be interesting to see how many more do so before the proof-of-stake upgrade is rolled out. Especially as there are several other players in the market that already have smart contracts enabled.

The Ethereum 2.0 upgrade has been in the works for some time, and the shift to proof of stake is not going to be easy.

It's not an either-or question

Cardano has the potential to eventually overtake Ethereum. It's the difference between repaving or widening an existing road and building a whole new highway. But there's no reason why Ethereum and Cardano can't co-exist and even work with one another.

Cardano is focused on ways that blockchain can solve real problems in developing countries. It recently announced a big partnership with the Ethiopian Ministry of Education. On the other hand, Ethereum has its eyes on economic applications. For example, Visa is using the Ethereum network to settle crypto transactions.

With such different visions, there's a good chance that both will become successful blockchain ecosystems in their own rights. And if the market for blockchain solutions continues to grow, there'll be plenty of room for both of them.

If you're thinking about buying either Ethereum or Cardano, check out our list of top cryptocurrency exchanges. And remember, these coins can be very volatile, so don't invest money you can't afford to lose.