Once you dip your toe in the crypto waters, you'll find that Bitcoin (BTC) and Ethereum (ETH) are just the tip of the iceberg. They may be the biggest and best known cryptocurrencies, but they are not perfect.
Both face two big problems: high carbon footprints and slow transactions. And while it's possible to layer solutions into these coins, there are newer, cheaper, and faster cryptocurrencies that consume a fraction of the energy.
Cardano (ADA) is one such currency. Created by pioneering cryptographer Charles Hoskinson, who also co-founded Ethereum, Cardano is the result of years of academic research and planning.
In this article, we will discuss:
Cardano is a third generation cryptocurrency
When Bitcoin was released in 2009, it was revolutionary. The challenge is that Bitcoin is difficult to program. For example, I can transfer 0,02 Bitcoin to you safely. But I can't include any conditions, which means I can't transfer 0,02 Bitcoin to you in exchange for your second-hand car.
That's where Ethereum comes in. He introduced the first blockchain programmable. When making Ethereum payments, you can include conditions. Additionally, other applications and cryptocurrencies can be built on the Ethereum platform.
But there is still room for improvement. For example, see how speed and power consumption compare for three currencies:
| CRYPTO CURRENCY | BITCOIN | ETHEREUM | CARDANO |
|---|---|---|---|
| Approximate Transactions Per Second (TPS) | 3 TPS | 15 TPS | 1 million TPS |
| Energy consumption | 121 TWh | 52 TWh | 6GWh |
| Comparison of energy consumption | the Netherlands | Portugal | Almost the same as 600 homes in the US each year |
Ethereum is upgrading to Eth 2 which will resolve some of these issues. But third-generation cryptocurrencies, like Cardano, have skipped the slow-dealing, carbon-eating stage. Cardano doesn't need updates for faster and better performance because it's designed differently.
Proof of work vs. bet proof
The reason Bitcoin and Ethereum consume so much energy is that they both use a proof-of-work (PoW) mining model. Mining is how these block chains add new blocks and verify transactions. A blockchain is a sophisticated database made up of interconnected blocks.
As the value of these cryptocurrencies increases, mining new blocks becomes more profitable – and more companies want to do so. By design, only one Bitcoin block can be extracted every 10 minutes. If more computing power is added, mining becomes more difficult, which means more energy is consumed to reach the same endpoint. Inefficiency is built into the system.
In contrast, proof of betting (PoS) only allows people who own part of the currency to validate transactions. This is called stakeout. The built-in cap means that mining cannot get out of hand as there is no economic incentive to keep adding more computing power.
Cardano is a built in PoS system. Ethereum's Eth2 update would move it to a PoS model and reduce its energy by 99,95%.
Can the ADA beat ETH?
It is worth saying that it is not necessarily an either/or situation with these coins. I own both because I think each currency has great long-term potential.
Now, Ethereum and Cardano are competing in the same space. They are programmable and scalable platforms, and both will offer smart contracts and enable application development. Both have strong teams with a lot of experience in cryptography.
But there are some big differences.
Cardano has spent years researching, testing and planning his network. Each step performed was peer-reviewed. It attracted experts in various fields to ensure the system is robust and scalable.
And some believe Cardano can surpass Ethereum. The problem? It's not there yet. Cardano says it will release smart contracts (self-executing code pieces on the blockchain) later this year.
Ethereum already has 2.700 applications running on its network. Its smart contracts are working, it is the backbone of the growing market for non-fungible tokens (NFTs) and it hosts a large number of decentralized finance (DeFi) projects. Decentralized financial applications eliminate the middleman (such as a bank) in loans, interest-earning accounts, and other financial services.
However, until the release of Eth2, Ethereum remains energy intensive. It also has extremely high gas fees (such as transaction fees) which get more expensive when the network is congested.
Ethereum may have thousands of applications running on its platform, but Cardano already has relationships with developing country governments. For example, it recently launched a project with Ethiopia's Ministry of Education. From the beginning, it looked for real-world uses for the platform.
Next year will be important for both cryptocurrencies. If Ethereum can make the transition to Eth2 without major hurdles – and without security breaches – it is likely to lead the pack for the foreseeable future.
But assuming Cardano's smart contract launch is hassle-free, it will soon provide fast, low-cost transactions for NFTs and DeFi apps, which is likely to attract a large share of the app market. That, in addition to their real-world relationships, means there's a good chance they'll knock Ethereum out of that superior place in the long run.
If you decide to buy any of these cryptocurrencies, remember that these investments are highly volatile and only invest money that you might lose.
