Tezos vs Ethereum
Tezos and Ethereum are a couple of the more popular smart contract platforms in the cryptocurrency space. Although Ethereum is the larger of the two, Tezos has been gaining ground and the project has recently picked up a few high-profile partnerships.
This article will compare and contrast the two platforms, looking at each’s advantages and disadvantages.
Ethereum has a couple of key advantages over Tezos. The first is decentralization. Ethereum is often considered the second most decentralized cryptocurrency, second only to Bitcoin. A decentralized protocol is important because it reduces the chances that any single organization can censor transactions or freeze accounts.
Ethereum’s second advantage is its vast developer community. Ethereum has more developers than any other cryptocurrency, even more developers than Bitcoin. These developers volunteer their time to improve the protocol and build new features, like staking, which has recently been released.
Having a large developer community is a significant advantage because bugs get fixed faster and new features released regularly. A large community can also compound on itself. There is a lot of technical documentation for Ethereum, which makes it easier to build on. The community can also offer support to developers who are working with Ethereum for the first time.
Finally, Ethereum is home DeFi. Although other blockchains, like Polkadot, are also building out a DeFi ecosystem, currently, Ethereum has the largest decentralized finance product suite in the world.
Having all of these products is advantageous because they are interoperable. For example, dozens of different DeFi protocols are all connected to Uniswap in some way. Even if another blockchain, like Tezos, starts to build out its DeFi ecosystem, it won’t have the diversity of applications like Ethereum has.
Arguably the number one selling point for Tezos is that it’s been built with a self-amending feature. Here’s how the Tezos team describes it.
“Tezos is a self-amending blockchain network which incorporates an on-chain mechanism for proposing, selecting, testing, and activating protocol upgrades without the need to hard fork.”
If you’re familiar with a traditional blockchain, like Ethereum or Bitcoin, you’ll know that to make a large change, it’s often necessary to execute a hard fork. The problem is that hard forks can be contentious and can fragment the network. In general, a hard fork just isn’t an elegant way to upgrade a network.
The Tezos advantage is that the network can be upgraded without a hard fork. What this provides is long term stability. Anyone who builds on Tezos can be confident that the network won’t split, as happened on Bitcoin with Bitcoin Cash and Ethereum with Ethereum Classic.
This self-amending feature was cited as one of the reasons that a large consortium of automakers decided to build on Tezos. BMW, Audi, Porsche, and a few other large automotive manufacturers, have decided to use Tezos to verify the authenticity of the firmware installed in their cars.
Besides favoring the self-amending feature, the automakers also praised the fact that Tezos is capable of clearing significantly more transactions per second than Ethereum. Although Tezos is more centralized, the advantage of centralization is speed. For certain clients, like automakers, fast transactions are more important than decentralization.
This could be the case for other large companies as well. Perhaps the Tezos advantage is that the blockchain appeals to large manufacturers and other corporations, who find speed more important than building on the most decentralized protocol.
Tezos Beats Ethereum on Gas Costs
Throughout the summer and fall of 2020, Ethereum has experienced periods of extreme network congestion. On some days, there was so much traffic on Ethereum that sending even a simple transaction could cost as much as $5 or $10.
More complex transactions could cost anywhere from $50 to $100 or more. This is a bad situation since it makes Ethereum unusable for the average person. While some scaling solutions will be coming out on Ethereum, it’s not clear that these solutions will immediately fix the problem.
Recognizing an opportunity, Tezos recently implemented the “Delphi” upgrade, which reduced gas requirements for executing smart contracts. Tezos claims that in many cases, the gas requirement may be reduced by as much as 75%. In other words, executing a smart contract will be 3x cheaper than it previously was.
Fast transaction speeds combined with low fees could get some percentage of Ethereum users and developers to move to Tezos. The longer Ethereum remains congested, and the longer that fees remain high, the more people will move to other chains like Tezos. This puts the pressure on the Ethereum community to find a way to scale the blockchain.
Which Blockchain is Better?
There isn’t one blockchain that’s always going to be better no matter what. The best choice will depend on the varying needs of the user or developer.
If you want to be part of the largest DeFi ecosystem, that means Ethereum since no other cryptocurrency in the world has a decentralized finance movement as big. Ethereum is also the best choice if decentralization and immutability are important. When a developer wants to create an application that can’t be shut down, they build on Ethereum.
On the other hand, if scalability and fast transaction speeds are a priority, Tezos is the better protocol. The Tezos self-amending feature is also really cool since it does away with hard forks.
It could be a few years or more before we see which smart contract platform ends up being the long term winner — Ethereum with its decentralized structure but slower speeds, or Tezos with its high-speed transactions and self-amending protocol. Of course, both can appeal to distinct markets as they boast different features. It does not have to be one or the other.
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This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.