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This article will compare and contrast Cardano (ADA) and Ethereum (ETH), two of the most popular smart contract platforms in the cryptocurrency ecosystem. Before we begin the comparison, we’ll provide a quick overview of what a smart contract platform is and why smart contracts are important.
What is a Smart Contract Platform?
A smart contract platform is a protocol that lets users write smart contracts on top of it. Although smart contracts sound like something only lawyers might be interested in, the truth is that they’re the backbone for multiple technologies.
- Decentralized applications (Dapps)
- Decentralized exchanges
- Digital art marketplaces
- Non-fungible tokens
All sorts of exciting protocols are only possible because of smart contracts. Both Ethereum and Cardano are smart contract platforms, although they have distinct advantages and disadvantages that we’ll consider in this article.
Being one of the top cryptocurrencies by market cap, Ethereum has some real advantages. First off, it has the largest developer community out of any cryptocurrency. More developers are working on Ethereum than on Bitcoin!
One of the most reliable ways to value a cryptocurrency is to look at its network effect. I.e., the more people using it, the more valuable a crypto becomes. The same thing applies to social networks and other technologies like phones and email.
Ethereum already has a vast network effect with lots of infrastructure to support the project. Decentralized derivatives, more than a dozen stable coins, digital art marketplaces, decentralized lending platforms, decentralized exchanges, the list goes on… Millions of people are already using Ethereum, which makes it that much more likely that new users will come to the platform.
Unlike Ethereum, Cardano is releasing their blockchain in stages. The first major release was Cardano’s staking mechanism. After that will come smart contracts and then scaling solutions like sidechains.
This pre-planned rollout is an advantage because it increases the chances that the Cardano network will function seamlessly. The opposite is true on Ethereum, where there are concerns that upgrades to the protocol might lead to compatibility issues.
One of Cardano’s most exciting features is the Marlowe programming language. Marlowe is a simplified programming language that will let anyone create a smart contract, even if they have no programming experience. If Marlowe works as advertised, it could attract thousands of new users who might not otherwise have been able to create a smart contract.
Another one of Cardano’s advantages is that it has native staking support for smaller balances. For example, you can easily delegate $50 or $100 worth of ADA. This should encourage users to stake directly with Cardano rather than via a third party.
Finally, Cardano may have a better staking mechanism than Ethereum. It’s too early to tell, and it might take a couple of years to draw any meaningful conclusions, but this is at least a possibility. Cardano co-founder Charles Hoskinson has claimed that Cardano has the best code out of any cryptocurrency project. If that’s the case, Cardano’s staking mechanism may be better than Ethereum’s.
One of Ethereum’s primary disadvantages is that it’s difficult to update. We’ve seen this firsthand as Ethereum’s staking upgrade has been delayed again and again. Because of how many projects are already built on top of Ethereum, there is a lot of complexity, which increases the chance that something could go wrong with an update.
The network could be compromised, funds could be lost, or the new update might just not work! All of this is much less likely to happen on Cardano, with its planned rollout schedule.
Another disadvantage of Ethereum is that staking requires 32 ETH. If ETH returned to its previous all-time high, buying enough ETH to stake would cost about $40,000.
Of course, there will be fractional staking through services like Rocket Pool and exchanges. However, if enough people use staking services, it could centralize the network. It’s not hard to imagine a scenario where 10 or 20% of all ETH is being staked through Coinbase. This could give Coinbase undue control over Ethereum.
One of the critical disadvantages of Cardano is that it doesn’t have as many developers as Ethereum. A smaller developer community typically means slower growth and fewer exciting projects that are getting built. While it’s possible to pay developers to work on a protocol, this can quickly turn expensive.
Cardano is also more centralized than Ethereum. This could change in the future, though, as more users adopt Cardano and start staking.
Arguably the most considerable disadvantage of Cardano is that it has the opposite of a head start. As of October 2020, Cardano is a smart contract platform that doesn’t even have smart contracts! Compare that to Ethereum, which has been supporting smart contracts since 2015.
Even though Ethereum is far from perfect, it’s been running for five years, and a tremendous amount of infrastructure has been built on top of it. Cardano will find it challenging to catch up to Ethereum in terms of development, especially if Ethereum’s network effect expands exponentially.
Cardano vs Ethereum
Ethereum and Cardano are two smart contract platforms that have taken a radically different approach to development.
Ethereum went with the Silicon Valley startup approach. Ship an MVP (Minimal Viable Product), get users as soon as possible, improve the product in iterations over time.
Cardano has gone with a scholarly approach of steady development and only releasing a product once it’s fully polished and highly functioning.
As of now, Ethereum has a significant headstart, which may well prove insurmountable. However, Ethereum does have a vulnerability: something could go wrong with the code. There could be problems with staking or problems with one of the other future upgrades to Ethereum.
If there is a critical vulnerability, it could drive smart contract users to build on another platform like Cardano.
It’s too soon to tell whether Ethereum or Cardano will dominate the smart contract game in the future. Right now, Ethereum is king while Cardano is still in the womb, far from being able to challenge Ethereum dominance in any meaningful way.
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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.