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Thursday, December 7, 2023

Is Cardano the ethereum killer?

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For the uninitiated, Cardano is operated by a non-profit foundation that works closely with academia to research and improve all aspects of the blockchain platform. Cardano calls its ADA coin a “first third generation” cryptocurrency capable of solving the scalability and interoperability dilemma associated with previous generation coins, including Bitcoin and Ethereum.

Bitcoin has received quite a lot of criticism lately for the excessive energy consumption of its network. At the heart of this problem is Bitcoin’s Proof of Work mining mechanism, in which miners spend processing power performing cryptographic computations in order to get a chance to authenticate a transaction and then assimilate it into the blockchain. Moreover, every transaction must be replicated across all nodes – computers running the software for implementing bitcoins and storing the entire blockchain.

Unlike Bitcoin, the Cardano Ouroboros algorithm uses a Proof of Stake authentication mechanism, where a set of nodes is controlled by a “leader” who verifies transactions and then incorporates those transactions into the Cardano blockchain. In order to buy Cardano with PayPal or even buy ethereum with PayPal you need to use a P2P Crypto exchange. 

Now the scalability of the blockchain network is something that all cryptocurrencies have to contend with. The Bitcoin Lightning Network aims to boost the computing power of the world’s largest cryptocurrency by adding another layer to the Bitcoin network that speeds up transaction processing by bypassing the blockchain, allowing bitcoins to be instantly transferred between two wallets without associated fees. Of course, the final balance of a series of transactions between two people on the Lightning Network still needs to be recorded on the Bitcoin blockchain.

Similar to Cardano, Ethereum is now moving towards a Proof of Stake mechanism. Ethereum 2.0, which is expected to be fully operational by the end of 2022, will include two fundamental changes – sharding and stacking. When segmenting, the Ethereum blockchain will be split into separate “segments”. Each shard will act as an independent blockchain that will host its own smart contract blocks and transaction validators. In addition, in order to reach consensus on the network, Ethereum 2.0 “miners” will simply bet or block a certain amount of Ether in the master nodes. The reward for processing the transaction will then be distributed based on how much Ether the authenticator has staked. These two major changes will increase the computing power of the Ethereum network to about 100,000 transactions per second, and will also significantly reduce its energy footprint. This is especially useful in India where the ETH to INR transactions are reaching all time highs!

This brings us to the heart of the matter. Every major update to the Cardano network is peer reviewed to ensure optimal performance. What’s more, Cardano also wins the race when it comes to transaction processing power. For example, a network layer 2 scaling solution known as Hydra will boost its processing power to 1 million transactions per second ! This means that Cardano will be able to process 10 times more transactions than Ethereum 2.0. However, Ethereum is winning the race for smart contracts and dApps – applications that run on a decentralized computing system like blockchain. While Cardano is expected to launch a smart contract feature update on September, Ethereum already supports 2,822 decentralized applications, accounting for 78.3 percent of the entire ecosystem.

While Cardano has an edge when it comes to transaction processing power, it will be very difficult for the nascent blockchain to usurp the pioneer Ethereum advantage associated with smart contracts and decentralized applications.

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