Comparing Cardano (ADA) vs Ethereum (ETH)

By Brian Nibley · February 11, 2022 · 7 minute read

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Comparing Cardano (ADA) vs Ethereum (ETH)

Cardano (ADA) and Ethereum (ETH) are two different types of crypto that are actually quite similar.

Cardano and Ethereum both provide the same functionality — developers use both platforms to create smart contracts and decentralized applications (dApps). But while the use cases are the same, the approach and philosophy behind each platform is different. Notably, Cardano considers itself an improvement over Ethereum.

Ethereum Explained

Ethereum is a smart contract platform that can be used for the development of dApps. Ethereum was the first platform to launch smart contracts — programmatic agreements that can function like legal contracts and can be executed automatically once specific conditions have been met. The Ethereum white paper was published in 2013 and the project first launched in 2015. In 2016, ETH became the second token to ever be listed on Coinbase.

How Does Ethereum Work?

Ethereum possesses the same characteristics of other blockchains, such as being an immutable public ledger of transactions, being censorship-resistant due to a decentralized consensus mechanism, and providing a secure network through proof-of-work hashing.

On Ethereum, users can send financial transactions by using the network’s native token, Ether (ETH). They can also participate in any number of dApps built on the network, including decentralized finance (DeFi) platforms, non-fungible token (NFT) marketplaces, and blockchain-based games.

Ethereum was the first network to allow for the use of smart contracts, resulting in the potential for developing dApps. Programmers can code specific conditions into smart contracts, giving them a variety of functionality. For example, a contract for a decentralized marketplace might be programmed to execute trades automatically when a buyer and seller both want to trade at a certain price.

Performing the functions of a smart contract requires a small fee known as Gas. Ethereum gas is measured in gwei, the smallest unit of ETH. Even though the fee for a single smart contract function can be very small, performing complex actions often involves numerous functions within multiple smart contracts, and the fees a user ends up paying can add up quickly.

Cardano Explained

Cardano aims to make its native ADA token suitable for transactions of all kinds. Academic and scientific research drives the development of Cardano, and it’s thought by some that the Cardano network will see increasing adoption based on the fact that its code is verified mathematically.

How Does Cardano Work?

Like Ethereum, with Cardano developers can program smart contracts and create decentralized applications.

But whereas Ethereum tackles problems with its development as they arise, Cardano tries to plan for contingencies beforehand. It does this by performing scientific studies about proposed changes to the Cardano network.

On Cardano, users can also send financial transactions with the network’s native token, ADA.

Key Differences Between Cardano and Ethereum

Most of the differences between Cardano vs. Ethereum have to do with their approach to building a blockchain network and the philosophies of their creators.

Ethereum, for example:

•   Was created by Vitalik Buterin in 2015 in an attempt to do things Bitcoin couldn’t, specifically smart contracts

•   Takes more of a “build first, fix problems later” approach

Cardano, on the other hand:

•   Was created by Charles Hoskinson in 2017 as an improvement over Ethereum

•   Tries to use academic research to bolster its development beforehand

Another difference between the two networks is the number of dApps currently running on either platform. The vast majority of blockchain-based video games, NFT marketplaces, and DeFi protocols run on Ethereum or a layer-2 Ethereum network like Polygon.

There are at least 100 DeFi services running on Cardano, in addition to some other unique, disruptive projects.

Cardano’s naitve token is ADA vs. ETH for Ethereum. Both can be used to send financial transactions, although the fees and confirmation times may vary, with ADA usually having lower fees.

Market Cap

As of January 20, 2022, Ethereum’s market cap was about $287 billion, while Cardano’s was about $36 billion.

While these numbers are constantly changing, ETH has held its spot as the #2 crypto by market cap for a number of years. ADA has had a place among the top ten for the last year or two.

Proof of Work vs Proof of Stake

An important aspect of any blockchain network is its consensus mechanism. This refers to how all the nodes on a given network agree as to which transactions are valid and which are not (how they achieve consensus). Without consensus, there’s no blockchain, as an accurate distributed ledger couldn’t be maintained.

There are different potential ways of achieving consensus. Proof-of-work (PoW) and proof-of-stake (PoS) are currently the two most popular methods.

Ethereum currently utilizes PoW while Cardano makes use of PoS. Ethereum plans to transition to proof-of-stake consensus with the upgrade of ETH 2.0, which has been delayed many times.

PoW involves solving complex math problems to secure the network and validate transactions, which requires a lot of energy. This is the original consensus mechanism, first used on the Bitcoin network. While it has been criticized for being inefficient, it has also proven to be very secure, provided the network has a high enough hashrate.

PoS relies on the locking up or “staking” of network tokens to accomplish the same, which takes less computing power. Rather than relying on excessive amounts of computing power, this consensus mechanism relies on the total value of a network’s native token for security.

Monetary Policy

Another important difference between Cardano vs. Ethereum is each network’s monetary policy governing their respective tokens.

The distribution of both ADA tokens on the Cardano network and ETH on the Ethereum network are similar: the tokens get mined with every block and distributed in return for verifying transactions (in the case of ADA) and distributed to minders (in the case of ADA).

But when it comes to the supply limit placed on the issuance of new tokens, the two cryptos diverge significantly.

There is no limit placed on how many ETH can be minted. The supply of ETH tokens is programmed to increase at a rate of 4.5% annually. The supply of ADA tokens, on the other hand, is limited. According to Cardano’s code, there will only ever be 45 million ADA. As of early February 2022, there were 33.5 billion ADA in circulation.

Operational Philosophies

Ethereum takes more of a “build first, tackle problems later as they arise” approach. A good example of this would be the proposed upgrade to ETH 2.0 and transition to proof-of-stake. The need for this upgrade stems from Ethereum’s lack of ability to scale. Cardano proponents might argue that this should have been considered earlier and been dealt with in a scientific manner.

Cardano prefers to conduct rigorous scientific research before implementing changes to their protocol. The idea is to make sure all contingencies are planned for ahead of time so there will be fewer problems down the road.

Transaction Details

Cardano can currently process about 250 transactions per second (TPS) as opposed to 100 TPS for Ethereum. Cardano’s proposed Ouroborus Hydra upgrade could see the network’s possible TPS soar to as high as 2.5 million.

At the same time, Ethereum’s ETH 2.0 upgrade aims for an increase to 100,000 TPS. It could be said that Cardano is more ambitious, or that Ethereum is more realistic. A lot of these matters come down to the opinions of developers and users.

Energy Consumption

The proof-of-work consensus, which Ethereum uses, is a more energy intensive process than proof-of-stake, which powers the Cardano network. So, for now, Ethereum uses more energy than Cardano.

Ethereum uses about 14.81 terawatts to validate its transactions. In contrast, Cardano requires about 0.00052 terawatts.

If and when Ethereum does upgrade to ETH 2.0 and switch to the proof-of-stake consensus mechanism, then its energy usage will decline. But even then, it will use more energy than Cardano simply due to being a larger network that processes more transactions.

Summary of Differences Between Ethereum and Cardano

Ethereum

Cardano

Created to do things Bitcoin couldn’t, specifically smart contracts Created as an improvement over Ethereum
Takes more of a “build first, fix problems later” approach Tries to use academic research to bolster its development beforehand
More than 3,000 dApps run on the platform More than 100 DeFi services run on Cardano
Native token is ETH Native token is ADA
Market cap approximately $287 billion Market cap approximately $36 billion
Uses proof-of-work consensus Uses proof-of-stake consensus
Unlimited ETH minting ADA capped at 45 million
Can currently process about 100 TPS Can currently process about 250 TPS
Requires about 14.81 terawatts to validate transactions Requires about 0.00052 terawatts to validate transactions

Similarities Between Cardano and Ethereum

There are many similarities between Cardano and Ethereum. Both networks are trying to achieve the same thing — they just want to go about it differently. Some commonalities between the two cryptocurrencies include:

•   Both platforms provide smart contract functionality

•   Both can be used to develop dApps

•   Both can be used for sending financial transactions via the network’s native token

•   Once Ethereum upgrades to ETH 2.0, both will be proof-of-stake networks

Smart Contracts

With smart contracts, the rules are enforced by code, and the terms of the agreement can be executed automatically when the agreed-upon conditions have been met. This has opened up a new world of possibilities in terms of new applications that can be decentralized.

Smart contracts solve a number of problems that have plagued traditional contracts, specifically the potential for fraud, censorship, or third-party interference. These programmatic contracts are what made Ethereum unique and led it to becoming the second-largest cryptocurrency.

Over time, a number of competing networks that hope to improve upon Ethereum’s design have sprung up. Cardano is currently the largest Ethereum competitor by market cap.

The Takeaway

Cardano and Ethereum are both platforms with smart contract functionality that can be used to develop dApps. But the two have significant differences as well, from their market caps to the consensus they use (proof-of-stake vs. proof-of-work, respectively).

One attribute they have in common is that both can be traded on most popular crypto exchanges. In fact, they are among the more than two dozen cryptocurrencies that interested inventors can trade on SoFi invest — along with Bitcoin, Chainlink, Dogecoin, Solana, Litecoin, and Enjin Coin, among others.

Get started trading crypto with SoFi Invest.

FAQ

Does Cardano or Ethereum have a higher market cap?

Ethereum has a higher market cap than Cardano. As of February 2, 2022, Ethereum’s market cap was about $319.8 billion, while Cardano’s was about $35.3 billion.

Ethereum has been the #2 cryptocurrency by market cap for a number of years now. Cardano is currently the 6th largest crypto by market cap.

Is Cardano a threat to Ethereum?

The answer to this question is mostly subjective. Cardano is among a group of different platforms that have been described as “Ethereum killers.” Solana, Binance Smart Chain, Tron, and many others fall into the same category.

The outcome will depend upon both how many people begin building on and using these “Ethereum killers,” and how Ethereum manages to solve the issues it currently faces. It’s possible for Ethereum to scale in a way that makes other platforms unnecessary. Or, Ethereum could fail during its transition to proof-of-stake, leading Cardano and others to succeed.

How is Cardano’s platform different from Ethereum’s?

For the most part, it’s not. Both networks provide the same essential functionality in terms of financial transactions and development of smart contract-powered dApps. The only real difference lies in Cardano’s emphasis on academic research and attempting to enable cheaper and faster transactions, allowing for ADA to be more effectively used as a medium of exchange.


Photo credit: iStock/JLco – Julia Amaral

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