Cardano (ADA) and Ethereum (ETH), or Ethereum 2.0, provide similar functionality, being used to create smart contracts, dApps, and more. But they differ in terms of operating philosophies and monetary policies.
The comparison between the two is an interesting one, in part because Cardano founder Charles Hoskinson was also one of the original developers of Ethereum. And the two projects have long been among the top 10 cryptos by market cap.
For investors, knowing the similarities and differences can be helpful.
Ethereum 2.0 Explained
Ethereum is a blockchain network that can be used for the development of decentralized applications (dApps). Ethereum was also 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 late 2022, the Ethereum network completed a series of upgrades collectively known as Ethereum 2.0 or the Ethereum Merge. These upgrades addressed some existing issues with the network (made it faster and more secure, for example), and further changes have continued into 2023.
Perhaps most notably, Ethereum 2.0 introduced a proof-of-stake consensus mechanism to the blockchain, which shifted the network from an energy-intensive proof-of-work (PoW) system and mining to staking.
As such, there are now multiple Ethereum blockchains: Ethereum 2.0 (which continues to use the ETH token), and Ethereum Classic (ETC), which still operates according to older standards.
How Does Ethereum 2.0 Work?
Ethereum 2.0 possesses the same characteristics as many other blockchains, such as being an immutable public ledger of transactions, being censorship-resistant due to a decentralized consensus mechanism, and allowing participants to stake their tokens to earn rewards.
Ethereum 2.0 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 various decentralized finance (DeFi) platforms, non-fungible token (NFT) marketplaces, and blockchain-based games.
It 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.
Smart contract operations are facilitated by and paid for by “gas fees.” 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 a number of types of transactions. Academic and scientific research drives the development of Cardano, and it’s possible that the Cardano network will see increasing adoption based on the fact that its code is verified mathematically.
How Does Cardano Work?
As with Ethereum 2.0, Cardano developers can program smart contracts and create decentralized applications (dApps). But one of the key differentiators between the original Ethereum network and Cardano was that Ethereum (1.0, prior to upgrading) tackled problems with its development as they arose, while Cardano tried to plan for contingencies beforehand by performing scientific studies about proposed changes to the Cardano network.
On Cardano, as on most different crypto platforms, users employ the network’s native token to execute financial transactions — in this case ADA is Cardano’s native crypto.
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Key Differences Between Cardano and Ethereum 2.0
Most of the differences between Cardano vs. Ethereum 2.0 have to do with their approach to building a blockchain network, and the philosophies of their creators.
Ethereum 2.0, for example:
• Was created by Vitalik Buterin in 2015 in an attempt to do things Bitcoin couldn’t, such as implement 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
dApps
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 2.0, or a layer-2 Ethereum network, like Polygon.
Conversely, there are dozens of DeFi services running on Cardano, in addition to some other disruptive projects — but still far fewer than on Ethereum 2.0.
Native Tokens
Cardano’s native token is ADA vs. ETH for Ethereum 2.0. Both can be used to send financial transactions, although the fees and confirmation times may vary. ADA fees are typically lower, however.
Market Cap
As of January 19, 2023, Ethereum 2.0’s market cap was about $188 billion, while Cardano’s was about $11.5 billion.
While these numbers are constantly changing, Ethereum 2.0 has held its spot as the second-largest crypto by market cap for a number of years. ADA has held a place among the top 15 or so for the past few years.
Monetary Policy
Another important difference between Cardano vs. Ethereum 2.0 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 2.0 network are similar: They both utilize a proof-of-stake system to reward participants with more tokens. But when it comes to the supply limit placed on the issuance of new tokens, the two cryptos diverge significantly.
There is an infinite supply of ETH, and the supply of ETH tokens does increase every year. The supply of ADA tokens, on the other hand, is limited. According to Cardano’s code, there will only ever be 45 billion ADA. As of late January 2023, there are around 34 billion ADA in circulation.
Operational Philosophies
Ethereum’s original form took more of a “build first, tackle problems later as they arise” approach. But following the “merge” and the adoption of Ethereum 2.0 upgrades, much of that has changed or is changing. As such, the operational philosophy driving the Ethereum 2.0 network is now more in line with Cardano’s than it was previously.
As mentioned, Cardano’s team always preferred 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), and Cardano’s proposed Ouroborus Hydra upgrade could see the network’s possible TPS soar to as high as 2.5 million.
That’s in contrast to 100 TPS for Ethereum’s original incarnation. But the aim of Ethereum’s 2.0 upgrade was to increase it to 100,000 TPS.
Layers
“Layers,” in the crypto space, refer to the structure of a blockchain network, and generally speaking, the more layers a network has, the more sophisticated it is or can be.
Both Cardano and Ethereum 2.0 are “Layer 1” blockchains, but their designs are different. Ethereum 2.0 uses a single-layer to manage on-chain smart contracts and apps, but Cardano has a dual-layer design that allows for more functionality and scalability.
Forking Policies
Crypto forking involves changes to a blockchain network that effectively create a new network, or a “fork” off of the original. Different blockchains have different forking policies, and that holds true for Cardano vs. Ethereum 2.0.
Ethereum network forks can create different types of Ethereum (such as Ethereum Classic), whereas a fork of the Cardano network, the existing protocol ceases to operate and the blockchain restarts from scratch.
Limitless vs Limited Coins
Finally, there’s a difference in the number of overall supply that will exist between Cardano and Ethereum 2.0. Ethereum 2.0’s supply is infinite, and there will be new coins created every year. Cardano does have a limit of 45 billion coins, the majority of which are already in circulation.
Summary of Differences Between Ethereum 2.0 and Cardano
| Ethereum 2.0 | Cardano |
|---|---|
| Created to do things Bitcoin couldn’t, specifically smart contracts | Created as an improvement over Ethereum (1.0) |
| Originally took more of a “build first, fix problems later” approach | Uses academic research to anticipate developments needed |
| Thousands of dApps run on the platform | More than 100 DeFi services run on Cardano |
| Native token is ETH | Native token is ADA |
| Market cap approximately $188 billion | Market cap approximately $11.5 billion |
| Unlimited ETH supply | ADA capped at 45 billion |
| Utilizes a single-layer design to process transactions | Uses dual-layer design to process transactions |
| Aims to process 100,000 TPS | Aims to process 2.5 million TPS (after upgrades) |
Similarities Between Cardano and Ethereum 2.0
There are many similarities between Cardano and Ethereum 2.0. 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
• Both are proof-of-stake networks
Smart Contracts
With smart contracts, rules are enforced by code, and terms of agreements can be executed automatically when certain 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, including Cardano.
Pros and Cons of ETH2 vs ADA
While both Ethereum 2.0 and Cardano have their differences and similarities, as outlined, depending on an individual investor or user’s perspective, there can be some pros and cons, too.
For example, some investors might like that Ethereum 2.0 is much larger, more liquid, and widely used when compared to Cardano. Likewise, others may be partial to Cardano’s internal decision-making process, and its reliance on case studies and a sort of scientific method when considering changes to the protocol.
At the end of the day, though, both cryptos are fairly similar — and that’s especially true following Ethereum 2.0’s upgrades. Again, each crypto will have its pros and cons, but some of the shortcomings of one may be a highlight in the eyes of others.
The Takeaway
Cardano and Ethereum are both platforms with smart contract functionality that can be used to develop dApps. They have several more similarities, too, including that they (now) both utilize proof-of-stake consensus mechanisms.
But the two have significant differences as well, from their respective market caps (Ethereum 2.0 being the much larger crypto), to their internal philosophies regarding forking and more. There’s also the fact that Ethereum 2.0 lacks an overall cap on its supply, while more than half of all the Cardano that will eventually exist is already on the market.
Ethereum 2.0 and Cardano are but two of many cryptos that investors can buy and trade. Learn more about trading crypto by setting up an Active invest account with SoFi — there are no management fees, and you can use a secure app to build your crypto portfolio with Cardano, Bitcoin, Dogecoin, and many more.
FAQ
Does Cardano or Ethereum 2.0 have a higher market cap?
Ethereum 2.0 has a higher market cap than Cardano. As of January 19, 2023, Ethereum’s market cap was about $188 billion, while Cardano’s was about $11.5 billion. Ethereum 2.0 has been the second-largest cryptocurrency by market cap for a number of years.
Is Cardano a threat to Ethereum 2.0?
Cardano is among a group of different projects that have been described as “Ethereum killers,” but that hasn’t proven true. Solana, Binance Smart Chain, Tron, and 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.
How is Cardano’s platform different from Ethereum 2.0’s?
Both networks provide the same essential functionality in terms of financial transactions and development of smart contract-powered dApps. The 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.
Can Cardano replace ETH 2.0?
Cardano and Ethereum 2.0 are similar, but that doesn’t necessarily mean that one will replace the other. There are some differences between the two, and they have their pros and cons. As such, each will likely maintain its own fanbase or userpool without directly replacing the other.
Photo credit: iStock/JLco – Julia Amaral
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