As it happens, Buterin and Hoskinson actually worked together on Ethereum, and both are named as founding members by Anthony Di Iorio who financed the project through the development stage. Around 2014, Hoskinson left Ethereum and started to work on Cardano.
Ethereum has since emerged as the second most important cryptocurrency in the world. Its smart contracts and ERC20 tokens are used by thousands of projects and have opened the door to an array of exciting innovations.
Cardano, on the other hand, is fighting for its place among the top 10. Utilizing many of the same ideas as Ethereum, Cardano employs a sophisticated scientific philosophy in its development. This means that an impressive team of academics and experts is working on Cardano – and its native ADA token.
What kind of impact does this approach have? How does Cardano solve some of the problems that have dogged Ethereum in recent times? Let’s take a look.
What is Ethereum?
Ethereum was first proposed in 2013, announced in 2014 and finally launched on the 30th of July 2015. Vitalik Buterin is the face of the cryptocurrency, but a host of other influential developers impacted the project – including Charles Hoskinson.
Ethereum employs some of the concepts introduced by Bitcoin and takes them to the next level. The Ethereum blockchain, for example, enables much more than just the processing of transactions. Instead, it allows developers to create smart contracts, which are sophisticated “if this then that” rules that provide the infrastructure for people to enter into an agreement without the need for a trusted third party.
The smart contracts are written using Ethereum’s native Solidity programming language. If done correctly, they contain predefined conditions which, when met, automatically trigger the release of funds. If you’re new to cryptocurrency, you might be struggling to grasp the gravity of this innovation, but understand that smart contracts are the fundamental building block for the thousands of DAPPs running on the Ethereum blockchain.
Like all legitimate cryptocurrencies, the Ethereum network is decentralized and is therefore not controlled by an individual or organization. The circulating supply is 106 million Ether (ETH) and, unlike other digital currencies, there is no hard cap.
What is Cardano?
Cardano is an open-source blockchain and cryptocurrency (ADA) platform that was launched in 2015 by John Hoskinson. Interestingly, Cardano represents the third generation of cryptocurrencies; developing on many of the innovations first introduced by Ethereum.
As a result, Cardano utilizes smart contracts and supports transactions recorded on a public, decentralized blockchain. Of course, it aims to solve many of the issues which have dogged its predecessors, such as scalability, interoperability and quantum resistance.
We’ll get into those in more detail later, but for now, it’s worth briefly highlighting the methodology which Hoskinson and his team employ: peer review and scientific rigor. This is significant because it’s a departure from the gung-ho, deploy first ask questions later approach adopted by other crypto projects.
Instead, Cardano works with an impressive number of academics and scientists to ensure remarkable quality of work. On the flip side, it also means that development is much more time-intensive than on similar projects like EOS.
Finally, it’s worth mentioning that Cardano built its blockchain from scratch and is not a hard fork of Ethereum or Bitcoin. As a result, it supports the Haskell programming language, making it more accessible to developers.
Scalability – Cardano vs Ethereum
In order to achieve meaningful adoption, it is vital that transactions can be performed quickly and efficiently. If millions of people want to use Cardano or Ethereum, could either handle the subsequent load?
As of May 2019, the answer is a resounding “No”. An Ethereum transaction currently takes around 13 seconds, facilitating roughly 30,000 transactions per hour. For global adoption to become a reality it would need to perform at least 30,000 transactions per second.
The limiting factor here is the proof-of-work consensus model which processes transactions in a linear way and scales very poorly. As a result, Vitalik Buterin and his team have been developing Casper, a proof-of-stake consensus model that would theoretically be able to achieve meaningful scale.
On the other hand, Ethereum already performs well when it comes to cost-efficiency. The average transaction fee is about 9 cents, making it much cheaper than a normal Visa transaction. That being said, transaction fees can be extremely volatile and in July 2018, the average transaction fee exploded to over $5.
Cardano has been spared from this kind of volatility, in part because of the way that transaction fees are calculated. This equation is very simple: a + b * size, where a and b represent special constants and the size refers to the amount of bytes in a transaction. With an average transaction size of 200 bytes, we can assume a transaction fee of of 0.16411702 ADA (< $0.01).
With regards to scalability, it’s still too early in Cardano’s development to know how many transactions could be processed per second (tps). According to Hoskinson, the capacity is already at roughly 250 tps, and the short-term goal is to to reach 5,000. Now that mainnet 1.5 is live, we are getting closer to a more accurate answer.
Consensus Mechanism – Ethereum vs Cardano
A key component of any cryptocurrency is the consensus mechanism. This is the method by which transactions are checked and added to the blockchain. It plays an integral role, because, without it, we would need to rely on permissioned and siloed databases under the control of third parties – the antithesis of what crypto is trying to achieve.
You’ve probably heard of the most famous consensus mechanism: Proof-of-Work (POW). Ethereum uses POW and all subsequent hard forks employ it as well. As noted previously, it is a sub-optimal consensus mechanism with regards to scalability. Transactions are processed in a linear fashion and the only real way of increasing the TP/S is by increasing the block size. In part, this is due to POWs reliance on highly complex puzzles which require sophisticated computers (miners) to solve.
Additionally, POW puts a lot of power into the hands of miners. They maintain the integrity of the blockchain and receive transaction fees as a reward for their service. The consequence of this is often a centralization of mining power into so-called “pools”. These control a vast percentage of the network’s hashing power and can undermine the network itself.
Below you can see a distribution of mining power on the Ethereum blockchain – and notice that two pools, Ethermine and Sparkpool, control almost 50% of networks hashrate.
To remedy this, alternative consensus mechanisms have been developed, and Proof-of-Stake (POS) has proved to be the most successful. Ethereum is (very) slowly building it’s POS model, which, in addition to Sharding and Plasma, should help to decentralize the network’s mining power.
Cardano identified the problems associated with POW early on and instead employs a unique variation of POS called Ouroboros. This mechanism involves “forgers”, which are semi-randomly chosen to verify transactions. In order to be considered, you need to “stake” your coins, ie. own ADA and store them in your Daedelus wallet.
This ensures that all “forgers” have “skin in the game” and de-incentivizes malicious behavior. Indeed, harming the integrity of the blockchain, would negatively impact the token price, and the forger may well incur a financial loss. To enhance this dynamic further, the more tokens a forger holds, the higher the chances of being selected to validate the next block of transactions.
Not only does Ouroboros remove the need for powerful miners, but it also opens the door to impressive scalability.
The Trajectory – Cardano vs Ethereum
It’s hard not to get excited about Cardano. The team and methodology radiate competency. They, along with EOS, represent the most likely candidate to introduce a new wave of innovation comparable to the sea-change heralded by Ethereum’s launch in 2015.
Nevertheless, progress has been slow. Yes, Cardano has produced a plethora of academic papers, outlining the technical details of quantum resistance, interoperability and much more. Implementing these concepts is an incredible challenge, and many of us would have liked to have seen more progress half-way through 2019.
That being said, Cardano’s Telegram Channel lights up every day with new and exciting partnership announcements. How those will impact the project and whether they help the team to ramp up development is yet to be seen.
Ethereum, on the other hand, has firmly established itself as the second most important cryptocurrency in the world. The utility of its ERC20 tokens for ICOs is unquestioned and new DAPPs are under constant development. Equally the emergence of ERC721 opens the door to non-fungible tokens, which could ultimately catalyze the tokenization of any asset in the world.
If we wanted to take a “glass is half empty” approach, we could say that Ethereum’s founder Vitalik Buterin may have taken his eyes off the prize. He is still incredibly young and is well in his rights to explore new experiences.
With Cardano and EOS hot on its heels, and the Lightning Network offering a solution to many of Bitcoin’s woes, Ethereum could do with a major breakthrough. The successful migration to Casper would fit the bill nicely.