Could this ecological crypto surpass Bitcoin and Ethereum?
Cardano and Ethereum will both take big steps forward this year.
Once you’ve dipped your toe in crypto waters, you’ll find that Bitcoin (BTC) and Ethereum (ETH) are just the tip of the iceberg. They may be the most important and well-known cryptocurrencies, but they are not perfect.
Both face two big issues: a high carbon footprint and slow transactions. And while it is possible to overlay solutions on these coins, there are newer, cheaper and faster cryptocurrencies that consume a fraction of the energy.
Cardano (ADA) is one such coin. Created by crypto pioneer Charles Hoskinson who also co-founded Ethereum, Cardano is the result of years of academic research and planning.
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Cardano is a third generation cryptocurrency
When Bitcoin was launched in 2009, it was revolutionary. The challenge is that it is difficult to program Bitcoin. For example, I can safely transfer 0.02 Bitcoin to you. But I can’t include any conditions, which means I can’t transfer 0.02 Bitcoin to you in exchange for your used car.
This is where Ethereum comes in. It introduced the first programmable blockchain. When you make Ethereum payments, you can include conditions. Additionally, other applications and cryptocurrencies can be built on the Ethereum platform.
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But there is still room for improvement. For example, here’s how speed and power consumption compare for three rooms:
Ethereum is in the process of moving to Eth 2, which will fix some of these issues. But third-generation cryptocurrencies like Cardano have skipped the stage of slow, carbon-intensive transactions. Cardano doesn’t need upgrades to run faster and better because it’s been designed differently.
Proof of work vs proof of stake
The reason Bitcoin and Ethereum consume so much power is that both use a Proof of Work (PoW) mining model. Mining is how these blockchains add new blocks and verify transactions. A blockchain is a sophisticated database made up of interconnected blocks.
As the value of these cryptocurrencies increases, mining new blocks becomes more profitable – and more and more companies want to do so. By design, only one Bitcoin block can be mined every 10 minutes. If more computing power is added, the extraction becomes more difficult, which means that more energy is consumed to reach the same end point. Inefficiency is built into the system.
In contrast, Proof of Stake (PoS) only allows people who clean part of the currency to validate transactions. This is called staking. The built-in limit means that mining cannot get out of hand as there is no economic incentive to keep adding more computing power.
Cardano is built on a PoS system. Upgrading Ethereum’s Eth2 would move it to a PoS model and reduce its energy by 99.95%.
Can ADA outperform ETH?
It is worth saying that this is not necessarily a situation either / or with these parts. I own both because I think each piece has a lot of long term potential.
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Now Ethereum and Cardano are competing in the same space. They are scalable and programmable platforms, and both will offer smart contracts and enable application development. Both have strong teams with extensive crypto experience.
But there are big differences.
Cardano has spent years researching, testing and planning its network. Every step taken has been peer reviewed. It has attracted experts in various fields to make sure the system is robust and scalable.
And some believe Cardano may overtake Ethereum. The problem? It’s not there yet. Cardano says it will launch smart contracts (self-executing pieces of code on the blockchain) later this year.
Ethereum already has 2,700 applications running on its network. Its smart contracts work, it is the backbone of the burgeoning non-fungible token (NFT) market, and it hosts a large number of decentralized finance (DeFi) projects. Decentralized finance apps eliminate middlemen (like a bank) on loans, interest-bearing accounts, and other financial services.
However, until the launch of Eth2, Ethereum remains energy intensive. It also has extremely high gas charges (like transaction fees) which become more expensive when the network is congested.
Ethereum may have thousands of apps running on its platform, but Cardano already has relationships with governments in developing countries. For example, he recently started a project with the Ethiopian Ministry of Education. From the start, he turned to the actual uses of the platform.
Next year will be important for both cryptocurrencies. If Ethereum can move to Eth2 without major issues – and without security holes – it is likely to lead the pack for the foreseeable future.
But, assuming Cardano’s smart contract deployment is trouble-free, it will soon provide fast and low-cost transactions for NFTs and DeFi apps, which is likely to attract a large share of the app market. That, added to his real-world connections, means there’s a good chance he’ll knock Ethereum down from that top spot in the long run.
If you do decide to buy any of these cryptocurrencies, keep in mind that these are very volatile investments and only invest money that you can afford to lose.