A Side-By-Side Comparison – Forbes Advisor

Cardano (ADA) and Ethereum (ETH) are industry heavyweights that rank among the top 10 cryptocurrencies by market capitalization.

They share similarities in design and use—and the founder of Cardano, Charles Hoskinson, is one of the original developers of Ethereum. But there are some subtle differences between the two. So here’s how these crypto behemoths compare.

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Cardano vs. Ethereum: Key Similarities

Cardano and Ethereum offer transactional coins that people can buy as investments: ADA for Cardano and ETH for Ethereum. Both are also “Layer 1” blockchain technologies that allow developers to build decentralized applications (dApps) on their blockchains and self-executing smart contracts.

Another similarity is that Ethereum and Cardano employ proof-of-stake consensus mechanisms for their blockchains. Under the proof-of-stake model, participants who wish to help verify transactions put up crypto on the blockchain as collateral—they are said to “stake” crypto.

Staking is a more environmentally friendly consensus mechanism than the proof-of-work mechanism used by Bitcoin (BTC). Under proof of work, computers use large amounts of electricity to solve complex problems that verify and complete transactions on the blockchain.

It should be noted that Ethereum began as a proof-of-work system, and changed to a proof-of-stake model in September 2022.

Cardano vs. Ethereum: Major Differences

Ethereum Is More Established

Ethereum is the older, more established and more valuable of the two cryptocurrencies. The leading altcoin is also further along in development, especially when it comes to smart contracts—transaction protocols that automatically execute terms put forth in contracts or agreements.

“Cardano’s developers are still working on key features and services like smart contracts have just been added. This feature was first introduced by Ethereum several years ago,”says Martin Leinweber, digital asset product strategist at index provider MarketVector.

Transaction Volumes

More people use Ethereum than Cardano. ETH handles approximately 1 million daily transactions versus the less than 100,000 transacted daily on Cardano.

Ethereum’s popularity goes hand-in-hand with higher costs. Both cryptocurrencies charge fees for using them in transactions, but ETH’s are considered to be higher.

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This detail doesn’t matter as much if you’re only buying ETH as a long-term investment. But it’s worth considering if you’re planning on using cryptocurrency for decentralized finance (DeFi), smart contracts or other transactions.

Overall Supply

The total supply of ADA will never exceed 45 billion coins. It’s not unusual to set a hard cap like this—Bitcoin’s hard cap of 21 million coins is a well-known and well-loved feature.

Conversely, Ethereum doesn’t have a hard cap on the total supply of ETH. However, it uses different mechanisms to control supply beyond a hard cap. The total amount of ETH issued per year is capped, and there is also a mechanism to take ETH out of circulation—to “burn” ETH paid in gas fees.

Scalability

Part of being a good “Layer 1” crypto is that the blockchain infrastructure enables scalability. Cardano system is more scalable than Ethereum and can handle more transactions.

Ethereum struggles with transaction volume. When things are calm, the network works fine. But when a bull market starts and millions of new investors get into crypto, Ethereum can’t keep up.

Advantages of Cardano

• Strong backing. Cardano has the support of academics and is building its community on research to significantly impact less fortunate parts of the globe. Cardano has a lot of money for development and a strong team guiding the project. The system is open to review by its peers, which gives Cardano a lot of credibility that most other coins don’t have.
• Lower costs and energy usage. It costs significantly less to complete a transaction using Cardano than either Ethereum or Bitcoin. Cardano also runs an energy-efficient blockchain. While Ethereum has improved in this area, energy efficiency and lower costs were one of Cardano’s original focuses and specialties.
• Better potential for scaling. Cardano blockchain has more potential to scale. By using a settlement layer and a computational layer, Cardano ensures that it can grow to any size and that transactions happen quickly. It also lets adjustments be made without affecting payments and other transactions.

Disadvantages of Cardano

• Many competitors. Cardano is not only competing with Ethereum but with many other third-generation cryptocurrencies like Avalanche (AVAX), Cosmos (ATOM), Polkadot (DOT), Solana (SOL), and Tezos (XTZ). It also doesn’t have the brand-name recognition of being one of the original cryptos like Bitcoin and Ethereum.
• Unfinished product. Another con to add to the list. Experts say Cardano still has limited uses compared to other smart contract blockchains and has been losing ground to Ethereum for a while.
• Less demand. Fewer people invest in Cardano or use it for transactions. If the crypto winter continues, the lack of demand could cause this investment to lose more value and reduce its liquidity, making it harder to sell to get your money back.

Why Is Cardano So Cheap Compared to Ethereum?

Despite having similar uses, Cardano is worth a fraction of Ethereum. One reason is due to supply and demand.

Just because Cardano has a lower price doesn’t mean it’s a good deal. It should also be said that investing in any cryptocurrency involves significant risk. If you choose to include Ethereum or Cardano in your investment portfolio, a good rule of thumb is to ensure it’s money you can afford to lose.

Advantages of Ethereum

• First mover advantage. Ethereum was the very first blockchain network that could handle smart contracts. This helped boost its market share among altcoins and reputation versus later entrants like Cardano.
• Large ecosystem. Ethereum is very popular among decentralized applications, with an ecosystem that supports decentralized exchanges (DEXs), lending protocols, yield farming platforms, insurance protocols, yield aggregators and NFT marketplaces. “Ethereum has the most dApps of any cryptocurrency platform,” Leinweber says.
• High liquidity. Since Ethereum is highly in demand, it’s easier to sell as an investment without a high slippage rate where the price you receive falls significantly from when you place your order to sell to when it goes through.

Disadvantages of Ethereum

• Limited capacity. Ethereum still needs to work on dealing with high transaction volume. It’s something that Ethereum’s developers are working on, and an upcoming release called sharding should help. But that upgrade won’t be released until next year.
• High transaction fees. Transactions take a long time and fees are high, and both are nightmares for anyone who wants to get out of the old world of finance and banking. These issues are particularly painful for Ethereum, as the second biggest crypto needs to solve its need for improved scalability.
• No supply limit. Since Ethereum doesn’t have a limit on how many coins it can create, this could create deflationary pressure on its value. While that might be good for those who want to use it for transactions, it’s a concern for long-term investors hoping to see their coins appreciate.

Which Crypto Is a Better Buy?

Whether Ethereum or Cardano is the better buy is a matter of debate and could depend on your investment preferences.

Ethereum is considered to be the safer investment of the two. Experts say Ethereum is more likely to survive long term due to its larger developer community and ecosystem.

On the other hand, Cardano could be the best long-term acquisition, given its potential user base in emerging and frontier markets. You may have to wait a while to see the large utility of the network, but that means greater upside from the current price.