The story of how Cardano (ADA) will soon challenge Ethereum (ETH)
ETH maximalists would say that Charles Hoskinson is running a highly overvalued ghost chain while many within the Cardano community would compare Charles to Steve Jobs. Just like there are many political stances, there are many project-oriented stances within crypto space. Thus, I intend to remain factually unbiased throughout this discussion despite my opinion: the Cardano blockchain will obtain greater value and utility by the end of 2021. Don’t get me wrong, Ethereum is a magnificent blockchain with great innovation and utility, but my aim is to discuss Cardano’s great benefits that will allow the platform to directly compete with Ethereum.
Regarding current value, ADA holds 1/5 of ETH’s market value, and while ADA hit all-time highs (ATH) in $ terms, ADA is yet to reach an ADA/ETH ATH.
Currently, Cardano is preparing to release the third and final hard fork to transition to a smart contract compatible Haskell protocol. This will put both platforms on the same playing field in terms of capabilities. By the point of full release, will Cardano have the competitive advantage? Perhaps. Let’s discuss the factors that will allow ADA to compete with and potentially surpass Ethereum’s market cap.
1: Transaction fees
Cardano built their cryptocurrency protocol using Haskell as a base language. Haskell is much more optimized to run crypto and storage related code as it’s a functional language, i.e., there is less code written, thus Haskell protocols are also more secure. The benefits of Haskell are seen via Cardano’s projects such as Hydra, Ouroborus, and Shelley network features. The Cardano network is already faster, cheaper, and more secure than Ethereum thanks to these features. The important factor is that Cardano is already cheaper, and price (i.e. transaction fees) is what everyone considers. My last Cardano transaction cost me just over $0.10 whereas my last Ethereum transaction cost $45… The difference is huge.
Gas fee prices (i.e., the fees paid for network usage) are a major complaint within the Ethereum ecosystem. As the ETH network becomes more congested, users need to pay more to the miners so that transactions are processed ahead of others. This problem arises from the Ethereum network having limited capacity but ETH layer 2 solutions such as OmiseGo and Optimism are currently progressing to solve bottleneck issues. On the contrary, Cardano is not limited by capacity (read the Hydra paper) and already has very low fees. Over time 1 million transactions per second (TPS) will be possible given side chains and stake pool operator (SPO) capabilities, and fees will remain low as the Cardano network scales with Hydra.
It is rational for users to want to pay less for the same service and this simple reality is why we will see major migration from Ethereum to Cardano.
2: A sustainable growth model – Project Catalyst + treasury with community voting
What gives Ethereum the bulk of its value is the ability to host Decentralized Applications (dapps) on the network. UNI, LINK, and AAVE are all >$3 billion dapps that run on Ethereum. As a result, many argue that Ethereum has already won the network effect battle. However, Cardano offers a very innovative solution named Project Catalyst to tackle the network effect. Project Catalyst ensures that a small portion of transaction fees (0.2%) are redirected to a treasury. Millions of microtransaction fees aggregate overtime within the treasury and these funds are used to back projects that wish to develop, build, or improve the Cardano network, with most projects offering dapp functionality. Furthermore, all voting is decentralized, i.e., the community so that every user has a voice within the ecosystem. Users can vote using their Cardano wallets and smartphones – the interface is simple and easy to understand. This offers a dynamic, efficient, and self-sustainable model for network improvements to be added while funded by the network itself! Catalyst entrepreneurs are already being funded, funding round 4 has already taken place, and we will see a great inflow of dapps once smart contracts capabilities arrive. This effectively guarantees Cardano dapp growth and continuous momentum to reach Ethereum’s capabilities – the Cardano treasury is now worth US$400 million more than the Ethereum treasury…
Cardano Treasury = Community Funding
3: ERC-20 converter and smart contracts
We know technology can be easily imitated, and this is even truer for blockchain. Many blockchain projects are open source meaning that anyone can view/copy them. This truth is great for Cardano and not so great for Ethereum. It is great for Cardano because Ethereum has so much to copy in regard to dapps and smart contracts while Cardano has code that can be copied but it is written in Haskell. Haskell is not as popular and thus isn’t useful to copy unless you want to translate it to another language. Engineers at Cardano have developed an ERC-20 converter which allows for Ethereum dapps to function on Cardano’s network. ERC-20 is Ethereum’s network standard for smart contracts and it allows for interoperability between dapps and the Ethereum blockchain. What’s the result of having an ERC-20 converter? The result is that projects can literally copy and paste Solidity into Cardano and the dapp’s tokens will become available on Cardano. This also applies to other ETH on-chain features such as NFTs and security tokens. It’s almost like Cardano has a cheat code to steal a Ethereum’s network advantage and offer users lower fees at the same time.
Cardano is also enabling smart contracts to be written in any code and still be functional (via Plutus). This will be mega for dapp developers since they can develop smart contracts in all accepted code (C++, Python, Java, etc.). The reality is that where utility and convenience arise, adoption increases, and this is indisputable in the long run. Below you can see the timeline for Goguen – the smart contract phase – to go live. The utility of the ERC-20 converter will be realized in early May.
Goguen Phase 3/3: Alonzo Hard fork and Plutus Timeline
4: Established Proof of Stake (PoS)
Proof of Stake (PoS) is a more sustainable method of validating blocks and it relies on SPOs and stake delegators to run nodes which validate blocks by cross-checking the blockchain. On the other hand, Proof of Work (PoW) relies on computational power (which becomes more expensive and energy-intensive as the network grows) to mine blocks, i.e. the security of the network is derived from millions of processors solving cryptography.
After Cardano’s release of Shelley in July 2020, all wallets were able to participate PoS by either setting up stakepools or delegating to stakepools. Before July 2020, the Cardano network was being run by 3 nodes: Emurgo, IOG, and Cardano Foundation (a static and federated network). Although, as Shelley was released and time passed, the amount of blocks validated by community stakepool nodes increased. This has continued and on March 31st, the network will be completely run by community nodes (a decentralized network). The result of Shelley was a great success and offered users a chance to earn interest by staking their ADA to keep the network secure. Cardano currently has the highest amount of network staking out of all cryptocurrencies: 73%. Meanwhile, Ethereum is working on ETH 2.0 which will offer PoS instead of PoW as the main upgrade. However, ETH 2.0 is being delayed time after time (it’s set to be completed in mid 2022) and users will require >32ETH – over $50,000! – to be locked up for staking. This means that Ethereum is already behind schedule with PoS, the system will favour the wealthy, and lockup periods will definitely concern investors during periods of volatility.
The Cardano network now boasts over 2,000 active stakepools and over 350,000 stake addresses. Cardano’s PoS offers no lock-in period, an average of 5% return on stake per year, and development miles ahead of Ethereum’s efforts. Once the main net reaches full decentralization on March 31st, Cardano will be the first to achieve this feat. Through Cardano’s development, we can observe the benefits of a PoS blockchain: 1) there is less reliance on computational power requiring high energy, 2) There is higher network participation as the barriers to entry of staking are much lower than Proof of Work (PoW) blockchains, 3) Higher network participation results in a more decentralized and diversified network, increasing security and reliability.
ADA: Current PoS Statistics
5: Increased investment
At the end of the day, what drives the price is demand for the asset. The good news is that investment in ADA seems very bullish and demand is increasing. We can look at search analytics and community data to see that Cardano is getting a lot of attention. A big factor for this increase is obviously bitcoin’s recent bull cycle but smart technology, a 10+ year vision, commercial contracts, and a thriving community is convincing investors to invest in ADA and HODL.
Cardano search and community growth
The sources of ADA investment are increasing: Twitter has seen celebrity endorsement (from Gene Simmons and Nick Carter), funds such as FD7 are investing heavily in alt-coins like ADA rather than BTC, and trusts such as Grayscale have announced that ADA is on the shortlist for purchasing. Because of this news we will likely see (and have seen) institutional and retail investment picking up pace.
Long term cryptocurrency investment
Regarding overall crypto investment, the long-term outlook also seems very bullish. Financial markets as a whole are becoming easier to access, and as a result, more people are investing their savings in the markets. Also, as we’ve seen with the recent reddit-led market manipulation, retail investors are becoming more prominent and challenging traditional money managers for higher returns. The good news for cryptocurrencies is that Gen Z (and younger generations) – including those involved in reddit retail investing – are more comfortable with tech, lack faith in existing financial paradigms, and are willing to take more risk. This has resulted in investing in crypto by means of speculation, hedging against nominal currency, generating ROI, and accepting blockchain as a great technology. In addition, surveys have found that many millennials are keener to invest in crypto than stocks or bonds, and let’s be honest at this point, choosing bonds over USDT liquidity schemes that generate over 6% annually doesn’t seem right. Tl;dr, the youth will become the world’s future leaders and with increased dependence on technology, markets becoming more accessible, and lack of government trust, crypto entails a great investment thesis.
I could sit here and tell you that Cardano was Apple and Ethereum was Microsoft in the 1980s. Obviously both cryptocurrencies can reign just like Apple and Microsoft do with other competitors like Samsung amongst them, but it is definitely interesting to understand how Cardano will compete with Ethereum and overtake it before it potentially happens. Conversely, a lot of competitive advantages that Cardano offers can be countered by the ETH 2.0 upgrade – at this point, it is all still speculation. However, speculation can and does turn into reality and as Charles Hoskinsons said, ‘Take out your Blackberry phone, go to Yahoo on your Netscape browser and search for your MySpace profile. This is how quickly things can change in the arc of history’.
To end, let’s review how far Cardano has come before getting caught up in how far Cardano will go. The graphic below demonstrates Cardano’s impressive progression over the last 6 years. It’s safe to assume that this infographic will grow with time. Cardano’s next big news, besides smart contracts, is likely to concern a deal with the Ethiopian government. There is a lot of excitement in the community and only time will tell how much Cardano influences people’s lives globally.
by Ethaniel Aspin