How close is Cardano to displacing Ethereum as altcoin king?
Between January 2021 and January 2022, ether (ETH) outshone Bitcoin (BTC), gaining 394% compared to the leader’s 47%. This consolidated its position as the second most dominant coin on the market.
However, despite the fact that the price of ETH is soaring to new highs and its market cap is increasing exponentially, its fight for market dominance is hampered by competitors and new entrants to the space.
And ETH has many competitors that are looking to snatch the currency’s market dominance, including Cardano blockchain’s ADA token.
Cardano exists only to one-up Ethereum
The Ethereum blockchain was built as a smart-contract all-rounder on which decentralized applications – or dApps – could be built. The code was written with Solidity and is open-source, meaning anyone can write applications to work on the blockchain.
The many coins created to run this way include Uniswap, which went on to create DeFi (decentralized finance), Chainlink, and AAVE. Among the most popular Ethereum dApps today are NFT exchanges such as LooksRare and OpenSea, along with MetaMask, the wallet people use to store their Ethereum-based tokens and connect with NFT exchanges.
Cardano founder Charles Hoskinson — along with Gavin Wood, Anthony Di Lorio, Joseph Lubin, and Vitalik Buterin — was one of the original Ethereum developers. Hoskinson split from the Ethereum team in June 2014 after allegedly disagreeing with Vitalik and others about creating a non-profit organization for Ethereum. Hoskinson wanted to create a company while Vitalik and the others went on the create the Ethereum Foundation.
Hoskinson’s original aims for Cardano appeared to be rather vague, not covering much beyond the desire to create a technically better blockchain than Ethereum. And in some ways he succeeded.
Written in Haskell, Cardano is also a smart-contract all-rounder on which dApps can be built. However, it differs from Ethereum in that it’s mainly a proof-of-stake (PoS) network, as opposed to a proof-of-work (PoW) network.
The difference here, of course, is that a PoW blockchain validates transactions using the miners who create the tokens, while on a PoS network transactions are validated by stakers.
As has been widely reported, PoW blockchains consume a lot of energy compared to PoS networks. However, Ethereum is nearing the final stages of its upgrade to PoS, known as “The Merge.”
And, desperate not to be left behind, Cardano is undergoing its own “Vasil” update, designed to make it more efficient, increase the blockchain’s throughput, and make it easier to create smart contracts and decentralized apps.
Gas fees haven’t turned off ETH fans
Cardano’s biggest beef with Ethereum has traditionally been the latter’s extremely high transaction costs. These ‘gas fees’ are typical of PoW blockchains and have regularly been used as a stick to beat Ethereum. ADA fees, on the other hand, have historically remained at an average of around 0.18 ADA, which in dollar terms would be around nine cents.
However, higher transaction costs and exorbitant gas fees didn’t make users leave the Ethereum blockchain for other blockchains. Even if they did, the numbers are insignificant.
The Ethereum blockchain is currently the most popular blockchain for NFTs, followed by Solana, while the Cardano blockchain isn’t even listed in the top 17. With regards to DeFi, as of June this year, Ethereum dominated the DeFi market owning up to 63% of market share, with Cardano trailing in 27th place with just 0.17%.
Cardano isn’t as transparent as Ethereum
Despite Cardano being in the pole position as Ethereum’s main competitor, and despite the fact that its technology has been more efficient so far, Cardano still has to make a gargantuan leap to outrun Ethereum.
As of today, Cardano makes only 1.64% of the whole crypto market — admittedly an improvement from its 0.74% in December of 2020 — with around 71,000 active addresses. ETH, on the other hand, boasts 200,000,000 addresses.
In October 2021, daily transactions for Cardano hit above the 100,000 daily mark, however, this is also dwarfed by Ethereum transactions which exceeded the one million daily mark.
Another problem facing Cardano as it seeks to overhaul the world’s leading alt coin is the fact that it’s notoriously opaque when it comes to revealing who holds its tokens.
Traders may not necessarily appreciate or care about the fact that Cardano uses superior technology to Ethereum since most people piling into crypto are doing so for speculative intent, however, secrecy around its holdings may represent a big red flag.
On the other hand, ETH holders are comparatively forthcoming. For example, we know, thanks to transactions linked to his main wallet, that Vitalik sold a large amount of his stack in May last year when the coin was at $3,811. And we also know that he kept most of it and currently owns at least 290,000 tokens.
Read more: Here’s what you need to know about Ethereum 2.0’s Merge
Joseph Lubin claimed that he and his company ConsenSys does not own more than half a percent of all ETH tokens. In a recent clip that emerged on Twitter, Vitalik also admitted that the Ethereum Foundation sold its ether tokens at the peak of the bull market. Hoskinson, by contrast, has not been so forthcoming with his or his company’s holdings. In a report by Finbold it was reported that 94% of the ADA supply is stored in just 10% of wallets. This is a mind-blowing number that could, understandably, make some traders fearful of being rug-pulled.
Is fixed supply the ace up Cardano’s sleeve?
Finally, if Cardano is to make an attempt on the altcoin summit, the issue of fixed supply may be in its favor. In contrast to Ethereum, which has no fixed supply, Cardano’s supply is capped at 45 billion tokens with a current supply of around 33 billion. Meanwhile, Ethereum’s current supply stands at around 121 million tokens, having grown by more than 50% since November 2016.
This begs the question of whether or not Ethereum can keep its price if it continues to increase its supply, particularly when The Merge happens and control of the network is practically handed to the vaildators.
One would need 32 ETH to become a validator and collectively the validators would have, theoretically, the power to modify or change the supply of ETH. So, it’s yet to be seen how the new validators will use the supply to play the market. One would assume that it would be in their own interest to restrict the supply.
Statistics don’t lie and they say that most cryptocurrencies don’t make it. Cardano has, so far, not only survived, but it has thrived and grown, albeit not enough to pose a serious threat to Ethereum. And of course Cardano also has its own competitors, chiefly Solana, which is backed by Sam Bankman-Fried. All of this means that Cardano could offer a good trading opportunity, but all the cards are stacked in favor of Ethereum.
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The main author of this article holds more than $1,000 USD in Ether.
Edit 16:00 UTC, Aug 2: The piece has been edited to read that 94% of ADA’s supply is stored in just 10% of wallets not 10 wallets.