When I talk about my cryptocurrency wallet, some are surprised to learn that I don’t have Ethereum (ETH 1.08% ). I used to own ETH, in fact I mined it for two years from 2017 to 2019. However, I am no longer aligned with where Ethereum is heading. In 2020, I converted most of my assets to Bitcoin ( BTC 1.31% ) including all ETH I had. I recognized the problems Ethereum was trying to solve but started looking elsewhere for similar systems that solve the same problems. The project that I found that I think will be more effective in being the world’s supercomputer is gimbal (ADA 0.90% ).
My intention is not to denigrate Ethereum. In fact, I think it’s a big project – with many problems. I want to reveal these issues fairly and accurately.
Massive network charges
The first and biggest problem I see with Ethereum is the huge fees it requires to use it. Many proponents of Ethereum call it the world’s decentralized finance (DeFi) supercomputer. They claim this will free people around the world and give them access to decentralized financial services. I agree that it is important for the cryptocurrency industry to do this for the world, but I disagree that Etheruem is the platform that will. Not so much that it costs $20 to send ETH, $50 to send a custom token on Ethereum, and between $100 and $200 to exchange one token for another.
The high fees on Ethereum cost the individuals Ethereum is meant to help the most: those who are disenfranchised by financial systems and cannot afford local financial services. And they certainly can’t afford to use DeFi platforms on Ethereum.
Three planned upgrades will help Ethereum scale, one of which has already launched.
- The Beacon Chain (already launched).
- A shift from proof-of-work to proof-of-stake (otherwise known as “The Merge”).
- Implemented sharding.
At the risk of making it oversimplified, the already-launched beacon chain upgrade will “coordinate” the second and third upgrades to ensure they are run smoothly. All of these efforts are aimed at moving Ethereum from proof-of-work (which is slower) to proof-of-stake (which requires users to present their own crypto assets as collateral to verify future transactions) and should improve the throughput of transactions. Ethereum transactions. Cardano, on the other hand, already uses proof-of-stake and can process many more transactions per second than Ethereum.
Sharing will also help with scalability by separating the core operations and blockchain consensus from all other transactions that take place on the applications. Right now everything happens on a single chain, but after sharding the subchains will “report” batch transactions to the beacon chain. This will, in theory, relieve bottlenecks on Ethereum and allow transactions to be approved faster.
However, these developments have been underway for four years with deadlines constantly pushed into the future. To the credit of the Ethereum developers, what they are trying to do is extremely complicated and cutting edge. Some compare it to trying to level an airplane while it’s in the air. But I see these Ethereum upgrades not necessarily as benefits to the system later on, but as a technical risk moving forward. There are two risks here.
- Upgrades continue to be postponed. The longer upgrades take to roll out, the more opportunity Ethereum’s competition has to take DeFi market share away from it.
- Due to the nature of upgrades and the size and complexity of Ethereum, there is a chance that something could go wrong with the upgrade.
Wait and see the approach
When I held Ethereum, I was happy with how the project was going for a long time. But, contrary to what my overall stance on Bitcoin might have you believe, I consider myself somewhat risk averse. The technical risks I described above are simply too great for my risk tolerance.
If Ethereum demonstrates that it can have consistently low fees and can be successfully upgraded to a proof-of-stake blockchain, then maybe I’ll consider investing again. Until then, I bet Cardano will outperform Ethereum.
Why I think Cardano has a chance to compete with Ethereum
The functionality that Ethereum has widely pioneered is key to bringing humanity into a future with more decentralized financial services. I have a lot of respect for the development tools, innovation, and experimentation that took place on Ethereum. At the same time, I recognize that all this innovation is more easily developed and integrated into a more flexible project such as Cardano.
For example, Cardano allows developers to put custom data into any transaction. The sky is the limit here. Developers can implement anything from smart contract functionality to NFTs using the ability to insert custom data into transactions.
The development team behind Cardano has been building this feature for nearly five years, making incremental and consistent improvements. They are currently in the fourth stage of their development and haven’t had to push a deadline for more than a few days. . What Ethereum has experimented with, tested and incorporated can be brought into Cardano more or less frictionlessly. Indeed, Ethereum is an open source technology. Any application built on Ethereum can essentially be copied and pasted into other projects that know how to run Ethereum applications. Cardano is one such project.
Cardano has just completed the launch of smart contracts on its platform that allows developers to build DeFi applications that directly compete with applications on Ethereum. Admittedly, the total value locked (TVL) on Cardano pales in comparison to Ethereum ($100m vs. $117bn). But as I have already pointed out, the longer Ethereum takes to roll out lower fees, the more projects like Cardano have to take market share from Ethereum. My investment hypothesis is that Cardano is a more accessible and easier to use platform for beginners. With only around 4.5% of the world’s population invested in cryptocurrencies, the bulk of new investment is yet to come. I bet new investors will choose Cardano over Ethereum.
Quality over quantity
In some ways, I emphasize quality over quantity. Charles Hoskinson (founder of Cardano and co-founder of Ethereum) recently told Lex Fridman on his podcast that Input Output Hong Kong (IOHK – The organization responsible for building Cardano) spends a lot of time doing Cardano well . Ethereum, on the other hand, felt more like a random but worthwhile experiment in pioneering new technologies such as DeFi and NFT.
Finally, Cardano first targets a very specific cohort of the population. They are targeting cryptocurrency adoption on the African continent, which is home to an estimated 1.5 billion people, many of whom are unbanked. The use cases that Cardano is focused on deploying are in the areas of usability, identity, accessibility, and interoperability. These reasons make it meaningful and compelling enough for me to hold a position at Cardano in the absence of any position at Ethereum.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.