This article is the third of a 4-part article series that covers blockchain generations and why Cardano is considered a third generation blockchain. If you haven’t checked it out already, here’s part 1 of the article series, which introduces blockchain generations and part 2, which covers Cardano’s unique features and Innovations as a third generation blockchain
In this article, we’ll go over Cardano’s advantages over older blockchain generations, with a focus on the design rationale while examining the practical benefits for each case. BitCoin, despite being the pioneer of blockchain technology is still too slow, and Ethereum has scalability limitations. How is Cardano better?
Improved Scalability and Throughput
Bitcoin processes roughly 6 – 8 transactions per second (TPS), Ethereum does around 12 – 15, and Cardano supports 250. Cardano intends to hit 1000 TPS. The differences in this transaction throughput date back to the technical designs for each network. Bitcoin uses PoW, which is energy-intensive and slow, considering the computational difficulty of mining a new block. Ethereum uses PoS, making it a more efficient option. Cardano uses Ouroboros, which was designed to be an energy-efficient and scalable alternative from the outset.
To scale, BTC relies on off-chain solutions like the Lightning network because the base chain is very limited, and Ethereum relies on Rollups and sharding techniques, which potentially scale it only that the block size remains a challenge. Cardano has a larger block size and faster block times. It uses the eUTXO that supports parallel transactions and layer 2 solutions like Hydra, which can handle up to 1,000 transactions in a second. BTC does not support smart contracts. Ethereum relies on the Ethereum Virtual Machine, which slows down with increased transaction complexity and the deployment of new dApps. Cardano uses a dual architecture to support smart contracts in the Haskell language, which allows for faster speeds and scalability at the global level. Undoubtedly, Cardano leads the generation trio in terms of scalability and throughput.
Enhanced Security and High Energy Efficiency
Having expounded on Cardano’s security from the consensus mechanism to the choice of programming language, let’s evaluate security in the context of malicious activity. At the time of writing, Bitcoin has never been hacked. However, its service providers, applications, and wallets are vulnerable and can be hacked. Ethereum witnessed a DAO hack in August 2021. By the numbers, $33 million worth of Tether was lost; the hack information revealed that the network was targeted for fun or, put differently, as a challenge. Up to date, no smart contract on Cardano has been hacked. So far, this has proven to be the most resilient chain in the world of crypto, quantifying how a good design rationale based on peer reviews helps build resilient systems.
Before embarking on energy efficiency as a standalone parameter, it is worth noting that the blocks in a blockchain are the transaction ledgers of ownership that show who owns what assets. If the protocol fails, the distributed ledger is open to manipulation. Bitcoin is a secure protocol, but the dependency on high physical resources and energy consumption makes it vulnerable to the point that an attacker with more hashing power (the ability to transform keys or string characters into another value) can control the network, distort it, and manipulate the blockchain. To secure itself, the energy requirements for Bitcoin will only rise over time as the network grows. Ethereum has since moved to PoS, but looking back to the power consumption, its energy use has been on the rise from May 2017 to September 2022, according to Statista. Its claims to be a green blockchain can be disputed if you evaluate it right from the onset.
Cardano’s Ouroboros is an energy-efficient algorithm. It provides the same security as Bitcoin, leveraging ADA for consensus, unlike Bitcoin’s hashing power from mining equipment. To distort Cardano, you’d need to control over 51%. Numbers-wise, this is around $26 billion without factoring in the appreciation that would result from buying this amount of ADA. As the network grows, the attack cost rises, but the security remains nearly unchanged. While Bitcoin consumes 675,357 GWh yearly, Cardano draws 2.666 GWh. In ratio, Cardano is 253,322 times better than Bitcoin. No doubt that Cardano, as a blockchain 3.0 leader, drives significant savings in energy consumed without sacrificing the security of the network.
Interoperability and Cross-chain Compatibility
Interoperability in blockchains allows different networks to transfer or exchange assets and messages. If networks cannot communicate with each other, they can only work in isolation. As such, there’s a need to ensure ecosystems exchange assets with each other. This unlocks more adoptions and opens opportunities for more innovation, the key drivers for growth and development.
Although solutions are under development, Bitcoin faces an interoperability problem. The challenges arise from its design, which uses a PoW consensus mechanism, which is not a common communication ground with later generations of blockchain. Because Bitcoin stores transactions in a specific format, its data structures are not compatible with other networks. It also has security issues, and there aren’t standardized application programming interfaces (APIs) upon which interoperable solutions can be built. Before the advent of layer 2 solutions, Ethereum assets couldn’t be moved across broader crypto platforms like Binance and Coinbase. This is associated with its lack of universal standards, leaving users to fall to bridging solutions. Ethereum interoperability relies on cross-chain solutions, and this hinders its capitalization in De-Fi.
Cardano supports a new realm of technology called sidechains, which allow the network to communicate with other blockchains. Running in parallel, side chains offload transactions from the main chain but still maintain high-security levels, allowing for their own consensus mechanism and governance model. At any point in time, assets can be moved back to the main chain seamlessly without loss of value. As a result, you can move ADA, Cardano native tokens, and any ERC-20 token to any EVM-compatible network and back. By the records, we already have four creators leading the development of sides: World Mobile, HyperCycle, Midnight and Milkomeda.
Governance
For a blockchain network to thrive, the governance around a project must consider several factors. These include the structure, decision-making processes, and community involvement. BTC employs an informal decision-making and decentralized governance model split among developers, miners, and node operators. Here, developers submit improvement proposals, miners implement the upgrades through hard forks, and the node operators decide whether to adopt the refined software models, or not. Only if miners and node operators agree are the changes adopted to the network.
In Ethereum, the model is developer-driven and semi-formal. Governance is off-chain and coordinated between developers, stakeholders, and the community. Critical decisions are made during all-core dev meetings, although the Ethereum foundation, similar to Vitalik Buterin (a cofounder), has great influence. The rest of the power is awarded to the community and node operators.
Cardano’s governance is formal, well-structured, on-chain, and decentralized. Decisions are made through a treasury system where ADA holders vote or delegate their stake to vote on improvement proposals. The community is directly involved and shapes the network’s direction. This approach gives users, developers, and stakeholders an equal chance to participate in the network’s development milestones. As a clear example for a better understanding of how everyone exercises power and voting rights to propagate Cardano’s success, dive into Project Catalyst.
Sustainability
The concept of blockchain sustainability underpins a blockchain network’s ability to remain operational, economically viable, and environmentally acceptable in the long term. Based on the design structure, consensus mechanism, and governance model, the trio can be evaluated to showcase the philosophy upon which a network aims to be sustainable.
Bitcoin, as the first generation of blockchain technology, uses a PoW consensus mechanism. This algorithm is energy-intensive and consumes a lot of electricity, although miners are shifting to renewable energy sources. Sourced from a fixed supply of BTC, block rewards are reduced with time, leaving the economic sustainability in the hands of transaction fees to incentivize miners to participate in the network. It remains challenging to reduce environmental impact without compromising the security of Bitcoin. Ethereum transitioned to PoS from PoW, reducing energy consumption. Its security hinges on validator staking. However, Ethereum’s biggest challenges remain the high gas fee and the network’s scalability.
Fast-forward to Cardano. The design rationale is energy efficient, as the Ouroboros mechanism uses Proof of Stake and is built to reduce environmental impact with its reduced intensive need for computational power. The governance model contributes to the overall sustainability, with the treasury collecting a portion of the transaction fees. Through a decentralized voting process, the funds are distributed to fund development projects fueling Cardano’s growth. A strong foundation has already been laid in the strategic development process, and use cases are increasing. If there’s a hindrance, that would be if the network fails to share its vision for scalability and adoption.
Next Steps:
If you haven’t already, check out the final part of this article series that covers Cardano’s real-world use cases and applications.
