Every year, it seems, there's a new blockchain rival that investors think might eventually take Ethereum's (CRYPTO: ETH) place as the top Layer-1 blockchain. In years past, these blockchain rivals have included the likes of Solana (CRYPTO: SOL) and Avalanche (CRYPTO: AVAX). But, due to its strong track record of innovation, Ethereum has retained its market-leading position.
This year, the blockchain that everyone is talking about as a potential Ethereum rival is Cardano (CRYPTO: ADA). Year to date, Ethereum is up 53%, and Cardano is up 50%, so it's almost a dead heat. Let's take a closer look at how the two blockchains stack up to see which one is the better investment right now.
Ethereum's first-mover advantage
Ethereum has the first-mover advantage in just about every sector of the blockchain world. It literally invented the concept of smart contracts, so it's perhaps no surprise that it is still the clear leader in everything from non-fungible tokens (NFTs) to decentralized finance (DeFi). If you take a look at the top-selling NFT collections, for example, almost all of them are Ethereum-based, and it remains the top blockchain by overall NFT sales volume.
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But the one drawback of Ethereum has always been its performance. There are blockchains that are faster and cheaper to use, and that has left openings for new rivals to emerge. This is the reason Solana and Avalanche first emerged as potential "Ethereum killers." Even after The Merge, Ethereum still relies on a complex network of Layer-2 scaling solutions to process transactions quickly and keep fees in check. The main Ethereum blockchain can still only process 10 to 20 transactions per second. Meanwhile, Solana routinely handles 5,000 transactions per second, and has plans to boost its capacity to 600,000 transactions per second.
New Cardano innovations
That's why some investors are sitting up and taking notice now that Cardano has finally introduced its long-promised Layer-2 scaling solution, Hydra. According to some Cardano developers, Hydra is the key to 1 million transactions per second. That's a performance benchmark that Ethereum has been promising (but failing to deliver) for years. At 1 million transactions per second, the Cardano blockchain would be nearly 15 times faster than Visa's credit card network, which claims to be capable of processing 65,000 transactions per second.
And Cardano has suddenly boosted its profile in the DeFi world, where for years it was a non-player. DeFi is a new priority for Cardano in 2023, and thus far, the blockchain has delivered. It has a new stablecoin, new decentralized exchanges, and new DeFi protocols. Combined, all of these innovations could make it possible for Cardano to create a robust DeFi ecosystem. It's too early to say that Cardano is a serious rival to Ethereum, given that it still ranks No. 18 among all blockchains in DeFi. However, the case can now be made that it's no longer a so-called ghost chain where nothing ever happens.
Who is innovating faster?
At the end of the day, the blockchain sector is just like any other part of the tech industry. Innovation matters, and investors are willing to pay a premium for tokens on blockchains that appear to be innovating faster. Right now, Ethereum is still riding high after pulling off The Merge last year -- a technological feat that some have compared to changing the engine of an airplane in mid-flight. So the innovation bar is high these days. Investors are looking for truly breakthrough innovations, not just incremental improvements.
Ultimately, the answer to the question of which blockchain is innovating faster might come down to performance in newly emerging areas such as artificial intelligence (AI). The blockchain that secures a clear first-mover advantage in AI, for example, could be the one to invest in for long-term growth. Thus far, neither Cardano nor Ethereum has emerged as the obvious market leader, although Cardano does seem to have the makings of an AI strategy.
And the winner is...
Right now, I'm bullish on both Ethereum and Cardano. Both blockchains have seen stellar gains thus far in 2023. But, given Ethereum's track record of delivering performance over a longer period of time and its entrenched status as the market leader, the nod goes to Ethereum as the better buy.
