Everyone loves a good story of a scrappy underdog picking a fight with the reigning champion. That's exactly the situation between Ethereum (ETH +1.04%) and a cryptocurrency designed specifically to unseat it, created by one of its very founders: Cardano (ADA 0.26%).
Which of these two contenders is the better option for investing $2,000 in today?
CRYPTO: ETH
Key Data Points
The newer coin solves the older coin's problems
First, let's examine the lay of the land for these two coins.
Whereas Ethereum is the second-largest cryptocurrency, with a market cap of approximately $327 billion, Cardano's market cap is $27 billion. Therefore, the standard assumption would assume that the smaller investment would have a higher chance of experiencing rapid growth than the larger one, as it's easier to grow proportionally when starting from a smaller basis.
In practice, over the last three years, both chains struggled. Ethereum lost 4% of its value, and Cardano lost 24%.
Cardano was developed in part to address some of the long-standing issues with the Ethereum network, primarily its high gas fees, somewhat clunky smart contracts, slow transactions, and its difficulty in interacting with other blockchains. It has all the same features as Ethereum, including the ability to mint non-fungible tokens (NFTs).
Cardano's chain also hosts many decentralized finance (DeFi) projects that are fairly similar in terms of their objectives and capabilities to comparable projects on Ethereum. Furthermore, the chain's leadership intended to take a more deliberate, academic, and careful approach to the underlying technology development activities, hoping to contrast itself with Ethereum's approach, which many consider to be rather disorganized and haphazard.
Cardano largely succeeded in creating a chain that offers faster transactions at lower prices. Ethereum transactions often cost many dollars during periods of heavy load, taking several minutes to close. As of Feb. 19, executing an average swap on the chain cost around $0.80. Cardano's transactions cost around $0.30 most of the time, typically closing within 30 seconds or so.
But that's hardly the only factor that matters in this match-up. After all, on a normal day, their gas fees are within the same order of magnitude, as is their average transaction time. That means investors and developers who were already established on Ethereum, which came first, might not feel very inclined to shift blockchains.
If these differences were truly decisive in the eyes of the market, Cardano would have eaten Ethereum's lunch and grown to become much larger, as it always planned to do.
So there's a bit more to the story here.
CRYPTO: ADA
Key Data Points
One of the competitors is entrenched for a reason
A couple of things are implied by Cardano's lack of dominance compared to Ethereum, despite having a couple of better technical specs on paper.
First, the Cardano project ecosystem is simply not as developed as Ethereum's because it's the newer chain. It hasn't succeeded in its core mandate of displacing Ethereum. And, while its management team deserves some kudos for attempting to take a more structured approach to shepherding the chain's health, its plodding pace of development is not clearly producing any better outcomes for investors compared to its larger competitor.
Second -- and this is an important factor -- rumors of Ethereum's demise are very much exaggerated. Despite its slowness and expensiveness, it's still the home for decentralized finance, and its ecosystem is so large that it's the obvious place to host such projects, even if it'd be marginally cheaper elsewhere. Likewise, there's simply a vast amount of investor money on the chain, as well as an ample supply of developer talent.
It isn't that Cardano is a bit player. It's just that on pretty much every metric that determines the future of the chain (aside from transaction costs and speeds), Ethereum looks a lot healthier, and a lot more likely to be higher in value five years from now compared to where it is today.
So Ethereum is more worthy of your investment dollars, at least today. But, be aware that it isn't exactly a screaming buy due to its ongoing struggles; it may yet fall from its lofty position over the coming years.
