In a push to improve the speed and efficiency of cryptocurrency-based systems, a number of ventures have built their own versions of Ethereum, the most widely used crypto network in the world after Bitcoin. Just like Ethereum, this new breed supports the development of decentralized applications, called dApps, and smart contracts, which are software programs that automate and distribute financial agreements.
Likewise, these new blockchains issue tokens that trade in the cryptocurrency marketplace. In contrast to Bitcoin, these digital coins are not primarily meant to be a form of money but rather are integral pieces of the programming that enables users to transmit assets and applications across the internet, and record them on public ledgers.
Two of the most popular networks are Cardano and Solana. Dubbed Ethereum killers, both are among the 10 most valuable cryptocurrencies by market capitalization. Both use novel features to differentiate themselves from one another—and from Ethereum itself. Still, all these systems share the same mission: to support the development of computer applications that will promote decentralized finance, or DeFi, and erase the need for intermediaries such as banks and brokers.
What is Solana?
Solana is what’s known as a Layer 1 blockchain, a decentralized database that executes and records transactions on the internet. Layer 1 networks are designed to improve on the performance of Ethereum by processing transactions at greater speeds, and at lower cost for users.
Solana was co-founded in 2017 by Anatoly Yakovenko, a software engineer who developed a way to get computers to synchronize by linking them to cryptographic clocks. In this way, Solana emerged as a turbocharged blockchain and attracted projects ranging from non-fungible token (NFT) platforms to DeFi ventures to blockchain-based games.
What is Cardano?
Cardano, another Layer 1 blockchain, also provides projects with a decentralized network for supporting smart contracts and dApps. Computer scientist Charles Hoskinson, a key player in the founding of Ethereum, left and in 2015 set up Cardano, making it one of the first challengers to Ethereum.
Hoskinson was determined to reinvent the way cryptocurrencies were created and maintained. To that end, Cardano was the first blockchain project to use peer reviewed research, an academic process of evaluating the soundness and utility of new ideas. Cardano has attracted a number of projects, including cryptocurrency exchanges, lending apps, and games.
How are Solana and Cardano similar?
Solano and Cardano have a lot in common. They are both designed to be platforms that software developers can use to create applications. They also provide competing blockchain systems to support other crypto projects.
They are also faster and cheaper to use than Ethereum. Solana typically processes around 2,500 transactions per second (TPS), which is much faster than the 15 transactions Ethereum can handle in that same period. Average transaction fees on Solana are just $0.00025 while Ethereum-based transactions have an average cost of $15. As for Cardano, it typically processes around 250 transactions per second and the fees are 1 to 2 cents.
How do Solana and Cardano differ?
The two cryptocurrencies have a number of similarities, but also some critical differences.
Both blockchain systems use the same method to process and record transactions and computer programs. It’s called Proof-of-stake (PoS), and it works by getting token holders to pool or stake their coins to access the network. They then validate and add blocks of data to the respective networks’ databases, or blockchains.
Yet, Solana and Cardano use important variations on PoS:
- Proof-of-history: Computers in the Ethereum network rely on a process known as Proof-of-work (PoW) and are hindered by their “mistrust” of each other. This is one of the reasons Ethereum is slow. Solana overcomes this problem by getting the computers to agree on time. By synching them up via clocks, the network is faster. This method is called Proof-of-history (PoH) and it is integrated in Solana’s PoS consensus approach.
- Ouroboros: Cardano has developed its own variation of PoS to validate transactions on its blockchain. Ouroboros distributes control of the network to token holders who form “stake pools.” They delegate their holdings of Cardano’s ADA, the name of the blockchain’s token, to the pools and one is selected as a “slot leader.” This gives stakers access to the Cardano network and lets them form and validate blocks of data and add them to the chain. In return, they are rewarded with ADA tokens.
Both Solana and Cardano are designed to solve one of the biggest challenges in cryptocurrency: scalability, or growing into truly reliable global systems. Each has pursued its own path toward this goal.
- Speed: Intent on being as fast as possible, Solana has attracted crypto traders and financial professionals who value transaction speed. And its PoH approach has delivered on that promise, which is why its SOL tokens have been one of the most valuable cryptocurrencies since mid-2021. Yet, Solana’s network suffered five outages in the first half of 2022, raising doubts about its resilience and dependability.
- Community: From the outset, Cardano has styled itself as a hub for like-minded Ethereum fans who value a shared vision. This is why it uses a peer review process to build consensus around improvements to the system. By bringing together computer scientists, product developers, and crypto engineers to perform research, Cardano is trying to play the same role as universities do in tech centers like Silicon Valley.
What challenges do Solana and Cardano face?
Both ventures are confronting the rise of so-called Layer 2 blockchains that extend the scope of Ethereum. Layer 2 networks such as Polygon, Arbitrum, and Avalanche are designed to improve transaction speeds and lower the so-called gas, or user, fees that have hindered the growth of Ethereum.
Layer 2 blockchains also are designed to better support applications on Web3, which has been touted as a decentralized version of the internet. Moreover, Ethereum itself started transitioning in the second half of 2022 to a PoS model designed to make it much cheaper to use, and greatly reduce its carbon footprint.
The bottom line
Solana and Cardano have become an important story in crypto because they are demonstrating that blockchains can become faster and cheaper to use. Inspired by Ethereum, they are expanding the marketplace for dApps and smart contracts. They are also developing new approaches to blockchain engineering. In the brutal crypto bear market of 2022, they survived as other crypto projects collapsed. Yet, the blockchain arms race has now been joined by a new breed: Layer 2 blockchains, which are supposed to be even faster and cheaper. Plus, Ethereum itself is undergoing its most sweeping upgrade ever. Solana and Cardano will have to continue innovating if they are to remain in the forefront of crypto development.