Cardano (ADA) vs Ethereum (ETH) PoW: What are the differences and which is better?

Ethereum discourages participation in the network through slashing, while Cardano deliberately creates incentives to do so.

Cardano has already proven itself with its secure PoS consensus protocol, while Ethereum has yet to do so.

Cardano has been running on a PoS-based consensus protocol since the Shelby upgrade in 2020. It is the first blockchain network based on research by peer review and it has been running flawlessly since 2020.

The Ethereum merge finally took place on September 15, 22 after years of development. Ethereum’s move from PoW to PoS was made possible by merging the PoW mainnet with the Beacon chain, a separate blockchain already based on PoS. However, most Bitcoin supporters have been spreading false information about Ethereum after the merge.

They claim that the Ethereum PoS consensus is now the “industry standard” for PoS-based networks. In doing so, they conveniently ignore the nuances and characteristics of other PoS-based blockchains, most notably Cardano. Proof-of-Stake is a consensus mechanism that protects against Sybil attacks. Here the network selects a validator to verify transactions based on the tokens that have been used as collateral on the network.

A Sybil attack is a security threat in which an individual or organization creates multiple accounts or nodes to take control of a network. PoS significantly increases the cost of such an attack, as the attacker has to buy a large number of tokens to be effective. There are different variants of the PoS mechanism and they are also used by currently active blockchains.

The main differences can be explained using four characteristics :

1) Slashing

Some PoS-based blockchains use slashing as a tool to prevent malicious behavior. They also use it to enforce fines and hold network participants more accountable. Ethereum validators are the most vulnerable to staking penalties. If they fail, virtually everything they employ is at risk.

As soon as you use your ETH, you give up the rights to your ETH to the Ethereum network. In comparison, there is no slashing in Cardano’s PoS implementation. Cardano has a unique sharing mechanism to reward shareholders who behave sensibly. Anyone can participate in the network without fear of losing the rights to their ADA tokens to the Cardano network. Therefore, Cardano’s PoS implementation encourages more network participation than Ethereum’s.

2) Embargo

Ethereum has an infinite lock-up period. You can no longer unlock your ETH after the merge. In contrast, Cardano’s PoS has no lock-up period. Any ADA holder can move their ADA tokens at any time without restrictions or penalties. Therefore, participating in the network is more effortless and uncomplicated.

3) Validator Status Threshold

Cardano has minimal staking requirements and allows anyone to run a validation node. DA will be 5.5 ADA – that’s about two and a half dollars at the moment. In contrast, Ethereum requires a minimum of 32 ETH — or around $41,000 — for someone to run a validation node. Due to this high entry hurdle, many community members are not even able to become an Ethereum validator.

4) Custodial Staking

With custodial staking, you do not own the cryptocurrency. For example, anyone who owns five ETH cannot directly participate in the network because of an arbitrary limit set in the protocol. If you still want to stake, you have to take a detour via services like Lido or exchanges like Kraken and Coinbase.

This gives you control of your ETH to the relevant exchange or smart contract. There is also the risk of slashing if there is a bug or the smart contract becomes vulnerable. The combination of these factors means many people are relinquishing control of their ETH to entities like Lido and centralized exchanges like Kraken.

This leads to an overall centralization of the Ethereum network. Currently, three companies control over 51 percent of the Ethereum network.

In contrast, Cardano encourages non-custodial staking, where one can participate in the network without losing rights to the ADA token. This well-designed incentive mechanism and its much higher staking appeal have had a positive impact on the decentralization of the Cardano network.

Twenty-four entities would have to merge before they could control more than 51 percent of the network. Cardano’s PoS mechanism is better because it incentivizes participation in the network and leads to real decentralization of the network. Ethereum, on the other hand, offers no incentives to enter the network and only allows three entities to control more than 51 percent of the network – with all the ensuing risks.