FinanceTLDR
Software Engineer and Finance Blogger
"An investment in knowledge pays the best interest." - Benjamin Franklin

Solana vs Cardano vs Polkadot: Ethereum Competitors Deep DiveSOL vs ADA vs DOT: Eth Competitors Deep Dive

By FinanceTLDR | Dec 1, 2021

I researched and wrote this on little sleep since I'm travelling. I need sleep, but I must write.

When Satoshi Nakamoto released the Bitcoin whitepaper in 2008, and then sent the first Bitcoin transaction of 10 Bitcoins to Hal Finney in early 2009, a cryptocurrency revolution was started. More than 12 years later, one Bitcoin is worth more than $50,000.

The growth of cryptocurrencies was rapid and largely aided in part by several key innovations, with the most important of which being smart contracts. In 2012, Vitalik Buterin, a skinny and exceptionally talented Russian-Canadian programmer started his first year of university at the University of Waterloo in Canada (I started in the same university on the same year) and would go on to found Ethereum in about a year, starting a revolution within a revolution.

Vitalik Buterin at Disrupt SF 2017
Vitalik Buterin at Disrupt SF 2017 (David Paul Morris/Bloomberg)

Ethereum is a major improvement on Bitcoin. Instead of just addresses sending monetary transactions to each other, Ethereum addresses could also be programs that were invoked by code-containing transactions from other addresses.

This was a huge upgrade in the capabilities of cryptocurrencies and today, smart contracts power all the most exciting decentralized applications (DApps), including Non-Fungible Tokens (NFTs), Decentralized Autonomous Organizations (DAOs), and DeFi (Decentralized Finance).

However, despite Ethereum's huge potential, it has a glaring weakness. The decentralized and open nature of the system drastically limits its throughput and any DApps that became popular quickly made the whole system inordinately expensive to use.

Enter from stage right a motley crew of burgeoning cryptocurrencies trying to usurp the incumbent. Among the most promising of which are Solana, Polkadot, and Cardano. This article is a deep dive into these 3 Ethereum competitors to see how they fare against each other and whether they have chance to supplant Ethereum.

Ethereum vs Competitors (November 2021)
Ethereum vs Competitors (November 2021) by CryptoDiffer

A Rubric for Smart Contract Cryptocurrencies

Before comparing the 3 Ethereum competitors, we need a rubric to measure them by. The criteria I'll be using for this rubric are:

  • Decentralized: what makes cryptocurrencies different is that they're decentralized. However, decentralization is a gradient and not binary.
  • Throughput: the raison d'etre for these Ethereum alternatives is that they have a much higher throughput than Ethereum.
  • Popularity and marketing: a cryptocurrency will fade away if it can't create a strong community, even if it has the best technology.
  • Development team: as the late legendary businesswoman Mary Kay Ash once said, "A company is only as good as the people it keeps." This holds true for cryptocurrencies and their development teams as well.

Solana ($SOL)

Solana is the largest of the three cryptocurrencies in terms of market cap. It's designed to support up to 50,000 transactions per second (TPS), which is significantly higher than Ethereum 1.0's 30 TPS (caveat: Ethereum 2.0 is expected to be able to reach 100,000 TPS). Solana does so by using a unique blockchain consensus algorithm that combines Proof of Stake and Proof of History algorithms (Bitcoin and Ethereum 1.0 uses proof of work, which is secure and decentralized, but slow). Although Proof of Stake is standardfare for "next gen" blockchains, Proof of History is unique to Solana.

The Impossible Trilemma of College

Similar to college where college students can only choose two of three aspects of college life (good grades, social life, and sleep), cryptocurrencies have their own trilemma. A cryptocurrency can't be Decentralized, Fast, and Secure at the same time... developers can only choose 2. In order to be faster than Ethereum, Solana chose to be more centralized. Thankfully, decentralization is a gradient, so Solana is less decentralized than Ethereum but still more decentralized than a bank.

Decentralization

So how centralized is Solana? It turns out it's very centralized. The team sacrificed a lot to be able to advertise the 50,000 transactions throughput. For one, there are significant hardware requirements to be a Solana validator. A quick exposition: validators form the backbone of a cryptocurrency and the easier it is to be a validator, the more decentralized it is. The more validators a cryptocurrency has, the more secure it is. With Solana, it's not that easy to be a validator.

Validators form the backbone of a cryptocurrency and the easier it is to be a validator, the more decentralized it is. With Solana, it's not that easy.

Solana validators need to have at a minimum (docs.solana.com):

  • 12 CPU cores (or more) with a clock speed of 2.8GHz
  • 128 GB of RAM
  • Motherboard with 256GB capacity
  • 1 TB SSD to store the Ledger
  • 0.5 TB SSD to store Accounts data
  • 0.5 TB SSD to store the OS

These are hefty hardware stats, meaning that setting up a Solana validator is both expensive and difficult. Compare this to Ethereum 2.0, which will require at minimum a 4th generation i7 processor (launched in 2013), 8 GB of RAM, and a 0.1 TB SSD. It's not surprising that Solana requires such powerful validators. Each one has to store the entire ledger and validate up to 50,000 transactions a second!

In addition, unlike Bitcoin or Ethereum where you need to control more than half the network to control the whole network, in Solana, you only need to control more than one third of the network to control the whole network.

These are all tradeoffs that Solana made to increase its throughput.

Solana is so centralized that a small group of validators were able to shutdown the network for 17 hours in September after the software failed to work properly when a large volume of transactions suddenly flooded the network. For 17 long hours, Solana users had their funds frozen and were not able to use the network. This is ironic given that Solana advertised on its website that "transactions will not be stopped" (source).

Community

Solana's team has done a fantastic job growing its community. The astronomical growth of the price of SOL this year from just under $3 per coin at the start of this year to a peak of over $250 per coin in September is a testament to the team's feats of community building. In addition, Solana has found significant traction with the smart contract developer community, with hundreds of projects built on Solana and a few getting impressive adoption. For example, according to Cointelegraph, secondary NFT sales on Solana reached almost $500 million in three months (source). Not only are developers building on Solana, people are using the DApps too.

Unethical team?

Tweet from @Justin_Bons on Solana's hidden wallet
Tweet from @Justin_Bons on Solana's hidden wallet (source)

In April 2020, Solana's team stated that SOL had a total circulating supply of 8.2 million coins. However, it was revealed later in the same month that the team owned a hidden wallet containing 13 million coins. This brings the total circulating supply to over 21 million coins, about 2.5x the amount claimed by the team. To correct this "mistake", the team promised to burn the extra coins in 30 days. This event puts into question the integrity of the team and is in my opinion, a serious red flag.

Cardano ($ADA)

Cardano is the second largest cryptocurrency of the three by market cap. Its claim to fame is a research-driven development approach leveraging common academic practices with a particular focus on peer-reviewed papers. The team has published 125 papers so far with many of which being peer-reviewed. Most of the blockchain's core features such as the Ouroboros proof of stake consensus algorithm have been published as peer-reviewed papers. In fact, CryptoSlate claimed in an October article that the Ouroboros paper was the 2nd most cited paper in Google Scholar's cryptocurrencies and blockchain category (source).

Cardano is currently tuned to support up to 7 TPS (source) but this ceiling can be increased to up to 50 TPS. This is similar to Ethereum's 45 TPS. The team hopes to dramatically scale this up with an in-development upgrade dubbed Hydra that should increase throughput to at least 2500 TPS.

Despite a large number of accolades, Cardano is more of a case study in successful community building and marketing than advanced blockchain technology. Its smart contract system currently has a jarring flaw that makes Cardano almost unusable for most web3 applications (more on that below).

Its smart contract system currently has a jarring flaw that makes Cardano almost unusable for most web3 applications (more on that below).

Decentralization

Among Solana, Polkadot, and even Ethereum, Cardano allows for the most decentralization. The Ouroboros proof of stake algorithm is not only easy and cheap to run, but also very open. Ethereum 2.0 requires validators to have at least 32 ETH ($128k assuming ETH at $4k) whereas Cardano validators only need 10 ADA ($20 assuming ADA at $2). Cardano also has similarly low hardware requirements for validators as Ethereum 2.0.

Cardano recommends validators to have (iohk.zendesk.com):

  • Intel or AMD x86 processor min 2 cores at 2GHz or faster
  • 8 GB of RAM
  • 30 GB of SSD

Strong community despite glaring flaws

Cardano is the poster-child for cryptocurrency community building and marketing. It has one of the largest and most dedicated cryptocurrency communities that helped propel Cardano to a top 3 cryptocurrency by market cap at its peak... despite being an unimpressive blockchain in terms of performance and its smart contract system is severely lacking. The community is largely sustained by a continuous stream of promises and anticipatory updates from an engaging and charistmatic co-founder, Charles Hoskinson. These promises and updates mask slow progress and unimpressive features as seen with the super staggered smart contract rollout (promised since 2017).

On performance, Cardano actually has very similar performance to Ethereum 1.0. It doesn't scale well. The moment usage ramps up the system will exhibit problems similar to Ethereum's (i.e. long wait times or expensive transaction fees). This is the cost of being more decentralized. What's worse is that since Cardano doesn't have a fee economy (i.e. users can increase fees for prioritization), when the system comes under load users have no control and no idea when, or even if, their transactions will be accepted. Fortunately, usage is currently low enough that a 7 TPS cap is sufficient and the team can continue to advertise fast transactions and low fees. To alleviate community trepidition of scaling problems, the team is relying on the tried and true tactic of promising better. In this case, the Hydra upgrade is the carrot on the stick. However, the super staggered smart contract upgrade (over 3 years) does not bode well for the Hydra upgrade. Hoskinson might again have to create hundreds of "Update" and "AMA" videos along the way to keep the carrot swinging.

Charle Hoskinson's YouTube channel

It's interesting to note that even though Cardano brands itself as a next gen Ethereum competitor, it faces the same scaling conundrum as the former... despite launching years after Ethereum. At least Solana and Polkadot made it a point to launch with scaling issues solved.

Finally, the long-awaited smart contract launch in September that resulted in crypto social media being awash with excitement from Cardano's fans is a feature that's dead on arrival. The system has a couple drastic flaws that make it unusable for most web3 applications. Cardano publishes a block of transactions every 20 seconds. Unfortunately, each smart contract can only have one transaction per block (source 1, source 2). This means that at most 3 users can interact with a smart contract per minute! Even worse, as I've mentioned before, because Cardano doesn't have a fee economy, there's no way to tell or control when queued up transactions will make it through. Users will just have to wait with uncertainty. Uncertainty is one of the worst, if not the worst, UX faux pas you can commit. Put together, Cardano smart contracts aren't suitable for any of the popular web3 applications right now... namely NFTs, DAOs, and DeFi. For example, how do you operate a decentralized exchange if it can process only 3 orders per minute, while waiting users having no idea when or even if, their orders will occur. You can't.

As usual, the team's solution for this is to promise better. This time, it's an archaic area of algorithmic research called "concurrent state machines" that potentially has a solution (source). In the short term, some have even proposed to have centralized providers ordering and batching huge amounts of transactions together before publishing but that defeats the purpose of a decentralized blockchain.

Finally, Cardano's smart contract woes are evident with the limited and waning developer and user participation in its smart contract ecosystem.

Cardano's success is a pinnacle example of how, with cryptocurrencies, strong community building and marketing supercede actual capabilities. To prove my point further, crypto funds have little interest in Cardano and its tremendous market cap growth over the past year was driven primarily by retail investor excitement.

Most commonly held liquid assets across Crypto Venture and Hedge Fund Portfolios, by Messari (excluding Bitcoin and Ethereum)
Most commonly held liquid assets across Crypto Venture and Hedge Fund Portfolios, by Messari (excluding Bitcoin and Ethereum) (source)

Polkadot ($DOT)

Polkadot has the smallest market cap of the three, though it's still a top 10 cryptocurrency by market cap. Polkadot can be thought of as a slightly different take on Ethereum 2.0, but built purposely for it from scratch (whereas Ethereum has to transition to 2.0). Both blockchains have a similar sharded infrastructure: there's a main chain (called Relay Chain for Polkadot and Beacon Chain for Ethereum) and sharded side chains (called parachains for Polkadot and just shards for Ethereum) that are "linked" to the main chain. The details are where the two diverges (more about the differences here). I won't dive into a detailed description of what sharded side chains are in this article but at a high level, you can think of these chains as separate and specialized blockchains that are "attached" to the main chain and can piggyback off of the main chain's security without being confined to the limited resources of the main chain.

It's not surprising that Polkadot and Ethereum 2.0 are similar. Polkadot's founder, Gavin Wood, co-founded Ethereum and wrote its Yellow Paper. Wood left Ethereum in 2016, feeling that Ethereum 1.0's single chain structure limited its potential, and subsequently published a whitepaper for a sharded blockchain that he'd name Polkadot.

Ethereum's eventual decision to move towards Wood's vision is a testament to the validity of his ideas.

Polkadot is designed from the ground up to handle large transaction volumes. The Relay Chain can already handle 1,000 TPS. With parachains (up to 100), the system's max TPS could reach 1,000,000 (Ethereum 2.0 is targetting a max TPS of 100,000).

Decentralization

Polkadot's high TPS doesn't come for free. Some decentralization was sacrificed in the process. For one, to be a Polkadot validator, one needs to have at least 10,000 DOT ($380k assuming DOT at $38). This is quite a bit higher than Ethereum's 32 ETH requirement ($128k assuming ETH at $4k). Polkadot also has hefty hardware requirements to run a validator. They're not as hefty as Solana's but hefty nonetheless. This is how Polkadot's Relay Chain can support up to 1,000 TPS.

The recommended hardware setup is (wiki.polkadot.network):

  • i7-7700K CPU @ 4.20 GHZ (4 cores)
  • 160 GB of SSD
  • 64 GB of RAM

As mentioned above, the harder it is to be a validator, the less decentralized a blockchain is.

I personally think that it's unnecessary for the Relay Chain to have a high throughput. The Relay Chain is the bulwark that all the parachains depend on, and decentralization and security should be prioritized over throughput. Ethereum 2.0's Beacon Chain strikes a better balance.

Community

Polkadot has a noticeably smaller fanbase than Solana or Cardano (e.g. 35.9k subscribers for /r/dot, 100k subscribers for /r/solana, and 665k subscribers for /r/cardano). This is likely because Polkadot's sharded infrastructure is hard to understand, and perhaps also an indication of different priorities for each of the development teams.

Nevertheless, Polkadot's ecosystem is growing. The first ever parachain auction happened on November 11th with Acala winning the first auction. It was a close race between Acala and Moonbeam but Acala ultimately eked out a victory with $1.3 billion collected from 81,000 wallets. Moonbeam subsequently won the next auction on November 18th.

There is a long list of candidates to become Polkadot parachains, each vying for a spot from a limited pool of 100.

Verdict

Although Ethereum 2.0 holds a lot of promise, it might be a while before it launches (slated for Q1/Q2 2022 but delays are highly likely). The upgrade process has been going on for exactly a year now since the Beacon Chain's launch on this day last year. The lengthy upgrade process isn't surprising given that this upgrade from 1.0 to 2.0 is akin to changing the engine of a plane while it's still flying.

In the meantime, Ethereum will still be its old, slow, and expensive self leaving a wide field of opportunity for Ethereum competitor upstarts to flourish.

After evaluating the top three competitors, Solana, Cardano, and Polkadot, I've decided to assign a numerical score for each of them based on the rubric outlined above.

The Impossible Trilemma of College

I'd have to admit there's quite a bit of subjectivity in this scoring though I've tried to be as fair as possible. Polkadot comes out slightly ahead of Solana with Cardano trailing behind. Cardano is buoyed by its strong community scores but the blockchain's current capabilities appropriately drag it down. It's a close one between Solana and Polkadot. Though I think that Polkadot and Ethereum 2.0's sharded infrastructure is the right balance between throughput and decentralization, perhaps Solana's approach of just creating a beefy main chain with huge validator requirements is sufficient for the market. In that case, Solana actually wins. Although Solana does lead in market cap, I think it's too early to tell which infrastructure has longevity.