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Polkadot vs. Cardano: A Comprehensive Analysis

CryptocurrencyMar 02, 2021 06:30AM ET
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Polkadot vs. Cardano: A Comprehensive Analysis

Introduction

Polkadot and Cardano are ground-up Proof-of-Stake (PoS) blockchain projects that seek to introduce the mass adoption of Proof-of-Stake before the Ethereum blockchain can completely shift from its operation from a Proof-of-Work (PoW) protocol to a PoS protocol.

While Cardano’s value proposition is in developing native smart contracts using the PoS protocol, Polkadot seeks blockchain blockchains, using their PoS blockchain to connect all other blockchains onto its network para- chains and thus becoming the living intermediary for blockchains and their tokens.

In many ways, Polkadot feels like a more alive and high-pressure ecosystem than Cardano, with higher risks for owning the inflationary Dot token (its native currency) and operating on its platform, and with greater involvement of elected moderators. Cardano offers fewer risks for both investors and stake-pool operators because of its deflationary tokenomics and less strict penalties, both of which will be discussed in this article. Still, it offers little involvement from the moderators.

Polkadot is in a more advanced stage of its development, but Cardano looks to catch up soon and may overtake Polkadot if certain conditions, which we will discuss, are met. For these reasons, Polkadot will be more rewarding for active participants currently, with a host of applications already operating on its protocol, but Cardano’s vision is grander. We will see how Polkadot and Cardano stack up against each other in every domain.

Different PoS protocols

Ouroboros is the proof-of-stake consensus algorithm forming the backbone of the Cardano blockchain. Cardano’s native virtual currency ADA is referred to as “stake,” and instead of miners (as in Bitcoin), there are ADA “stakeholders” in the Cardano ledger.

Cardano’s PoS system uses a randomized process to elect a stakeholder to produce a block based on the weight of the stake recorded in the ledger. Not all stakeholders have the expertise to produce a block if elected, so stakeholders can pool their resources by delegating their stake to stake pools. The managers of these stake pools, known as stake pool operators, manage block production during slots where the Ouroboros algorithm elects stake delegated to them. These rewards are then automatically shared with the stakeholder.

In a DPoS system, stakeholders vote on who is responsible for producing blocks. This is different from Cardano PoS, where a stake is delegated to stake pools rather than used as a voting mechanism. The voting power of each person is weighted to the number of cryptocurrencies a person owns.

These block producers are responsible for grouping transactions into a block and broadcast them to the network. These block producers receive rewards for progressing the network. DPoS is designed so that block producers who fail to perform their duties can be voted out as delegates in elections. A DPoS system relies on a fixed amount of delegates to be voted on, meaning there is a set amount of parties allowed to progress the network. Cardano’s POS can have a much larger number of stake pools running, and thus Cardano furthers decentralization.

Delegated Proof of Stake networks weigh validators by stake, oftentimes allowing the highest-stake validators to take disproportionate control of the network’s consensus protocol. Delegated PoS networks also require users to specify the amount they want to stake with a given validator. In Delegated Proof of Stake networks, delegators are not subject to loss of stake based on the validator’s behavior.

Polkadot developed its PoS out of the Ouroboros protocol with some changes. With Polkadot’s Nominated Proof of Stake, nominators select up to 16 validators they trust, and the network will automatically distribute the stake among validators in an even manner. Polkadot uses tools ranging from election theory to game theory to discrete optimization to develop an efficient validator selection process that offers fair representation and security, thus avoiding uneven power and influence among validators.

Polkadot uses a Nominated Proof of Stake system where nominators back validators with their own stake as a show of faith in their good behavior. Nominated Proof of Stake differs from the more generic concept Delegated Proof of Stake in that nominators are subject to loss of stake if they nominate a bad validator.

Overall, Polkadot’s model places a large responsibility on holders to delegate the right validators or risk losing their money. At the same time, Cardano offers a more relaxed validation process where tokens can be delegated without locking them up or risk of loss.

Different target areas

Polkadot has a global focus aiming to be the Blockchain of blockchains, while Cardano currently targets Japan, Africa, and developing countries, trying to solve real-world problems there.

Centralization

Network

Polkadot’s network has a much smaller number of validators currently because it slashes malicious validators and stakeholders, meaning that anyone who placed a stake or delegated the bad validator would lose part of their stake. Therefore fewer people are willing to stake on validators. It makes expansion and decentralization more difficult for Polkadot as Dot token holders require more trust due to the high risk. Cardano has more stake pools (>1000) since there are no risks in delegating to a stake pool.

Development

Since Polkadot requires more commitment from its users, naturally, many of those who choose to invest their time and money in it are actively involved in building dApps on top of the protocol. There is less involvement in Cardano from token holders and stake-pool validators because many are just happy to hold some Ada coins and watch it grow.

Polkadot has many teams leading different projects built on top of their blockchain, thanks to the Web3 foundation’s generous grants. On the other hand, Cardano is highly focused, with a smaller team supported by IOHK and looking to develop native functionalities rather than off-chain solutions. Polkadot already has a para-chain smart contracts solution, while Cardano will launch its own on March 1, 2021.

Tokenomics

Polkadot places high-pressure to delegate tokens to not lose out to inflation, unlike Ada coin. It is for the more active investor.

Polkadot

  • Native currency: DOT
  • Total initial supply: 10 million
  • Supply in circulation: 908 million
  • Total planned inflation: Unlimited
  • Maximum token supply: Unlimited.
  • Inflation rate: Depends on the nomination rate on the network but reaches a maximum of 10% when the nomination rate approaches 50%.

Cardano

  • Native currency: ADA
  • Supply in circulation: 31 billion.
  • Total expected inflation: 14 billion.
  • Maximum token supply: 45 billion.
  • Inflation rate: Every 4–5 years, half of the reserves (the 14 billion) will be deployed. So This will reduce the inflation rate over time. This is basically the monetary policy of Bitcoin, where the circulating supply every 4 years is halved and thus curbs inflation due to scarcity.

Governance and Ecosystem

Direct voting on Proposals is supported on Polkadot, but an elected Council of Governance can veto malicious proposals. There is also a technical committee that can also quickly submit technical proposals to solve network problems. The Council is elected, and the developers form a committee on the Polkadot platform. Thus it offers good backstops for recovering lost or stolen money. Cardano’s governance is in development. Project Catalyst, which has a Decentralised Autonomous Organisation (DAO) format, is in experimentation and will be refined over time.

Polkadot has a complete ecosystem with Edgeware, Ocean protocol, Acala network and is backed by Web3 foundation. It has an excellent testnet in Kusama. Cardano has project Marlowe Playground and a newly released Glow programming language for testing dApps. Their ITN failed as they didn’t get enough participation.

Conclusion

Both networks have great potential in integrating blockchains through their efficient and low transaction cost PoS algorithms. Polkadot may be ahead right now in the development curve, but Cardano looks to overtake it by introducing the ability to pay transaction fees in any token being transferred.

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Polkadot vs. Cardano: A Comprehensive Analysis
 

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