What’s the first thing that comes to mind when you think about cryptocurrency? More often than not, it will be Bitcoin. However, there is a second cryptocurrency that will inevitably come up in the conversation, and that is Ethereum.
If you’re a seasoned investor, you probably have done all the research necessary before getting into the crypto game. However, for those that are still trying to figure out the differences, we’re here to help simplify cryptocurrency for you.
So, what is Bitcoin?
Bitcoin was the first digital currency to be successfully transferred between two people from anywhere in the world, serving as an alternative to traditional fiat currencies and financial governance. This transaction happens on a public ledger on the blockchain that is accessible to everyone, which helps mitigate any double-spend issues.
How about Ethereum?
Ethereum is an ecosystem that houses many different projects such as digital money, global payments, and applications. This network utilises blockchain not only for maintaining a decentralised payment network, but also for hosting smart contracts from the different applications. Ether is the native token for applications and contracts on the Ethereum network.
Funnily enough, Ether was intended to complement, rather than compete with bitcoin. Unfortunately, it has emerged as a competitor on many cryptocurrency exchanges and is viewed by many as the second largest cryptocurrency in existence today.
Heads up: Bitcoin vs Ethereum
Now that we have some clarity between Bitcoin and Ethereum, let’s look at the differences between the top two cryptocurrencies:
|Creator||Bitcoin was created by a person or person(s) under the pseudonym Satoshi Nakamoto. To date, the true identity of Bitcoin’s creator still remains unknown.||Vitalik Buterin is the creator of Ethereum. He wrote the whitepaper for Ethereum in 2013 at the age of 19.|
|Founding date||The Bitcoin whitepaper was published on October 31, 2008. Bitcoin went live on January 9, 2009.||The Ethereum whitepaper was originally published in late 2013 and the network was launched in July 2015.|
|Currency code||BTC or XBT||ETH|
|Asset supply||One of the biggest value propositions of Bitcoin is its token supply – there will only ever be 21 million BTC circulating in the network’s economy.||Ether has an inflation rate of 4% and a token burn mechanism in place to offset its issuance rate.|
|Market capitalisation||Around USD 1 trillion||Around USD 400 billion|
|Use cases||Bitcoin is seen as an alternative to traditional fiat currencies, a medium of exchange and a new store of value.||Ethereum is a programmable blockchain that has its applications in numerous areas, including DeFi, smart contracts, and NFTs.|
|Outlined in the white paper, Bitcoin was designed to enable secure peer-to-peer transactions from anywhere without the need for an intermediary or trusted third party.||As a network that supports decentralised apps (dapps), Ethereum was designed for developers to write programs, called smart contracts, and deploy this code to the Ethereum blockchain.|
|Bitcoin uses Proof-of-Work (PoW), which is used widely in cryptocurrency mining, for validating transactions and mining new tokens.||Currently, Ethereum also uses Proof-of-Work (PoW) but plans are in place to shift to a Proof-of-Stake (PoS) model in 2022, where users can only validate transactions according to how many coins they hold.|
|Transactions are slower on Bitcoin’s network compared to Ethereum.||Transactions are faster on the Ethereum network in comparison to those on Bitcoin.|
|All-time high||USD 68,789.60 (Nov 2021)||USD 4,891.70 (16 Nov 2021)|
Fun fact: Bitcoin can be held on the Ethereum blockchain but Ether cannot be held on the Bitcoin blockchain!
What are their risks?
The hype surrounding this emerging asset class naturally comes with risks as well. Here are some factors to consider:
In many parts of the world, regulators are only now catching up with the innovations created by Bitcoin and Ethereum. Regulatory frameworks are still being discussed on how best to navigate around the rise of this new asset class.
Market volatility poses the highest risk when it comes to trading of cryptocurrencies. Over the years, we have seen unexpected changes in market sentiment that has led to sharp and sudden moves in price.
Cryptocurrencies, however secure the networks can be, are susceptible to technical glitches and hacking. There have been instances of cryptocurrencies being lost due to accounts or exchanges being hacked.
Frequently Asked Questions
Even after going into detail about Bitcoin, Ethereum and their differences, there could still be questions. Here are the top 3 most asked:
Is Bitcoin better than Ethereum?
Bitcoin is like digital gold due to its limited supply, while Ethereum is a decentralised computing platform for creating other decentralised applications such as automated market makers, NFTs, exchanges, currencies and so much more. Bitcoin’s scarcity, coupled with widespread adoption being divisible and transferable, makes it a valuable alternative currency.
Is Ethereum better than Bitcoin?
Ethereum is a digital ecosystem that takes blockchain technology a step further by adding layers to its network for different utility. This universe is ushering in a new era of automated financial applications to connect the global economy on a trustless and decentralised blockchain.
Bitcoin or Ethereum, which one is bigger?
Ethereum is more widely used compared to Bitcoin and has more developers working on it. This is naturally to be expected from a network that offers so many possibilities – from dApps to NFTs and smart contracts. Bitcoin now accounts for about 41.8% of total crypto market value, down from roughly 70% at the start of 2021, and Ether makes up 19.21%, according to tracker CoinMarketCap.
Should You Buy Bitcoin or Ethereum?
The debate rages on between Bitcoin and Ethereum. As an investment, it boils down to your risk profile. It is essential to understand that Bitcoin and Ethereum are fundamentally different ideas – Ethereum is to innovation and creativity as Bitcoin is to stability and reliability.
With Bitcoin accounting for more than a third of the entire crypto market, it makes a case to be a solid buy capable of providing the backbone of a crypto portfolio. On the other hand, Ethereum could have higher rewards, seeing that it has the potential to have layers of development and additional utility when its new proof-of-stake system is fully integrated.
Just like with stocks, individual needs, preferences, and financial goals are going to influence which cryptos are best for you. We are seeing the evolution of this rising asset class and it is now time for investors who haven’t considered cryptocurrencies in the past to start taking a good hard look at both Bitcoin and Ethereum seriously.