Bitcoin vs Ethereum: Which One Is the Better Investment & What YOU Need To Know…
In every growing industry, there’s usually a ferocious rivalry between the two largest brands; Coke vs Pepsi, Apple Vs Microsoft, Audi vs BMW, etc.
The cryptocurrency sphere is no different, and in this case, the two giants are bitcoin and Ethereum.
Bitcoin is undoubtedly the gold standard when it comes to digital currencies, but Ethereum is a close second. Which of the two is a better buy? Here’s a comprehensive guide on Bitcoin vs Ethereum.
A Quick Overview of Bitcoin and Ethereum
Bitcoin (BTC) was launched in 2009 and was the first cryptocurrency ever released. This digital coin was mainly formed as an alternative to traditional fiat currency to help people transact past their national borders digitally.
Bitcoin is also based on a decentralized structure which means that it’s not bound by any government laws and regulations. This ensures that its value is not impacted by a single body, as is the case with fiat money and the central bank.
It also allows people to transact anonymously without divulging sensitive information such as their bank and credit card details.
Ethereum, on the other hand, is more of a network than a digital coin. After the launch of bitcoin, developers began to look at other ways in which blockchain technology could be utilized. In 2015, Ethereum was released and worked on a smart contract network.
A smart contract basically works like traditional agreements, but instead of having a third party facilitate the execution, it’s designed to be self-executing. The terms of the contract are written into the code, and once they are met, the network completes the transaction.
After a while, Ethereum founders realized that they needed a cryptocurrency that they could trust and use within their networks. They then created Ether (ETH), a digital coin that is similar to bitcoin, and it’s now the second-largest cryptocurrency by market capitalization.
What Are the Similarities Between Bitcoin and Ethereum?
Ether and Bitcoin are both digital coins that are traded on exchange sites and can be stored on cryptocurrency wallets. Other similarities include;
- They are both decentralized currencies: they are not issued or regulated by any financial authority. This makes them free from any monetary policies and protects them from aggressive financial laws and exuberant banking fees.
- They work on blockchain technology: blockchain often seems complex, but its core concept is simple; it’s a form of database that stores cryptocurrency transactions. Unlike typical databases, blockchain technology stores all information in similar chunks, which are then chained together.
- They are highly popular: there are currently more than 4000 altcoins in existence, but Bitcoin and Ethereum still remain as the most traded cryptocurrency. They are also the most widely used digital coins globally.
- They operate on a proof of work model: since both coins are very popular, they have scaling problems. The large number of users could slow down transactions and increase the transaction fees & cases of fraud.
The proof of work concept requires miners to solve complex mathematical equations using premium computer hardware to verify all transactions. They are then compensated with the coin that they are mining.
What Are the Differences Between Bitcoin and Ethereum?
Even though bitcoin and Ethereum are both decentralized currencies, they are fundamentally different. Some of their key differences include;
- Supply: The supply of bitcoin is limited at 21 million, and there can never be more than that. Currently, more than 18.5 million BTC have been mined, and by 2140, it’s expected that miners will reach this limit. Ethereum, on the other hand, doesn’t have any market limit, but they cap the amount of Ether that can be mined every year. This is done to protect the coin from inflation, which could reduce its value.
- Protocols: both cryptocurrencies run on different protocols whose processes are completely unrelated. This is why there are some transactions that can only be done on the BTC blockchain and not on the Ethereum blockchain. Transactions on the Ethereum network also have executable code sometimes, while those on the Bitcoin network are mainly for recordkeeping.
- Block time: this is the amount of time it takes for transactions to be verified on both networks. Ethereum transactions are verified within seconds, while Bitcoin transactions take up to ten minutes. This is because Bitcoin runs on SHA-256 while Ethreum runs on the ethash algorithm.
- Primary use: despite both coins being digital currencies, the main purpose of Bitcoin is to offer an alternative form of currency. Ethereum, on the other hand, is mainly used to facilitate programmatic contracts.
When Ethereum was launched, it wasn’t originally intended to compete against bitcoin. It was simply a De-Fi platform where traders could execute smart contracts. Due to Ethereum’s popularity, however, the price of Ether, their native coin, was driven up, making it bitcoin’s main competitor.
Will Ethereum Take Over Bitcoin?
There are various factors that contribute to the value of bitcoin and Ethereum, which is why it’s difficult to speculate the future value of both coins. If you’re a HODLer, before you make an investment in either coin, you should look at key aspects such as;
- How much the coin is being used currently.
- It’s the current level of acceptance and where it will be widely accepted in the future.
- Historical data and, specifically, the price patterns.
Traditionally, the price of bitcoin has always been higher than that of Ether, but it is important to note that the cryptocurrency market is highly volatile. This is unlikely to change, which is why the underlying value of a digital coin will mostly remain unclear.
According to the co-founder of Edge & Node (a blockchain software company), Tegan Kline, the value of Ether will likely surpass that of Bitcoin at some point in the future. She, however, encouraged investors to allocate their investment to both coins.
Bitcoin vs Ethereum Prices
The market prices of bitcoin and Ethereum are highly volatile, and even though they vary, BTC has always cost more.
When bitcoin was launched, it wasn’t worth anything, but in 2010, it started trading at $0.0008 to $0.08.
During this time, liquidity was very low, and there were few crypto traders. This resulted in huge price swings due to scenarios such as bans on crypto exchange sites.
For instance, in 2014, one of the earliest exchange sites named Mt. Gox caused a 32% price decline in BTC when they reported a hack in which around 750,000 BTC was stolen. They later filed for bankruptcy.
The highest Bitcoin price reported in 20201 was on 14th January, where one BTC was trading at $40,111. Currently, one bitcoin is $32,795.10.
When Ether was launched, it was trading at $1-$3 within the first month, but after a while, it stabilized at the $1 mark. The highest price ever recorded was in May 2021, where 1 ETH
was trading at $4,141.99, a 7% price increase within 24 hours. Currently, 1 ether is trading at $2,491.55, which is equivalent to 0.076 Bitcoin.
How Are Ethereum and Bitcoin Dealing With Scalability Problems?
Over the years, bitcoin has undergone a couple of hard forks to help with scaling, including an Ethreum fork that was aimed at adding smart contracts to the bitcoin blockchain. These forks were designed to ease transactions by making them faster and cheaper.
Currently, bitcoin has introduced “SegWit”, a system that arranges data to facilitate swift transfers. It also plans on launching the “Lightning Network” to help set up several payment channels on the BTC blockchain.
Ethereum has several planned updates in its pipeline, including “plasma” and “Casper”. Plasma is aimed at processing all the slow contacts behind the scenes and only adding the executed contract on the blockchain to avoid slowing down the network.
Casper will shift Ethereum from a proof-of-work mining system to a newer proof-of-stake model that’s more efficient.
Bitcoin vs Ethereum: Which One Should You Buy?
Since bitcoin is the flagship of all cryptocurrencies, it’s easier to assume that it’s the better buy.
However, it’s important to note that portfolio diversification is the only way to ensure maximum profitability.
Instead of investing in one coin, buy both of them; this way, in periods of price volatility, your investment will still be safe.
Also read: How long does it take to transfer Bitcoin
Warren is the co-founder of CoinCryption. He has a passion for cryptocurrency and has been involved in this space for more than 7 years. His other love is digital marketing and has over 15 years of experience.