Bitcoin vs Ethereum: Which is better to buy?
The two largest cryptocurrencies have their own unique advantages.
Bitcoin (BTC) and Ether (ETH), Ethereum blockchain's original cryptocurrency, are the two most popular currencies in the encryption landscape. With a market value of about $440 billion, BTC, even with a 50% decline through July 27, trades at about $23,000 with a typical 24-hour volume of tens of billions of dollars. On the other hand, ETH's market value is about $200 billion. It trades for more than $1,600, with a typical 24-hour trading volume also worth tens of billions of dollars.
The supply of circulated coins affects these numbers as well. ETH has 121.7 million coins in circulation, while BTC has only 19.1 million. In general, low supply can lead to higher prices.
For many investors, the question remains: What is the best purchase, Bitcoin or Ethereum? "In some ways, they are similar in that they have this kind of currency advantage for them," says Brian Rutledge, associate professor of finance at Carnegie Mellon University's Tepper School of Business. But the main difference between Bitcoin and Ethereum is their respective use status. Simply put, Bitcoin is often known as a value store, and Ethereum supports smart contracts and secure financial transactions.
Investors interested in cryptocurrencies and want to own Bitcoin or Ethereum may benefit from cleaning the basics, such as:
- What is Bitcoin?
- What is Ethereum?
- What are the differences between Bitcoin and Ethereum?
- Ethereum "merger" and what it means to investors.
- Bitcoin vs Ethereum: the bottom line.
What is Bitcoin?
Investors can think of Bitcoin as "either a value store like gold or as a non-sovereign currency you can use to pay," says Matt Hogan, chief investment officer at Crypto ETF and provider of the Bitwise Asset Management index fund. This means that "when you buy Bitcoin, you buy cash assets," he says.
In other words, Bitcoin is primarily an alternative form of money, according to Thomas Pervomo, head of operations and business strategy at Kraken. It derives value from "an incredibly thoughtful approach to decentralization and security through mining to demonstrate action", he says.
Proof of business is an important concept for cryptocurrency investors to understand. "What's important about decentralized blockchain is that one person doesn't add all the blocks," Rutledge explains. Individual work will lead to a centralized financial system, such as a bank or government. In decentralized finance or Defi, a variety of people add those different blocks, making the market competitive. "It's like a lottery," Rutledge says. "Everyone proposes a block; We choose one randomly approximately every 10 periods, adding a new block. "For Bitcoin," Proof of action runs this lottery, "he says.
This proof-of-work system is designed to make Bitcoin a "better tool for the money," says Mauricio de Bartolomeo, chief strategy officer and co-founder of crypto lender Ledn Inc. for the system to work smoothly, the bitcoin protocol must be very stable, strong, and predictable, because this is what is expected of a cash tool, he says.
What is Ethereum?
Ethereum, on the other hand, aims to "act as a decentralized global computer," allowing the implementation of decentralized applications and alternative forms of utility, "says Perfumo. Simply put, Ethereum is like iOS or Android, a platform that developers use to build apps, says Merav Ozair, a blockchain expert and professor of fintech at Rutgers Business School.
De Bartolomeo says what this means in the real world is that Etherium is not "trying to be just money." Instead, the protocol tries to be the world's cloud computing, he says. Developers can do a lot with the Ethereum platform, build self-executing contracts, Defi protocols, and even stablecoins, and non-replaceable codes, or NFTs.
Ethereum performed well during the recent bull market cycle for cryptocurrencies precisely because many things built on the platform thrived: NFTs, Defi, and stablecoins, says Roughan. Ozier adds that Ethereum can evolve into a decentralized operating system on which anyone who understands the protocol can build.
Routledge makes a comparison between Ethereum and Apple Inc. (AAPL) invented iPhone. When the iPhone was launched in 2007, no one could have predicted that it would disrupt the taxi industry. Just two years after the first iPhone reached the shelves, Uber Technologies Inc. (UBER) has begun to change the world of transportation through its transportation service applications. Routledge believes Ethereum has the same potential to disrupt industries as we know them: nobody knows all the applications that can end up built on the platform.
What are the differences between bitcoin and Ethereum?
The facilities of the two cryptocurrencies are determined by the problems they are trying to solve. Rutledge says he likes to think of bitcoin as digital gold. He says, "It's not useful in essence, but it seems to have value" and is an alternative to the current financial situation. He says Ethereum is like having a barrel of oil. "It is not just a hedge against petrol prices; It is also useful in that you can refine it. "In this way, Ethereum has an additional use status: service development on the Ethereum network.
One important thing to consider about Bitcoin's current appeal, regardless of being the world's first cryptocurrency, "is that its formative years coincided with two historical economic crises," says Adam Sze, head of digital assets at ETF Global X. "These crises highlighted two of the biggest problems with the traditional financial ecosystem: Mistrust and intervention Bitcoin solves these problems by being a decentralized network that allows participants to exchange value globally without a management body or financial broker, says Sze. Not to mention all that is required to participate in Internet connectivity.
Ethereum and what it means to investors
"Integration" is how Ethereum will move from a proof-of-work platform to a proof-of-bet platform. The end of the first phase of this transition is finally scheduled for September 2022.
Moving to proof of share means that instead of using computing power to finish the blockchain, developers must have a certain amount of Ether currency until their block is approved. "Proof of business has been successful and has launched bitcoin, but now that the crypto industry is billions of dollars, it must do better," Rutledge says.
Investors should remember that moving from one old system to another is a difficult transition, and Ozier expects some hiccups along the way. "We hope that nothing will cost people a lot of money," she says, but the truth is that no one can be sure about it.
De Bartolomeo says the merger will happen in stages because it will be like trying to "fix a mid-flight plane engine." Instead of turning off the first engine, Ethereum starts the second engine first, in order to keep the height, he says.
"The market takes into account the fact that integration will happen," Hogan says. Three things will happen, he says: Merger will reduce the amount of new ether produced each year by about 70% to 75%, reduce carbon ethidium emissions by 99% or more, and encryption will become more attractive to investors who are sensitive to environmental, social and governance factors, or ESG. He believes the market may "see the flow of institutional funds to ETH as a result." Hogan estimates that investors can earn "up to 8% to 12% return" on ETH after the merger occurs.