Ethereum and Bitcoin are the two largest cryptocurrencies today by market capitalization. As such, they are also often the first cryptocurrencies new investors choose when starting to build their cryptocurrency portfolios. But even though Ethereum and Bitcoin are often mentioned in the same breath, there are many fundamental differences between the two cryptocurrencies that could make one a better investment than the other, depending on how the cryptocurrency market evolves in the future.
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What Is Ethereum?
As described on its official website, “Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.”
Ethereum was released in 2015, after a successful online crowdsale that took place between July and August 2014. Ethereum’s cryptocurrency token is called ether, and it’s traded on cryptocurrency exchanges under the ticker symbol “ETH.”
Apart from ether, Ethereum also has gas, which is an internal transaction pricing mechanism for every operation made on the Ethereum platform. The price of gas is expressed in ether and varies depending on the market fluctuations, but every operation costs a set amount of gas. This is done to decouple the cost of operations on the Ethereum platform from the market price of ether, which ensures that smart contracts, the main selling point of Ethereum, always cost a predictable amount of money to execute.
In “Smart Contracts: 12 Use Cases for Business & Beyond,” the Chamber of Digital Commerce explains how smart contracts could:
- Enable individuals to own and control their digital identity.
- Digitize uniform commercial code (UCC) filing and automate their renewal and release processes.
- Simplify capitalization table management.
- Facilitate streamlined international transfers of goods through a faster letter of credit and trade payment initiation.
- Streamline post-trade processes when processing derivatives.
- Enable accurate and transparent recording of financial data.
- Automate the otherwise confusing and manual process behind a mortgage contract.
- Facilitating property transfers.
- Provide visibility at every step of a supply chain.
- Enable internet of things-equipped vehicles to execute initial claims shortly after an accident.
- Improve data sharing between institutions.
- Facilitate the sharing of cancer data throughout a cancer research consortium.
The Enterprise Ethereum Alliance, an organization that connects Fortune 500 enterprises, startups, academics, and technology vendors with Ethereum subject matter experts, now has over 200 members, who “learn from and build upon the only smart contract supporting blockchain currently running in real-world production—Ethereum—to define enterprise-grade software capable of handling the most complex, highly demanding applications at the speed of business.”
Because of its support for smart contracts and massive support from some of the largest companies in the world across many sectors, some expect the Ethereum platform and the smart contracts running on it to change the world and eliminate intermediaries across many sectors. If this would become a reality, Ethereum’s value would surely skyrocket.
What Is Bitcoin?
Bitcoin differs from Ethereum because its primary purpose is to serve as a worldwide payment system and store of value. An unknown person or group of people under the name Satoshi Nakamoto invented Bitcoin in 2009 and forever changed the world with the release of the “Bitcoin: A Peer-to-Peer Electronic Cash System” whitepaper.
Even though Bitcoin wasn’t the first cryptographic currency in the world, it was the first cryptographic currency to record transactions in a public distributed ledger called a blockchain, which is a chain of blocks of transactions cryptographically linked together to ensure their immutability.
Thanks to the invention of the blockchain, Bitcoin solved the double spending problem, a potential flaw in a digital cash scheme in which the same single digital token can be spent more than once, without the need for a trusted authority or central server.
Today, Bitcoin is used by millions of users around the world to send money across borders, to purchase goods and services from countless brick-and-mortar and online stores that accept it, and to make a profit on its growing value.
The technology behind Bitcoin, blockchain, is expected to do for trusted transactions what the Internet did for communications. In 2024, experts predict that the global blockchain market will be worth around $20 billion, and most today’s tech giants such as IBM and Microsoft have already dedicated millions of dollars to various blockchain-powered projects.
In the “Global Blockchain Benchmarking Study” published by the Cambridge Center for Alternative Finance, Dr. Garrick Hileman and Michel Rauchs list 48 use cases for blockchain technology, including tax filing, digital manufacturing, authentication, logistics, mortgages, supply chain management, asset transfer, land registry, tracking of car fleets, shareholder voting, and retail purchases, just to name a few.
Despite the fact that there are now around 1,500 different cryptocurrencies, Bitcoin has established itself as the original cryptocurrency that has started it all, and many people are convinced that it’s the only one that will remain relevant in the long-term. Even if Bitcoin doesn’t live up to its original goal of being a worldwide payment system, the technology behind it has use cases across virtually all sectors.
Should I Invest in Ethereum or Bitcoin?
Both Ethereum and Bitcoin have the potential to disrupt many industries and change the world as we know it. Bitcoin currently has twice the market capitalization of Ethereum, and its price is more than ten times as high. But in the world of cryptocurrencies, prices seldom stay the same for long, which is clear from Ethereum’s and Bitcoin’s price graphs.
When deciding whether to invest in Ethereum or Bitcoin, you should first read as much as you can about both of these influential and often talked-about cryptocurrencies. Start with the official whitepaper (Bitcoin whitepaper, Ethereum whitepaper) and continue with official blog posts and announcements. The community is an important part of any cryptocurrency, which is why you should visit the relevant subreddits and learn what are the most trending topics at the moment.
There’s a good chance that one of the two cryptocurrencies will resonate with you more than the other, and you might be tempted to invest everything you have in it. But, as any seasoned crypto investor would surely tell you, diversification is the key to long-term success. Instead of putting all your eggs in just one basket, why not invest in both Ethereum and Bitcoin to achieve more consistent returns over time and reduce your overall investment risk?
After you make your initial investment, you can continuously keep redistributing your cryptographic assets to respond to market changes, news announcements, and technological developments. While it may not be possible right now to tell which of the two cryptocurrencies will be worth more by the end of the year, let alone long-term, it’s always better to secure a solid investment position before everyone else learns about the opportunity.