Bitcoin and Ethereum are currently the two top cryptocurrencies in the world. So what are the differences between them? Which one can bring more profits?
Bitcoin (BTC) and Ethereum (ETH) are two cryptocurrencies with the largest market cap in the world. Based on the statistics at the time of the writing, Bitcoin's market cap is $1.06b while Ethereum's is $234.8m. Unsurprisingly, many people often referred the two as the Coke and Pepsi of crypto. So it's only natural to compare them and wonder about which one is better to invest in.
However, unlike Coke and Pepsi, you'll find that these two cryptocurrencies have more differences than similarities, and both actually serve different purposes. It might be more accurate to make a Coke Vs Coffee comparison when it comes to ETH vs Bitcoin.
Knowing the differences between Bitcoin and Ethereum will show you how far the technological advancement has gone and how it has high potential to shape the future of our daily lives. So which one is better: ETH or Bitcoin? Let's get into it and see what makes the two cryptos similar, different, and ultimately great.
The Basics of Bitcoin
Bitcoin is a cryptocurrency that was first launched in 2009 by a mysterious founder who calls himself Satoshi Nakamoto. Bitcoin offers a new form of digital currency that can operate securely without any central authority, unlike government-issued currencies that we usually use. Although Bitcoin was not the first online currency of this type, it certainly is the most successful. It has often been seen as the predecessor to almost every newer cryptocurrency developed over the last decade.
See Also: What is Bitcoin and Why Should You Care?
Over the years, the concept of virtual currency has gained attention and acceptance from many layers of society. Although it hasn't been formally recognized as a medium or a store of value, Bitcoin has paved its way to enter the global financial world and coexist with the current system despite being regularly debated.
Essentially, the main purpose of Bitcoin is to become a viable alternative to traditional fiat currencies backed by governments. It is primarily used as a store of value and a medium of exchange. It aims to fix the problems in global finance and is often referred to as the "bank of the people". The decentralized system that Bitcoin introduces does not need a third party such as a bank to operate, so it is considered to be safer than the regular fiat currency transactions. Each transaction with Bitcoin usually takes minutes to process.
The Basics of Ethereum
Ethereum was released in 2015 as an upgrade to some weaknesses found in Bitcoin. It uses more advanced technology and can provide new opportunities for many people. It is vital to note that Ethereum is not a cryptocurrency, but Ether (ETH) is. Instead, Ethereum is best seen as a programming language and a decentralized software platform. Ether –the native currency of the platform– works as the "fuel" that is used to power the system.
By using Blockchain technology, Ethereum created applications that go beyond just enabling digital currency. Many refer to this technology as "Blockchain 2.0". Ethereum comes with its own programming language called Solidity, and it is used to build smart contact apps called d-Apps. These smart contracts are the core of Ethereum because they program all transactions on the platform.
Instead of making a regular transaction, you can set specific conditions that will trigger a transaction. You can imagine it like buying a house.
Typically, such transaction requires a third party, like a lawyer and a broker. But with a smart contract, the ownership of the house will be sent automatically once the condition is met. So after the buyer transfers the payment and the transaction gets verified, he will immediately receive the ownership of the house. Such situation can also be applied to various other scenarios, namely car dealerships, email systems, salaries, banking systems, e-commerce, etc.
With such power that this new technology holds, it can definitely change many things. More than just being a cryptocurrency, Ethereum offers a wider network of operations and opportunities. Also, because it is based on Blockchain technology, developers can create applications that are always online and cannot be edited or modified by third parties. Each transaction in Ethereum usually takes seconds to process.
Similarities between Bitcoin and Ethereum
Ethereum and Bitcoin are quite similar in several ways. First and foremost, Ethereum is similar to Bitcoin in the sense that both can be used as digital currencies that can be traded via online exchanges and stored in cryptocurrency wallets.
Another similarity is that both of these tokens use Blockchain technology and are decentralized, which means that there is no main authority that regulates or controls the transaction flow. They use the proof-of-work consensus, allowing every transaction to be verified and confirmed by a network-wide consensus of nodes.
The advantage of using a decentralized system is it's harder for hackers to attack because the network is built by a collection of computers instead of just one central control. As a result, this system makes the transactions more secure. However, it is worth mentioning that the absence of a central point also means that there is no one to complain to if you lose money. That is why it is crucial to store your cryptos in a safe and reliable wallet.
ETH Vs Bitcoin: The Key Differences
- The Purpose
The most obvious point that separates Ethereum and Bitcoin lies in the aim of each token. Bitcoin was created as an alternative to fiat currency and provides a way for people to anonymously transfer money without being interfered by third parties. In other words, you can think of it as "digital money".
In comparison, Ethereum also provides a way to transfer money to someone, but only under certain conditions. So even though Ether can be used as a digital currency, it is not its primary purpose. The platform was essentially built to send tokens that represent values. These values are not limited to money but also other things, so it is different than Bitcoin. Therefore, the term "smart contract" is more accurate to describe Ethereum.
- The Currencies
Bitcoin fully serves as digital money that can be used in many financial transactions from one user to another. On the other hand, Ether works more as gas or fuel that power the transactions on the Ethereum platform. So Ether can be used in various situations, not only for financial purposes.
- The Transactions
While Bitcoin can only transfer money from one user to another, Ethereum can facilitate other types of transactions under certain conditions. In other words, transactions via Bitcoin must be done manually, whereas in Ethereum, transactions are programmable and automatic.
A transaction in Bitcoin typically looks like this:
Jace sends 15 BTC to George.
On the other hand, a smart contract transaction in Ethereum would look like this:
Send 15 ETH from Jace to George if Jace's balance is 20 ETH and the date is 05.05.2021.
- Transaction Time
By using newer technology, Ethereum can process a transaction in just a matter of seconds, whereas a transaction in Bitcoin usually takes minutes to process.
- The Coin Supply
The number of coins in Bitcoin is actually limited to 21,000,000 coins only. It aims to create supply and demand, which is useful for a store of value. This also resulted in coin scarcity, which then can affect the dynamics of the market. For this reason, many investors consider Bitcoin as the digital gold. Still, there will be no new discovery in Bitcoin unlike in the precious metal. Nearly 90% of Bitcoin, or 18.6 million, have already been mined by 2021.
In contrast, Ethereum is not limited. Even so, it will slow down in a couple of years. The founder of Ethereum, Vitalik Buterin, said that the total number of coins will not reach more than 100,000,000 ETH in the foreseeable future.
Which One is Better?
After figuring out the basics of each concept, now is time to determine which one is better and more profitable. The first thing that you need to remember is that both have different goals and purposes. Bitcoin is a store of value and Ethereum is a decentralized platform with its own programming language. So technically, it is not exactly comparable as both ideas are vital to the future of global finance, as well as other aspects in our daily lives.
That being said, Ethereum may also not be the best Bitcoin alternative because it wasn't their primary intention in the first place. In fact, there are other cryptocurrencies that have the same purpose as Bitcoin and run on newer technology and protocols. Therefore, it would make more sense if Ethereum runs alongside Bitcoin as it pursues different objectives at hand.
All in all, it all comes back to your own purpose and preference. Bitcoin is considered more stable because of its popularity and scarcity. Many large investors and corporates have started to enter the Bitcoin market in recent years, making things even more interesting. Also, its high position in the market makes it easier to find and use it anywhere as almost every top exchanges offer Bitcoin as its primary cryptocurrency.
But if you're looking for a more sophisticated technology with bigger potential, Ethereum might be the better deal. Ethereum's smart contracts can be used not only in financial transactions but many other things that you can use Bitcoin for. Other than that, the transaction fees are relatively cheaper and the block time speed is faster.
As for the price movement, Bitcoin and ETH actually run in the same trend for most of the time. That is because as the one-top coin, Bitcoin still represents the cryptocurrency market itself while ETH and the other altcoins tend to follow the market sentiment. Unless there is specific news related to Ethereum's platform and development, ETH's price fluctuation is not that different from Bitcoin's.
To find out which one is more profitable, you can measure it from the volatility. The coin with the bigger price movement tends to give higher returns but also higher risks. You can check the volatility with the help of technical tools such as the Average True Range and Bollinger Bands. As a precaution, prepare yourself with better risk management as volatile cryptos are more exposed to higher risks. It's also recommended to get used to crypto trading in a demo account platform first before executing your trades in a real account.