Bitcoin or Ethereum? Which Way for An Investor?

Bitcoin and Ether are the most popular cryptocurrencies in terms of market cap and price. For instance, currently, the market cap of Bitcoin and Ether are $402 billion and $208 billion respectively. In terms of price, their values are $21,003.95 and $1703.75 respectively.

Many traders across the world are asking themselves which cryptocurrency they should invest in. However, the main difference that exists between the two is their usage. While most people use Bitcoin as a store of value, Ethereum secures financial transactions and supports smart contracts.

What is Bitcoin?

Bitcoin was the first crypto to be launched in 2008. However, it commenced to mine coins in 2009. Since its launch, Bitcoin has grown and achieved its aim of being an electronic cash system. This concept resulted in the development of the Bitcoin blockchain in 2008 in a white paper written by Satoshi Nakamoto, its pseudonymous creator.

Bitcoin has been helpful to consumers as it enables them to have control of their money. Consumers do not have to rely on the government or any other central authority. Rather, it relies on the users’ decentralized network which agrees to some set of rules and Bitcoin blockchain software.

Bitcoin was the first crypto in the world to use blockchain which is a kind of decentralized ledger technology. Also, it uses the Proof of Work (PoW) technique in solving Byzantine Generals Problem. Miners do solve the challenges. Each node also makes an effort of verifying transactions identical to general communications. It just works as a lottery.

Furthermore, the Bitcoin blockchain is open to the public. It also stores the history of each transaction made. However, the identity of the traders is not revealed to the general public. The general public does not have to know about the different crypto traders. Also, In avoiding tampering with the transactions, the Bitcoin blockchain is dispersed across different nodes.

The aim of creating Bitcoin was to act as a response to the manipulation of government money. Basically, it works towards serving as an alternative for traditional government currencies. The reason is that because of its decentralization.

What is Ethereum?

Ethereum is a distributed blockchain network. It is backed by its own crypto called Ether (ETH). The aim of creating Ethereum was to be a global open-source platform for new types of economic applications and custom assets. Ethereum’s currency is utilized in making transactions as well as interacting with Ethereum-based applications.

Furthermore, smart contracts enhance the development of decentralized applications that operate without a central authority.

Ethereum also has its own programming language. It helps in developing contracts operating on the blockchain. Furthermore, Ethereum is the most well-established and largest open-ended decentralized platform.

As I said earlier, Ethereum’s currency is Ether. It mainly performs two roles. One of the roles is being traded as a digital currency just like Bitcoin. The other role that it performs is making payments, collateral, and storing value.

The Main Differences Between Ethereum and Bitcoin

Bitcoin was introduced in 2008 while Ethereum was introduced in 2015. Currently, both Bitcoin and Ethereum use Proof of Work as a consensus mechanism. However, Ethereum is working towards transitioning to Proof of Stake. There are some important differences that exist between Ethereum and Bitcoin. Some of the top differences include functions, level of supply, features, mining, and environmental impact.

Level of Supply

Currently, the circulating supply of Bitcoin is 19,146,375 BTC. On the other hand, Ethereum’s supply is 122,310,644 ETH. Bitcoin has a low supply since Satoshi Nakamoto said that its limited supply is 21 million. That is the amount that Bitcoin allows traders to mint. The aim of the limitation is to promote its scarcity as well as hold its value. After achieving the limit, traders will find other ways of earning through Bitcoin apart from mining such as transaction fees.

Ethereum does not have a limit on the amount that it supplies. However, the yearly supply is usually capped. Although one of the founders in the past hinted about having an overall limit, Ether burning controls its supply.

Special Feature

The first digital currency is Bitcoin. However, it somehow resembles digital gold. The reason is that it is mined electronically. Also, the mining process happens  by expending electricity and computing resources in mining new coins. Besides, just like a precious metal, it has a limited supply.

On the other hand, Ethereum considers itself the main blockchain platform supporting the development of its own as well as other blockchain projects. Some of the tokens use Ethereum as their blockchain. It is different from Bitcoin which just supports one currency. Ethereum utilizes smart contracts including Ether and others.

Environmental Impact and Mining

The two cryptos use PoW. It means that traders can run programs on their computers, which helps in verifying transaction integrity as well as preventing fraud. On the other hand, mining helps the participants to get crypto rewards in exchange.

The mining process requires a lot of energy. This issue has resulted in crypto criticism.  For instance, Bitcoin mining uses more electricity compared to some nations. It creates about 40 billion pounds of carbon emissions in the United States. Because of this, a state like New York passed a bill to ban crypto mining for two years in June 2022.

It is PoW’s environmental impact that is making Ethereum shift towards implementing Proof of Stake. PoS does not require mining. Rather, the process used is staking. It entails putting crypto at stake in vouching transaction accuracy. Therefore, with this introduction, Ethereum will be more energy efficient compared to Bitcoin.

PoS needs the validators to stake their crypto holding. The main reason for this is validating transactions as well as adding blocks in the blockchain. If you stake more cryptos, then you have a higher chance of being chosen to validate a block of transactions. This helps you to earn a similar amount of crypto. However, if you approve the wrong transactions, you can be penalized. While PoS highly works in favor of people with more money, it protects investors against adding fraudulent transactions or records in the blockchain.