Bitcoin and Ethereum are the two cryptocurrencies that have the most market capitalization, but they are fundamentally very different from one another. This distinction is going to become even more pronounced over the next few months as a result of modifications that are going to be made to the Ethereum blockchain. Find out what the difference is between the two cryptocurrencies that are now the most popular, and how it could affect the future prices of each of them.
What Is Bitcoin & Ethereum?
The word “cryptocurrency” refers to the broad category of hundreds of different digital currencies and tokens that make use of cryptographic functions and are linked to blockchain technology. Bitcoin and Ethereum are the two blockchain networks that have the most computing power, and the native cryptocurrencies that are linked with these networks are Bitcoin (BTC-USD) and Ether (ETH-USD), respectively.
Because they are nothing more than a collection of privately owned computers connected together via open-source code, the Bitcoin and Ethereum blockchain networks themselves cannot be held by anybody. Neither Bitcoin nor Ethereum can be owned by anyone. However, anybody is able to acquire Bitcoin or Ether and use it as a possible investment.
- BTC is a unique kind of cryptographic digital currency that is connected to the Bitcoin blockchain network.
- ETH is the principal kind of transactional cryptocurrency used in connection with the Ethereum blockchain.
Note that the Ethereum network supports the use of a wide variety of tokens, each of which may be used for a specific purpose. Although there are hundreds of other tokens, Ether (ETH) is the primary one that may be used on the Ethereum network.
Bitcoin & Ethereum Blockchain Networks
The blockchain networks that Bitcoin and Ethereum use to operate have distinct functions, and so do the currencies and tokens that run on those networks.
- The Bitcoin blockchain network was supposed to symbolize an alternative decentralized monetary system, working independently from the main currencies that are created and controlled by central governments all over the globe.
- The Ethereum blockchain was developed with the intention of utilizing blockchain technology for a variety of decentralized finance (DeFi) applications for Web 3.0. Some of these applications include facilitating transactions for non-fungible tokens (NFTs), playing interactive games, implementing “smart contracts,” and a great deal more.
BTC vs. ETH Crypto Coins
Both Bitcoin and Ethereum are peer-to-peer, decentralized cryptocurrencies that run on open-source distributed ledger (blockchain) technology. The procedure of buying Bitcoin or Ethereum on a major cryptocurrency exchange is quite similar. The two cryptocurrencies, however, serve quite distinct functions and have very different valuations. One technique to differentiate between them is similar to how one might differentiate between the stocks of two firms operating in separate sectors and trading on the same major stock market.
Differences Between Bitcoin (BTC) & Ethereum (ETH)
The following table illustrates some of the specific ways in which ETH and BTC vary from one another:
|Bitcoin (BTC)||Ether (ETH)|
|Price||$30,708.49 as of 5/30/22||$1928.90 as of 5/30/22|
|Purpose||Serves as an electronic medium of exchange to replace global fiat currencies||Facilitates a host of decentralized finance (DeFi) applications|
|Validation protocol||Proof-of-Work (PoW)||Proof-of-Work (PoW) (but plans to transition to Proof-of-Stake (PoS) in 2022 as Ethereum 2.0)|
|Network||Bitcoin blockchain||Ethereum blockchain|
|Energy Efficiency||Very high energy usage||Modest energy usage (half that of BTC) and set to drop further|
|Speed||10 minutes to verify and update a single block||10-20 seconds to verify and update a single block|
|Competitors||Ripple, Litecoin, Bittron Labs, and others||Solana, Avalanche, Cardano, Binance Smart chain, and others|
On any of the main cryptocurrency exchanges, you may buy Bitcoin (BTC) and Ethereum (ETH) using US Dollars. Although the prices and costs associated with trading may be somewhat different across exchanges, you will still be purchasing or selling the same cryptocurrency coin or token.
Bitcoin ((BTC)) vs. Ethereum (ETH) Price Volatility
When compared to equities, Bitcoin and Ethereum (ETH) are both very volatile, although Ethereum’s volatility is somewhat higher than Bitcoin’s. According to research published by Morgan Stanley in February 2022, the price of ETH has been around thirty percent more volatile than that of BTC since 2018. The increased concentration of ETH among its holders is likely to blame for the increased degree of price volatility.
Buying & Selling BTC & ETH
Therefore, acquiring Bitcoin or Ethereum via a broker-dealer is quite similar to purchasing equities; nevertheless, there are certain key distinctions that should be taken into consideration.
- You have the option of letting the cryptocurrency exchange keep it in safekeeping for you, or you may keep it in a “wallet” that you create on your own personal computer. (If you choose to keep them at the exchange, you will not be guaranteed protection against the possibility that they may be hacked or stolen, and you may not be able to retrieve them if the exchange goes out of business.)
- You will not have access to the wide variety of order types, such as limit orders, that you would have when trading equities in this market.
- The SEC does not currently regulate cryptocurrency exchanges.
Forbes Magazine published their rankings of the best cryptocurrency exchanges in May 2022, and they were as follows:
|Exchange||Rating (out of 5)|
Investing in Ethereum vs. Bitcoin
Speculative bets in the creation, use, and widespread acceptance of blockchain technology are what each cryptocurrency ultimately amounts to. Because cryptocurrencies do not yet generate predictable income, produce a product that can be sold, or serve as property that can necessarily be expected to appreciate in value, the investment merits of any individual cryptocurrency cannot be determined using the standard metrics that are applied to equity investments. This is because of the metrics used to evaluate the merits of equity investments.
There is widespread and rising adoption of blockchain technology for a wide variety of applications; but, the eventual value of any particular cryptocurrency or token cannot yet be defined with certainty. To this point, the value of both BTC and ETH has been entirely derived from conjecture about the opportunities that may or may not present themselves in the future. These opportunities are not yet completely defined.
Consequently, investors may regard any of these two cryptocurrencies as a possible store of wealth with the awareness that the value will be very volatile over time as a result of the general public regularly reevaluating the possibilities of this new technology.
The efficiency of Ethereum vs. Bitcoin
The generation of cryptocurrencies via a Proof-of-Work protocol demands a significant amount of computer power, which, in turn, requires a significant quantity of electrical power. Because of this, the ‘efficiency’ of a cryptocurrency is directly proportional to the amount of power used for both its production and its use.
Ethereum (ETH) is noticeably more productively used than Bitcoin (BTC) in this respect. According to Statista, Bitcoin requires 177.43 terawatt-hours (TWh) of power per year, whereas Ethereum uses just 79.69 TWh. When Ethereum makes the switch to a Proof-of-Stake crypto-token, its energy usage will decrease at a rate that is substantially more significant than that of Bitcoin.
Technical & Transaction Differences
Because Ethereum can execute transactions at a far quicker rate than Bitcoin can, Ethereum’s energy efficiency is also lower than Bitcoin’s. Individuals face only a minor obstacle because the vast majority of them do not use Bitcoin for transactional purposes but rather hold it as an investment. This is because institutions and payment vendors that handle large-scale transaction volumes in Bitcoin face a significant challenge due to this issue.
The fact that various cryptocurrencies represent different kinds of transactions and may even be vendor-specific presents the most significant challenge for customers on an individual level. Home Depot, Starbucks, Whole Foods, and GameStop are just a few examples of retailers that have announced their support for the digital currency Bitcoin. On the other hand, if you want to buy an NFT or buy certain add-ons to online games, you will need ETH to do so. You cannot buy these things using fiat currency.
Similarities between Bitcoin & Ethereum
Both bitcoin and ether are digital constructs that are founded on cryptographic technology and serve as the principal currency or token for blockchain networks that are already well-established. Both may be bought and sold on a variety of cryptocurrency exchanges. They are, by a significant extent, the most popularly held cryptocurrencies out of the many that are now accessible.
Since 2018, the two cryptocurrencies have traded with price correlations ranging from 60 to 90%, which suggests that many people view them as being sufficiently similar in nature to be valued in similar ways as well. This is despite the fact that they were designed for uses that are distinct from one another. Both Bitcoin and Ethereum are examples of investment proxies for the new era of decentralized financial apps and digital currencies that make use of blockchain technology.
Advantages of Bitcoin over Ether (Ethereum)
Because Bitcoin and Ethereum were developed to serve distinct functions, it is difficult to determine which cryptocurrency is superior to the other in terms of how it may be put to use. When compared to ETH, Bitcoin possesses a number of fundamental benefits that investors will find appealing.
- Greater market capitalization: The market value of BTC is much higher than that of ETH (about $585 billion against $232 billion as of 5/30/22) due to BTC’s long history of use and better success.
- Institutionally accepted: A rising number of organizations and other types of institutional investors now own BTC in their portfolios.
- Can be used as a medium of exchange: BTC has been recognized as a form of legal cash in countries such as El Salvador, making it possible to make direct purchases of products and services in a number of different nations using cryptocurrency.
Advantages of Ether over Bitcoin
Compared to Bitcoin, Ethereum has the following advantages:
- Lower energy footprint: ETH has a substantially lower energy need compared to BTC, and it is possible that this may decrease even more after the planned update is implemented.
- Wider potential applications: The Ethereum platform was developed to support the usage of smart contracts, which have the potential to be used in many different sectors.
- Not a threat to central banks: Unlike bitcoin, which might be seen as a challenge to the power of central banks, ether is not.
- Transaction efficiencies: When compared to BTC, Ethereum is superior in terms of the number of transactions that it can process in a single second.
Ethereum vs. Bitcoin: Which Is Better?
It is essential to keep in mind while discussing the two cryptocurrencies that they are not in any way direct competitors, and it is quite possible that their destinies will develop independently of one another. It is not impossible for either one or both of these things to end up being an enormous success or a total failure in the long term. BTC and ETH are the leading choices for investors who want to own cryptocurrencies and are readily available on major crypto exchanges. However, the choice between them will likely come down to the investor’s view of the opportunity for a decentralized global digital currency (BTC) versus the need for a platform of decentralized applications that make use of digital smart contracts. If an investor wants to own a cryptocurrency, BTC and ETH are the leading choices and are readily available on major crypto exchanges (ETH).