Bitcoin vs. Ethereum: Which One Should You Invest In?

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Investing in cryptocurrency is a hot topic these days, as more and more people are looking for ways to diversify their portfolio and take advantage of the potential returns that this new asset class can offer. However, with hundreds of cryptocurrencies available in the market, it can be hard to decide which one to invest in. Two of the most popular and well-established cryptocurrencies are Bitcoin and Ethereum, but they have different features, advantages, and risks that investors should be aware of. In this article, we will compare Bitcoin and Ethereum and help you decide which one is the better investment for you.

What is Bitcoin?

Bitcoin is the first and most famous cryptocurrency, created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. Bitcoin is a decentralized digital currency that can be transferred on a peer-to-peer network without the need for any central authority, unlike government-issued currencies. There are no physical bitcoins, only balances associated with a cryptographically secured public ledger. All the transactions are stored in this immutable distributed ledger, called the blockchain, which is maintained by a network of nodes (computers) that validate and record transactions. Bitcoin is created, stored, transacted, and distributed using a decentralized, distributed system known as Blockchain1.

Bitcoin has a limited supply of 21 million coins, which means that there will never be more than that amount of bitcoins in existence. This makes Bitcoin scarce and deflationary, as opposed to fiat currencies that can be inflated by central banks. Bitcoin’s supply is controlled by an algorithm that releases new bitcoins into circulation through a process called mining, where nodes compete to solve complex mathematical problems and earn rewards in bitcoins. The difficulty of these problems adjusts every 2016 blocks (approximately every two weeks) to ensure that the average time between blocks is 10 minutes. As of November 2021, there are about 19.5 million bitcoins in circulation2, and the last bitcoin is expected to be mined around the year 21403.

What is Ethereum?

Ethereum is a blockchain-based distributed platform that was launched in 2015 by programmer Vitalik Buterin. Ethereum is not just a cryptocurrency, but also a platform that enables building and deploying smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from a third party4. Smart contracts are computer codes that are stored on the blockchain and executed when the predetermined terms and conditions are met. Decentralized applications are applications that run on the blockchain and use smart contracts to perform various functions, such as lending, gaming, voting, etc.

Ethereum’s native cryptocurrency is called ether (ETH), which is used to pay for transactions fees (called gas) and computational services on the network. Ether can also be traded on various exchanges like any other cryptocurrency. Unlike Bitcoin, Ethereum does not have a fixed supply limit, but rather has an annual issuance rate that depends on various factors, such as network activity and demand. As of November 2021, there are about 120 million ether in circulation5, and the annual issuance rate is around 4%6.

Ethereum is currently undergoing a major upgrade called Ethereum 2.0, which aims to improve the scalability, security, and efficiency of the network by transitioning from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism. PoW requires nodes to use computational power to solve mathematical problems and validate transactions, while PoS requires nodes to stake their ether to participate in the consensus process and earn rewards. PoS is expected to reduce energy consumption, increase transaction speed, and lower transaction fees on Ethereum7Ethereum 2.0 is being implemented in phases over several years, with the first phase (called the Beacon Chain) launched in December 20208.

Bitcoin vs. Ethereum: Comparison

Bitcoin and Ethereum have many similarities but also some significant differences that make them suitable for different purposes and investors. Here are some of the main aspects to compare:

Bitcoin vs. Ethereum: Which One Should You Invest In?

There is no definitive answer to this question, as different investors have different goals, preferences, and risk profiles. However, here are some general guidelines to help you decide which one is the better investment for you:

  • If you are looking for a simple and straightforward way to invest in cryptocurrency, Bitcoin may be a better choice for you. Bitcoin is more widely accepted and recognized as a digital currency and a store of value than Ethereum. Bitcoin has a simpler and more stable protocol than Ethereum, which makes it easier to understand and use. Bitcoin also has a longer history and a larger network effect than Ethereum, which gives it more credibility and resilience.
  • If you are looking for a more versatile and innovative way to invest in cryptocurrency, Ethereum may be a better choice for you. Ethereum is more than just a currency; it is also a platform that enables building and deploying various smart contracts and dApps that can offer various benefits and opportunities for investors. Ethereum has a more flexible and dynamic protocol than Bitcoin, which allows it to adapt and evolve faster than Bitcoin. Ethereum also has more potential for growth than Bitcoin, as it supports various use cases and sectors that can increase its demand and value.