The question on a lot of peoples’ minds later is which is a better investment, Bitcoin or Ethereum? It’s a complicated issue and each has a particular draw for investors. Bitcoin is the cryptocurrency in the mainstream spotlight. Ethereum has technology updates that make it faster and cheaper. So which is better?
Bitcoin, because of its popularity and age, has become a sort of fiat currency for cryptos. Many long term crypto investors trade other altcoins against the Bitcoin price. Instead of using something like US dollars, or the Euro, Bitcoin has become the monetary unit of the crypto world. Day traders count their trade profits in Satoshis, the smaller piece of a Bitcoin. When the market begins to drop, people will move their investments into Bitcoin and drop it into a wallet and hold it until things turn around.
When Bitcoin drops, many other cryptocurrencies drop. When Bitcoin rises, so too do the altcoins. It is the bellwether of the market at times and it has a lot of support. Currently, the market has been on a down trend for the beginning of 2018. The price is hovering in the $7,500 to $8,000 range. Many people are saying the bubble is bursting. But in the grand scheme of things, Bitcoin only first reached that mark in the middle of November, 2017.
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While the price did rise up to $19,900, it has receded back to those November levels. That’s not exactly a bubble burst. Many see it as a much needed market correction. Others see it as market manipulation by a conspiracy of mainstream media and global financial institutes. Some just see it as the ups and downs of a volatile market.
There are two major shortcomings in the Bitcoin blockchain. The first is that it is slow, when compared to other cryptocurrencies. Transactions can take some time to complete and when trading out of Bitcoin into a fiat currency that can be problematic. Also, when attempting to transfer Bitcoin from wallet to exchange or vice versa, time can be of the essence. The faster transactions can be done, the faster an investor can buy and sell on the market or retrieve their investment.
The second shortcoming, is the high transaction fees. Transferring Bitcoin costs more than transferring other altcoins. This makes it less attractive when moving coins from person to person, etc.
Ethereum was created to address some of the issues of the Bitcoin blockchain. It can be exchanged like other cryptocurrencies, through smart contracts, or via the Ethereum Virtual Machine. Smart contracts are almost like escrow. Two parties agree to a specific contract that has particular conditions. The contract is put into the blockchain as code. The contract goes into the public ledger, but the two parties are anonymous.
When a trigger event occurs the contract terms are executed. The smart contract automatically follows the terms and determines rules and penalties as they are written into it. It is all automatic so there is no third party involved. These are if this then that contracts where all the stipulations and rules of the contract are embedded.
Bitcoin and Ethereum are founded on different security protocols. Bitcoin is on proof of work which is computationally complicated and called mining. Whomever solves a block gets a reward. Ethereum is based on Proof of Stake, has no block reward so the miner, or forger more appropriately, gets the transaction fees. Proof of Work is long and costly. Proof of Stake requires less processing power. So, in terms of electrical cost, Proof of Work has high energy consumption, Proof of Stake is much lower.
Determining which is a better investment is difficult. Ethereum price has been less volatile than Bitcoin. In the last three months Ethereum has varied between $300 and $1,400. Bitcoin has fluctuated between $6,000 and $20,000. The technology underlying each is somewhat different while still being a blockchain. Ethereum price was, earlier this year, able to rise while many cryptos around it were falling. It almost seemed like it would be able to stand on its own and maybe overcome Bitcoin as the number one cryptocurrency by market capitalization.
Ultimately, it comes down to the individual investors needing to make their own decision. Anyone that is considering investing in cryptocurrencies needs to at least have a basic understanding of how they work, what they are, how they are used. An investor needs to understand the risks and invest only what they can afford to lose. They need to understand market trends and indicators and how to be wise about their investment. From there, one could determine which is better for them Bitcoin versus Ethereum.
From a price perspective alone, many cryptos look attractive right now because prices are dipping. The old adage of buy low, sell high holds true with cryptocurrencies as well. If an investor believes that they will all rise in price again, then whatever they invest in can be a good choice. But this is not financial or investment advice, just information to set one on the path to smart cryptocurrency investing.