BTC/ETH: Which is the Better Buy?

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As cryptocurrencies surge in prices the question is no longer about BTC alone, but rather Bitcoin vs Ethereum and a few other emerging crypto-names which have been climbing in value.

A question like this is, of course, something that no one can answer with any certainty. Go back a few years and ask yourself which phone manufacturer to invest in: Apple or Blackberry? Or further back: should I invest in VHS or Beta?

Any investment comes with its share of risk, unless you diversify, or you play bridge with Warren Buffett. But when it comes to investment considerations such as Bitcoin vs Ethereum, the risks and the rewards are huge.

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Bitcoin has continued to appreciate in value over the years. Although it has had its share of ups and downs, there have been more ups. It recently peaked above $3000 for the first time before quickly losing almost a third of that, and then climbing again.

Ether, the “money unit” of the Ethereum blockchain technology has seen a far more dramatic rise in recent months, moving from a few dollars to over $300 before plunging to $13 and then rebounding all in the space of a few hours in June.

Such extreme volatility puts the risk/reward ratio of virtual currencies somewhat on par with betting on horses at the track. But are there some signals we can use to make a more solid decision as to where to invest? Bitcoin vs Ethereum: which is the better buy?

Bitcoin is better known at present. There are companies and retailers willing to accept it as a form of payment for actual things. This gives it credibility as a payment mechanism for mainstream goods and services. It takes a while for any new technology to become popular enough to be useful. Fax machines and even email accounts were useless until enough people started using them. Then a logarithm grew. The usefulness of a technology grows as a square of the number of users.

Bitcoin is relatively easy to acquire. People are familiar with digital wallets through their experience with smartphone based banking and Starbucks apps. This help make the market bullish. Not only is it proving itself out in the field – even surviving the Mt. Gox-style controversies, its appreciation in value is consistent.

However, Bitcoin is still a mystery. There is no one at the helm. No one has been proven to be Satoshi Nakamoto, and those who form the cabal that governs its development are diverse, and not always in agreement. Bitcoin may still be too virtual and precocious for many long-term investors.

The overall market sense with Bitcoin, is that barring any major market correction or serious hack, its value will continue to climb to levels that will make $3000 look positively quaint. And this will happen sooner rather than later.

The crucial marker to watch out for will be the day the final, 21-millionth bitcoin is mined. Then we will turn a corner. The pool becomes finite and service charges will become even more pronounced.

Ether is probably a better product. Though very young and still volatile, it has two significant assets. The first is that its inventor, Vitalik Buterin, is a real person. He appears and comments regularly, he wrote the code, and he is active in Ether’s ongoing development. Like Bill Gates or Elon Musk, he is the face and the brain behind the product. He speaks with authority about its development, including its flaws, and is accountable, both as architect and figurehead. Tangible connections like this tend to reassure the market.

Secondly, Ether is part of a much bigger success story in the making, and that is Ethereum. As a smart contract vehicle that rides the rails of blockchain, Ethereum has a chance of becoming inextricably woven into the 21st century global economy. Cities like Dubai are quickly converting, and every industry that relies on transactions – which basically means every industry that exists – looks like they will incorporate blockchain, and specifically Ethereum into their business practices going forward. With the “currency” called Ether having been carved out of this larger entity, it stands a great chance of maturing and succeeding in lockstep.

So, both of these vehicles look like good investments at this very moment. But who’s to say the next moment, 30 seconds from now, won’t change all that?

Bitcoin vs Ethereum and Black Swan risks

Factors that complicate the Bitcoin vs Ethereum argument include their relative youth, which implies a relative immaturity of the code and governance policies. Even the cleverest programmers can’t foresee random elements and sophisticated bad actors, as the June 2016 DAO incident showed.

In addition, it must be remembered that these blockchain technologies all run on electricity and computing power, and are very expensive to mine. Although they collectively point the way towards a future that replaces trust with immutable fact, and that leaves fossil fuels, banks, and paperwork in the dust, there may be an Achilles heel. Certain countries that have access to cheap electricity, cheap skilled labor, and huge computer farms may become a significant influencing factor in how blockchain transactions are prioritized, and that, too, may spook the mainstream investor.

At this moment, both Bitcoin and Ether are worth putting some money into for some speculative fun, if you can stomach the volatility and afford possible heavy losses. But it still has more in common with going to the race track than buying Berkshire Hathaway or a Vanguard index fund.

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