Bitcoin and Ethereum; Which is a better buy ?

12 Feb 2024

What Are The Bitcoin and Ethereum Buying Narratives?

Selecting between Ethereum and Bitcoin is a difficult task. Regarding investments, there are numerous factors to take into account. not just in terms of the long-term upside but also the basics.

In order to evaluate whether or whether their investment is a good bargain, investors should also consider the current entry price. Let’s examine the main differences between Ethereum and Bitcoin.

Bitcoin: The First Digital Currency

Bitcoin (BTC) is the first virtual money. It debuted in January 2009 after being formed in 2008. The true identity of “Satoshi Nakamoto,” the person who created Bitcoin, is still a mystery. In spite of this, according to market capitalization, Bitcoin is the biggest cryptocurrency. With the greatest number of wallet holders, it is the most well-known cryptocurrency worldwide.

According to the whitepaper on Bitcoin, the platform was developed as a substitute for the world monetary system. It lets users communicate, receive, and save digital content without requiring help from a third party. This is not the case with traditional banks, which have the authority to freeze customer funds and prevent transactions. Conversely, Bitcoin is decentralised.

This means that Bitcoin transfers happen directly between senders and recipients on a peer-to-peer basis. Furthermore, neither a central bank nor a government backs Bitcoin, in contrast to fiat money. Furthermore, unchangeable code maintains a fixed supply of Bitcoin. There will never be more than 21 million Bitcoins. Every ten minutes, additional Bitcoins are added to the market until this cap is achieved.

In light of everything, it is preferable to think about Bitcoin as a store of value. Its predictable and limited supply is comparable to that of gold. However, Bitcoin can be fractionated, stored, and transferred with ease, unlike gold. In comparison to other value repositories, bitcoin is also far more liquid. It attracts a daily volume of billions of dollars and trades in a 24/7 marketplace.

Ethereum: A Decentralised Application Platform

Although it wasn’t the first cryptocurrency, Ethereum (ETH) has the greatest market capitalization. Ethereum, which was founded in 2014, introduced smart contracts as a new factor to the cryptocurrency markets. To put it simply, decentralised projects may be managed by developers thanks to the Ethereum blockchain. Since smart contracts are self-governing, there is no need for centralised middlemen.

Trustless agreements between two or more parties are known as smart contracts. They are only carried out when all conditions are satisfied. Take Uniswap, a decentralised exchange that runs on the Ethereum blockchain, as an illustration. Tokens may be exchanged between buyers and sellers of decentralised order books. The smart contract takes money out of the user’s wallet each time a swap request is made.

The new coin is then automatically deposited into the user’s wallet. Since the terms of the smart contract cannot be changed, the underlying code remains unchangeable. Ethereum is capable of handling a variety of decentralised applications (dApps), including exchanges. Prediction markets, metaverses, staking, play-to-earn games, decentralised lending, and NFTs are a few more examples.

There will be thousands of dApps on Ethereum by 2025. Most significantly, Ethereum gains a lot from new dApps joining its ecosystem. This is so because dApps use the ERC-20 standard, which requires ETH to be used to pay smart contract costs. In other words, each time a transaction is completed, thousands of projects require ETH. Long-term demand for ETH will result from this for as long as Ethereum is important.

What Are The Main Distinctions Between Ethereum and Bitcoin?

This section examines the Ethereum vs. Bitcoin controversy in further detail. We evaluate the two cryptocurrencies in terms of important parameters like supply dynamics, scalability, and consensus validation.

Proof of Work versus Proof of Stake in Transaction Validation

Let’s examine Bitcoin and Ethereum’s “transaction validation” procedure first. This establishes the process by which the blockchain comes to a consensus before verifying and validating transactions.

Most importantly, this guarantees that Ethereum and Bitcoin maintain their decentralised nature without sacrificing security. That being stated, every cryptocurrency project has a unique validation technique.

Bitcoin: Proof of work

The proof-of-work (PoW) mechanism is used by Bitcoin. In order to post a block of transactions to the blockchain, “miners” must solve cryptographic equations. The complexity of these equations makes them take ten minutes or more to solve. This is made possible by cutting-edge hardware components called Application-Specific Integrated Circuits (ASICs). Purchasing an ASIC might cost thousands of dollars.

One ASIC alone isn’t enough to solve the PoW puzzle.

  • Furthermore, due to the complexity of PoW, ASICs consume significant amounts of electricity.
  • This is why Bitcoin is considered bad for the environment.
  • Nonetheless, Bitcoin mining has never been more competitive.
  • After all, the first person to solve the cryptographic puzzle wins the newly minted Bitcoin.

That is currently 6.25 BTC, which is worth more than $250,000. This procedure is repeated every ten minutes. The mining reward will decrease by 50% to 3.125 BTC starting in April 2024. In the end, the PoW process of Bitcoin has the disadvantage of making the network extremely energy-intensive. In comparison to other approaches, it is also less scalable and more costly. Nonetheless, PoW is thought to be the most decentralised and safe choice.

Ethereum : Proof of Stake

Ethereum made use of the Proof-of-Work technique when it initially launched in 2015. Having said that, Ethereum employed an alternative PoW algorithm called Ethash. Bitcoin, on the other hand, employs SHA-256. The main distinction was that transactions could be completed in about 15 seconds thanks to Ethash. In contrast, SHA-256 on Bitcoin takes ten minutes.

All that said, Ethereum upgraded its blockchain to the proof-of-stake (PoS) mechanism in 2022. This was for several reasons.

  • For a start, PoS is significantly more environmentally friendly.
  • According to Bloomberg, Ethereum’s PoS upgrade reduces energy consumption levels by over 99%.
  • Moreover, PoS offers a fairer validation system that isn’t dominated by large-scale miners with huge resources.
  • This is because PoS offers everyone a chance to earn ETH rewards.

To put it simply, Ethereum holders contribute to the network’s stability and security by depositing their ETH into a staking pool. Users receive passive ETH payouts in exchange. Instead of the quantity of computing power produced, this is dependent on the amount of ETH that is being staked.

In addition, PoS provides more scalable and affordable transactions than PoW. Ethereum isn’t quite where it needs to be just yet, though. Transactions are still capped at roughly 29 per second even with PoS in place. Ethereum costs are also frequently very high. In peak times, the usual fee ranges from $10 to $40. PoS on Ethereum is likewise thought to be less safe than PoW on Bitcoin.

Scalability: Lightning Network vs. Ethereum 2.0

The amount of transactions that a blockchain network can process at once is referred to as scalability. Transactions per second are typically used to quantify this (TPS). This is a crucial statistic to take into account when contrasting Ethereum with Bitcoin.

After all, there will be a cascade of unfavourable consequences if their networks are unable to meet demand. Longer wait times, increased surcharges, and network congestion are examples of this. On the other hand, adequate scalability results in a seamless and effective network with reasonable costs and quick transactions.

  • Bitcoin can handle about 7 TPS. This is considered low, especially as Bitcoin adoption continues to increase.
  • Ethereum can handle about 29 TPS. While four times more scalable than Bitcoin, this is also considered problematic.

After all, hundreds of TPS may be handled by other blockchain networks like Cardano, Solana, and Binance Smart Chain. It should be noted that Ethereum values scalability far more than Bitcoin does. Thousands of dApps are developed on the Ethereum blockchain, as we previously said. A new transaction is needed each time a dApp carries out a smart contract.

Ethereum has to become more scalable in order to maintain its position as the de facto smart contract network. Ethereum is presently engaged in this endeavour. Its eventual goal is to exceed 100,000 TPS. It is unclear, though, when or even if this will occur. However, given the abundance of competing smart contract ecosystems available, Ethereum needs to come up with a solution quickly.

Returning to Bitcoin, let’s not forget about the Bitcoin Lightning Network. To put it simply, the Lightning Network is Bitcoin’s layer 2 solution. It makes it possible to carry out transactions off-chain. Transaction times are shortened from ten minutes to seconds as a result. Furthermore, a potential throughput of up to one million TPS is available on the Bitcoin Lightning Network.

Still, only a very tiny portion of Bitcoin transactions pass via the Lightning Network. We won’t be able to determine whether this is a workable strategy until adoption rates rise. Comparably, layer 2 alternatives for Ethereum exist as well, such as Polygon and Arbitrum. These maintain transactions off-chain and also provide faster and more scalable transfers.

Supply Limit: 21 million fixed as opposed to no hard limit

When evaluating Bitcoin vs. Ethereum over the long run, it’s also critical to take supply into account. The explanation is straightforward: unfavourable central bank policies affect fiat currencies, such as the US dollar and the euro. This is so because inflation is caused by “money printing.” The depreciation of the currency consequently raises the cost of living. Additionally, it devalues people’s savings.

On the other hand, there is a limited supply of Bitcoin, with a maximum of 21 million BTC. This confirms that Bitcoin is a reliable store of value. The maximum amount of bitcoin is predicted to be achieved in 2140. Up until that point, a set amount of fresh Bitcoins are distributed every ten minutes. This may contribute to a gradual, organic growth in the price of bitcoin.

Ethereum, on the other hand, has an infinite supply. The amount of ETH that is in circulation is increased annually. This is how rewards for staking are financed. Although this may not be a problem in the near run, if a cap isn’t established later, investors may lose faith. All new ETH issues, after all, erode the holdings of existing ETH.

Practical Examples: Which has more Utility?

We’ll compare Ethereum vs. Bitcoin with an emphasis on use cases in this section. For investors, this measure is crucial. A wider audience will be drawn to cryptocurrencies having a defined use case as opposed to those that are only for price speculation.

This is a result of the compelling rationale for the coins’ purchase, possession, and use. On the other hand, individuals will only purchase a cryptocurrency in the hopes that its value would rise if it has no practical applications. Long-term sustainability is impossible, particularly in weak markets.

Bitcoin: Digital payments and Value Store

The original purpose of Bitcoin was as a means of exchange. But Bitcoin isn’t appropriate for this use. Ultimately, Bitcoin transactions require ten minutes to complete. Paying for regular goods and services would take significantly longer than this. Furthermore, Bitcoin transaction costs are too expensive to be used as a medium of exchange, even at $1.

This is due to the impossibility of microtransactions. The issue of scalability is another. Bitcoin can only process seven transactions per second, which is insufficient to power a large world economy.

Rather, Bitcoin is now thought of as a value store. As previously stated, the supply of Bitcoin is fixed and predictable, making it a finite digital asset. Because it is so simple to keep, transfer, and fractionize, bitcoin is also a great choice for a store of value. This is particularly crucial in areas that have traditionally had high rates of inflation.

Ethereum: NFTs, Decentralised Finance, and more

Ethereum is not a means of exchange or a store of value. Rather, it provides a whole dApp ecosystem. Ethereum is used by developers to host their cryptocurrency projects in order to take advantage of its safe and decentralised architecture. Smart contracts provide dApps with the ability to function independently.

There are countless applications. Ethereum, for instance, is in favour of metaverse initiatives like Decentraland and the Sandbox. A smart contract is carried out each time a user purchases virtual products or makes an investment in metaverse land. Transaction fees are needed for this, and they are paid in ETH. As an additional illustration, the best decentralised exchanges are based on Ethereum.

Every purchase or sell order, whether it’s on 1inch, Uniswap, or SushiSwap, needs a smart contract. Ethereum is also well-liked by play-to-earn titles such as Axie Infinity. In addition, decentralised finance platforms providing savings and loans are mentioned. Furthermore, non-fungible tokens (NFTs) can be created and issued by developers using Ethereum.

Every NFT is distinct from every other, in contrast to conventional cryptocurrencies. It is possible to back NFTs with both virtual and physical assets, granting ownership on the blockchain. Moreover, NFTs are simple to transport. An Ethereum smart contract is also necessary for every NFT transaction, so fees are paid in ETH.

In summary, should you purchase Ethereum or Bitcoin?

After weighing the pros and cons of Ethereum vs. Bitcoin, we find that both cryptocurrencies make wise long-term investments. Exposure to both initiatives can help your portfolio, much like if you were to purchase Google and Apple stocks.

The de facto cryptocurrency and worldwide store of value is bitcoin. Ethereum, however, leads the smart contract market with unmatched use cases. Just remember to weigh the risks; there’s no assurance that investing in Bitcoin or Ethereum will pay off financially. Conversely, you can end up losing money.

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Overall, this thorough examination of Bitcoin and Ethereum offers valuable guidance for investors navigating the complex landscape of cryptocurrency investments.
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