It is not surprising that investors are interested in cryptocurrencies. They are among the best performing asset classes this year. And the crypto community has rallied around the emerging asset class, arguing that cryptocurrency is the next big thing in finance.
The bitcoin was first traded in 2009. At the time, you could buy one of the new digital tokens for less than 1 cent. Prices rise and fall – albeit with many fluctuations over the years – and as of October 19, the bitcoin was close to its all-time high of over $ 60,000.
Ethereum debuted in 2015 at less than $3 and soared to more than $1,400 by 2018. At the time of this writing, Ethereum traded at more than $3,800.
By comparison, General Electric Co. (ticker: GE) shares were just under $3 in 1995, adjusting for dividends and stock splits since then. Today, it goes for about $104.
Although they are the two largest cryptocurrencies in terms of market capitalization, the similarities are more or less the same. Bitcoin and Ethereum are completely different animals, developed for different reasons and with different internal dynamics.
But enough history – investors want to know which is the better buy: Bitcoin or Ethereum? Here is a brief overview of some of the biggest considerations for investing in each cryptocurrency.
De facto cryptocurrency leader, no other coin comes close to bitcoin, which trades under BTC. The bitcoin market cap now exceeds 1 trillion. The total market cap for all cryptocurrencies is about ً 2.5 trillion, and the second most valuable digital currency is Ethereum, with a market value of 450 billion.
Here are some important things that investors should know about BTC in the BTC vs. Ethereum investment debate:
1. It has the highest attention from large investors. The Winklevoss twins, the famous Harvard alumni who claim Mark Zuckerberg stole their idea for Facebook Inc. (FB), famously tried to start a Bitcoin exchange-traded fund, but they were rebuffed by the U.S. Securities and Exchange Commission.
Crypto has been expanding as a widely accepted asset in the investing community. There has been a growing appetite for crypto investments from individual and institutional investors alike. This interest is only set to increase, as the SEC recently approved the first Bitcoin futures ETFs to go to market.
2. It has relative stability, simplicity and acceptance. A decentralized currency, beyond the grasp of the Federal Reserve or any other central bank and with a predefined maximum supply, is an attractive concept with which people worldwide can resonate. And in the case of Bitcoin, the market’s high opinions of that concept have been thoroughly tested and validated over time.
“Bitcoin is a rare digital currency and a store of value. While still fluctuating, it is one of the most stable cryptocurrencies, with the longest history, and the most over the last 10 years. Has been a consistent and well-performing investment asset for years, “says Steve Earlich, CEO and co-founder of Voyager Digital, a cryptocurrency broker.
Alex Edelman, CEO and co-founder of Lovely, First Bitcoin Review
3. There is limited supply. There will only ever be 21 million bitcoins. That known limit to global supply is a core reason some investors consider the cryptocurrency akin to digital gold. Unlike gold, however, newly discovered reserves aren’t possible, and nearly 90% of bitcoins, or 18.6 million, have already been mined.
1. Ethereum has a different goal than Bitcoin. The two leading cryptocurrencies have drastically different use cases and goals, with Ethereum operating as a decentralized network on top of which applications can be built. Many cryptocurrency tokens are actually issued over the Ethereum network.
“When people compare Bitcoin and Ethereum, it’s a bit like comparing gold with electricity. They are both valuable but have very different uses,” Adelman says. “Ethereum is infrastructure. It is a blockchain that is in the early days but has the potential to revolutionize finance and technology.”
The ability to use the Ethereum platform to change the way mortgage transfers, securities trading and many other fields work has helped bring about its next characteristic.
2. There is more development. Naturally, because Ethereum’s utility is limited only by the ingenuity of the world’s developers, there’s more activity surrounding the platform. Technically, the cryptocurrency used to facilitate Ethereum transactions is called “ether,” but it’s popularly referred to as ethereum.
Either way, the number of Ethereum-related repositories on the developer platform Github is 263, to Bitcoin’s four.
Repositories are similar to project folders where developers collaborating through Github can access project information.
3. There’s a fundamental change in how blocks are created. Instead of miners with the most computing power having the greatest advantage in successfully creating new tokens, those with the largest ownership stakes are now granted that right.
“Ethereum has been updated to mint new ETH through a process called proof of stake (PoS),” says Daniel Polotsky, CEO and founder of CoinFlip, a Bitcoin ATM operator. “With PoS, users are required to put up collateral, or a ‘stake’ in the form of ETH to become a validator on the network. So the more ETH that is staked, the higher the value because there are fewer ETH in circulation,” Polotsky explains.
“In addition, proof of stake removes the costs associated with mining such as electricity and hardware costs, meaning that fewer ETH will be sold by miners. Instead, these ETH will be staked, driving up the value even further,” Polotsky says.