Even if you don’t know the first thing about cryptocurrency, you’ve probably heard of Bitcoin (BTC). The same goes for Ethereum (ETH). They stand out as the two most prominent cryptocurrencies based on market cap—ranking number one and two, respectively.
Here’s the thing, though: they’re entirely different. Sure, both use blockchain technology to support decentralized digital currency, but choosing between the two is like picking between email and the internet. (Remember this analogy for later). Let’s take a closer look at the differences between the two.
Bitcoin vs. Ethereum: an overview
|Bitcoin (BTC)||Ethereum (ETH)|
|It’s a…||Form of currency||Token|
|Went alive||January 2009||July 2015|
|Style of supply||Deflationary – only a limited number of Bitcoin will be made||Inflationary – much like money, tokens can be created/added over time|
|Limit of supply||There are 21 million in total||18 million get produced each year|
|Used for…||Buying things and storing value – works like gold||Developing decentralized apps (dapps) on the Ethereum blockchain|
|Purpose||Bitcoin is a new currency that can be used like money – only this type of money does not have to be backed by gold and doesn’t depend on the country’s government||Ethereum is a type of token that can be used to do many things, like making agreements that are hard to break, exchanging ownership, and voting|
Bitcoin got its start in 2009. A person or group of people introduced the idea in a white paper, using the name Satoshi Nakamoto. The goal was to offer a secure digital currency that people could use without a central authority, such as a government or a bank.
Bitcoins only exist online. There are no physical bitcoins. The cryptocurrency uses blockchain technology to create a cryptographically secured public ledger of transactions. While explaining the Bitcoin blockchain would require another whole article, all you need to know is that it’s public and secure.
While Bitcoin still occupies a niche market, it has managed to coexist with the current financial systems of the world. It provides a convenient and transparent medium of exchange that’s not possible with fiat money.
Bitcoin has routinely had the largest cryptocurrency market cap. It has a larger market cap than every other company in the world other than Apple, Microsoft, Saudi Aramco, Amazon, and Alphabet. It’s twice as valuable as financial institutions like JPMorgan Chase and three times more valuable than Bank of America (all of this is subject to change).
The Ethereum platform doesn’t have a mysterious origin like Bitcoin. The software launched in July 2015 as the brainchild of Russian-Canadian programmer Vitalik Buterin and other programmers, including Gavin Wood and Charles Hoskinson. Buterin argued in his white paper that Bitcoin would need more functions than being a medium of exchange.
Instead of competing with Bitcoin directly, Ethereum allows people to build and run decentralized applications on top of its software. The system eliminates downtime, fraud, and interference from outside parties. The network also has its own programming language that operates the Ethereum blockchain.
People can use ether, the native token, to run decentralized applications on Ethereum. The cryptocurrency additionally functions as a medium of exchange. Users can even utilize ether as a store of value and collateral.
Ethereum also has the second-largest cryptocurrency market cap at $313.2 billion (again, this is subject to change). That puts Ethereum on par with Procter & Gamble, PayPal, and Walt Disney in terms of market cap.
Here are some of the key features of Bitcoin.
Store of value
Bitcoin is significantly different than “traditional” investments. It doesn’t correlate well with stocks, bonds, or other securities, allowing it to offset boom-bust cycles. Gold has long been the standard for a store of value, but Bitcoin’s scarcity, durability, and constant supply schedule make it a viable competitor.
There will never be more than 21 million bitcoins (theoretically). The fixed supply gives Bitcoin absolute scarcity. While Ethereum doesn’t have a hard cap, the network only releases up to 18 million ether per year.
This scarcity makes Bitcoin valuable. Think about the price of copper, Teslas, or iPhones. The more common these objects are, the less valuable they are. The inverse relationship means that Bitcoin should see its value rise over the long term.
Coins and dollar bills wear out over time. The same does not apply to Bitcoin since it’s impervious to damage and destruction. Ethereum shares this property, though a recent upgrade may delete some tokens on the network.
The best currencies allow the users to transport the money quickly. Otherwise, they’re not economically viable. You can send or receive bitcoins from anyone in the world at any time. This characteristic makes Bitcoin a borderless currency.
Here are some of the key features of Ethereum.
Smart contracts promise to change how people make contracts. The computer program facilitates the exchange of two assets, eliminating the need for escrow or another third party. The system works whether you want to exchange money, stocks, or other cryptocurrencies.
Once the two parties execute the smart contract, no one can alter it. Even if you change the smart contract in the future, the previous transaction won’t change. For example, you could theoretically use ether to pay for a house in exchange for the deed, eliminating the need for brokers.
Decentralized applications (dapps)
Anyone can run a decentralized application on top of the Ethereum network. Think of it like Words with Friends or Farmville operating on top of Facebook. The apps couldn’t exist without the social media giant.
This feature has made Ethereum a viable software in the real world, not just in concept. People have already built applications in the finance, health, digital identity, and security infrastructure industries using the Ethereum network. Here are some Ethereum-based apps you can use right now:
- MetaMask – a web browser plug-in that connects your wallet to the Ethereum network.
- OpenSea – a peer-to-peer marketplace for buying and selling digital items.
- SuperRare – a digital trading market for collecting and trading limited-edition art.
- Catalog – a platform that pays musicians 100% of the initial sales price for their music.
- AAVE – an open-source protocol built on top of Ethereum.
- Dharma – a toolbox of smart contracts and other resources for lending and borrowing.
- FunFair – an online casino that runs on ether.
Decentralized Autonomous Organizations (DAOs)
Some people consider Bitcoin the first DAO. It has a pre-programmed set of rules and works autonomously. Ethereum has elevated DAOs, allowing creators to deploy them and have them work independently upon release.
You can think of DAOs as autonomous vending machines. You put in money and receive a snack. The machine also takes care of ordering new products, hiring cleaners, and renting space. It does everything without managers, thanks to its pre-programmed code.
Bitcoin vs. Ethereum pros
- Bitcoin is the most popular cryptocurrency out there. It’s been around since 2009, so it has a good track record of keeping up with trends and changes in technology.
- The Bitcoin community is very welcoming to newbies in the industry. There are plenty of non-techies who had become millionaires by just investing $20 into Bitcoin when they first heard about it on TV or from friends.
- Transactions only take 10 minutes to process if you use one that offers instant transactions. This means that your money will show up almost instantly once you send your transaction off (no more waiting days for international wire transfers).
- Ethereum is not just crypto; it’s also a platform for developers to build on. This means that if you’re thinking about getting into the industry in any way, Ethereum will be your go-to first.
- It has upward trending historical prices. The price of ETH has grown at an astronomical rate over time and shows no signs of slowing down.
- Ethereum is an open source. Ethereum is open source which means its code can be inspected by anyone looking to invest or create something new with the technology.
Bitcoin vs. Ethereum cons
- High price volatility. The Bitcoin market is notoriously volatile, meaning that the value can change drastically in a short amount of time.
- Absence of intrinsic value. Bitcoin has no fundamental or inherent worth like gold and silver does; it’s simply an asset whose worth comes from its ability to be exchanged for goods/services on the open market.
- Slow network times. The network has been known to experience congestion due to the high number of transactions on the Ethereum blockchain.
- Ethereum is a risky investment. It’s unclear if there will be a large number of experts available to program and maintain Ethereum.
Why choose Bitcoin?
You may* want to invest in Bitcoin instead of Ethereum because it has a higher market cap, which means more money is going into the currency.
The Bitcoin network also processes transactions much faster than Ethereum does. It’s estimated that Bitcoin can process an average of six or seven transactions per second.
Meanwhile, Ethereum only handles 15 transactions per second on average. Bitcoin can handle many more at once, showing how it’s safer for investors with more considerable sums of money in their wallets.
Ethereum isn’t safe enough for the needs of a business owner who does international trade deals worldwide every day. Most people need something a bit more stable and consistent, so if there are issues with one transaction, another will take its place seamlessly without any gaps left behind by other unprocessed payments.
*It’s best to consult your financial advisor before making any investment decisions.
Why choose Ethereum?
On the flip side, you may choose Ethereum over Bitcoin if you’re a day trader. The volatility of Bitcoin makes it harder for you to know what the value will be tomorrow since you’ll have no idea what it’s worth when trading is over.
Ethereum’s price moves at a steadier pace than Bitcoin, so it doesn’t make as much difference if you buy in one hour or five hours before your trades are made.
Both ends of Ethereum’s range tend to stay within two dollars of each other instead of jumping up and down as Bitcoins do. This can hugely impact your judgment about whether or not something was worth buying on Ethereum right now.
How to buy Bitcoin or Ethereum
The “safest” way to buy Bitcoin or Ethereum is through cryptocurrency platforms that make the process easy. You’ve likely heard of Coinbase (since they’re the first company in the crypto space to go public), but eToro is another popular crypto buying and trading platform. These two platforms are two of your best bets if you’re a beginner in the crypto world, since they focus on educating users and making the process less fee-heavy.
Coinbase is definitely one of the most popular Bitcoin wallets, and for good reason. For starters, they’re pros as making the buying and selling process easy. Sign up in just a few minutes, and you can immediately start buying crypto. Plus, you’ll earn get $5 in free Bitcoin for signing up.
eToro, on the other hand, allows you to start trading crypto with just $50. But where they really shine is in their social feature. CopyTrader™ lets you copy successful and more experienced investor’s portfolios (you’ll need a minimum of $200 for this feature). This takes the hard work out of your hands and lets you rely on those with more experience than you.
Why it’s hard to compare Bitcoin and Ethereum
Here’s where that analogy about email and the internet comes back into play. Bitcoin serves as a stand-in for digital gold. Like email, it has one purpose. In this case, it’s to give people an alternative payment system that bypasses the traditional central authorities.
The Ethereum network also supports decentralized payments. Like the internet, that’s just one of many things you can do on it. Ethereum allows you to operate dapps and DAOs, collateralize assets, and secure smart contracts.
While these crypto assets may appear similar to the untrained eye, Ethereum’s creators haven’t positioned it as an alternative to the existing monetary system. They took a broader view of what cryptocurrency can do, leveraging blockchain technology to facilitate and monetize decentralized applications. As a result, you would never use Bitcoin and ether in the same situations.
Returns on investment
Bitcoin and Ethereum have garnered attention for their eye-popping returns. When Satoshi Nakamoto released Bitcoin in 2009, the cryptocurrency was essentially worthless. Now the value ricochets all over the map.
According to Coinbase, here are Bitcoin’s annual returns:
- 2021: 90%.
- 2020: 305%.
- 2019: 95%.
- 2018: -74%.
- 2017: 1,375%.
- 2016: 120%.
- 2015: 36%.
- 2014: -58%.
- 2013: 5,428%.
- 2012: 218%.
- 2011: 1,317%.
Ethereum hasn’t been around as long as Bitcoin. Still, it has provided investors with sizable returns on their investment
Of course, we’re not all as lucky as the pizza guy that received 10,000 bitcoins for two Papa John’s pizzas in 2010. Perhaps you only heard about Bitcoin and Ethereum for the first time within the last few months. Still, the returns on investment have far outpaced those from the Dow Jones and S&P 500.
Over the past ten years, the Dow Jones has risen from 12,810.16 to 33,857.81 points. That translates to a 164.3% return on investment. Meanwhile, any investors that purchased an S&P 500 fund in 2011 have seen a 206.7% appreciation.
What should I buy: Bitcoin or Ethereum?
It’s impossible to ignore the jaw-dropping returns for Bitcoin and Ethereum. So, which one should you buy? Well, that depends on what you want to do with them.
Some people compare Bitcoin to digital gold. The finite supply offers investors a hedge against inflation, thanks to its weak correlation with other financial assets. Bitcoin makes sense if you want to diversify your portfolio against the stock market’s ebbs and flows.
While Ethereum shares some of those characteristics, ether has earned a reputation as digital oil. It fuels the Ethereum blockchain and powers decentralized applications. You can use Ethereum to diversify your portfolio, in addition to running DAOs or purchasing NFTs.
Buying Bitcoin or Ethereum boils down to your needs and preferences. It depends on your existing portfolio and what you plan to do with the cryptocurrency. Understanding the differences between Bitcoin and Ethereum will allow you to make an informed decision for your financial well-being.
The difference between Bitcoin and Ethereum is a lot like the difference between email and the internet. Sure, they both use blockchain technology to support decentralized digital currency—and that’s where their similarities end.
If you’re going to invest in cryptocurrency, it doesn’t matter which one you choose; but if you need help deciding or just want some more info about either of them before investing your money, check in with your financial advisor.