crypto investments has become one of the most popular types of investment lately. Crypto investment activity itself refers to the activity of buying and holding crypto assets with the hope that the value of these assets will increase in the future.
The cryptocurrency market has bounced back very strongly in the past year. Despite increasing competition from hundreds of popular altcoins, Bitcoin (BTC to IDR) and the network’s native coin Ethereum (ETH), remain the clear crypto market leaders in 2024.
Together, the market capitalization of Bitcoin and Ether account for about 70% of the global crypto asset market. Bitcoin’s market capitalization of $1,300,000,000,000,000 far exceeds Ether’s market capitalization of $460,000,000,000,000, but Ether’s market capitalization is still more than four times larger than any other crypto.
While competitors may emerge to challenge these two crypto market leaders in the coming years, for now, the two most obvious choices for crypto investors are Bitcoin and Ethereum.
To understand more about what Bitcoin and Ethereum are, the differences between them, performance and volatility, and which one is better for investment, check out the full review below.
What is Bitcoin?
Bitcoin was launched in January 2009. This crypto asset introduced a new idea outlined in a white paper by the mysterious Satoshi Nakamoto
Bitcoin was introduced as an online currency with no central authority, in contrast to currencies issued by governments. There are no physical coins, only transactions recorded in a cryptographically secured public ledger.
While Bitcoin was not the first attempt at creating this type of online currency, it was the most successful. As a result, Bitcoin is recognized as the precursor to almost all cryptocurrencies that have emerged since.
1. Function and Purpose
Over the years, the concept of decentralized virtual currencies has gained acceptance among regulators and government bodies. Bitcoin is an alternative to fiat currencies like the US dollar, which are backed by governments and central banks.
While it is only formally recognized as a means of payment or store of value in some countries, it has managed to create its own niche and continues to co-exist with the financial system despite frequent scrutiny and debate.
2. Blockchain Technology Used
Bitcoin is secured by cryptography, with transactions verified through a process known as mining, where users compete to verify transactions by solving complex math puzzles using powerful computers.
This verification method is known as proof of work (PoW) Bitcoin transactions are permanently recorded on a public ledger that cannot be altered or manipulated in any way.
If a Bitcoin miner successfully adds a block of verified transactions to the blockchain then they will receive a reward of new Bitcoin.
Currently, the reward is 6.25 BTC per block, but the reward is halved every time 210,000 blocks are added to the blockchain; this reduction in reward is referred to as Bitcoin halving, and this process typically occurs about every four (4) years.
What is Ethereum?
Ethereum is more than just a digital asset. Ethereum is a decentralized platform that enables the development and execution of smart contracts and decentralized applications (dapps), with the native digital asset, Ether, used to support these operations.
1. History and Origins
Ethereum was created by Vitalik Buterin, an influential programmer and writer in the cryptocurrency community. Vitalik first came up with the idea of Ethereum in a white paper published in late 2013.
Buterin realized that Bitcoin had limitations in terms of smart contract functionality and wanted a more flexible platform to support various decentralized applications.
Ethereum was officially launched on July 30, 2015. The launch was motivated by the desire to provide a platform that allows developers to build and run smart contracts and decentralized applications without the risk of downtime, fraud, or third-party interference.
2. Function and Purpose
Ethereum allows developers to build and deploy smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from third parties.
To achieve that, Ethereum comes with its own programming language that runs on top of the blockchain. The potential applications of the Ethereum virtual machine are diverse, using the native cryptographic token, ether (ETH).
3. Blockchain Technology Utilized
The Ethereum network is decentralized and operates on thousands of computers around the world. In 2022, the Ethereum network switched from the energy-intensive PoW verification system to a proof of stake, or PoS, model.
Instead of miners competing to solve math puzzles, Ethereum’s PoS system selects validators through an algorithm. To qualify as a potential validator, traders must “hold” some of their crypto assets as collateral.
The more crypto they have, the higher the chances of them being chosen to validate a block and earn a reward. Ether also has no fixed supply limit, but supply is managed through a process known as burn.
Every time a transaction is completed on the Ethereum network, users must pay a transaction fee, or “gas” fee. The Ethereum protocol dictates that a portion of each gas fee will be burned, or essentially destroyed.
Key Differences Between Bitcoin and Ethereum
Both Bitcoin and Ether are popular crypto assets that operate on decentralized blockchain networks. Here are some differences between Bitcoin and Ethereum that are important to know, including:
1. Technology and Goals
The main goal of Bitcoin is to be a digital currency and an alternative to fiat currencies like the US dollar that can be easily exchanged for goods and services.
On the other hand, Ethereum’s main goal is to be a platform for running smart contracts and decentralized applications (dApps), and ETH is the native cryptocurrency used to facilitate transactions.
2. Consensus Mechanism
The Bitcoin network operates with the PoW (Proof of Work) verification system, while Ethereum uses the more energy-efficient PoS (Proof of Stake) consensus verification system.
3. Supply
Bitcoin has a limited supply capped at 21,000,000, while Ether has a theoretically unlimited supply. However, Ether has actually been deflationary in recent months thanks to its burn process.
4. Transactions and Speed
An ETH transaction is confirmed within seconds, while a BTC transaction takes about 10 minutes to be confirmed.
Performance and Volatility
Both Bitcoin and Ether have been excellent long-term investments, but both are prone to extreme price volatility. Buying either of them requires a high risk tolerance.
1. Short-term Performance
Looking at past performance it is difficult to pick a winner between Bitcoin and Ethereum as their relative rates of return fluctuate depending on the time period. In the past year, Bitcoin’s price rose 195% compared to a 140% increase for Ether.
2. Long-term Performance
In a period of three years, Ethereum’s price rose by about 147%, while Bitcoin’s price rose by about 36%. If we look back at the last five years then the price of Bitcoin has gone up by about 1,626%, while the price of Ether has gone up by about 2,624%.
3. Market Volatility
Bitcoin has shown high market volatility since its launch. The price of Bitcoin often experiences significant fluctuations in a short period of time, making it a very risky investment.
This requires a high level of risk tolerance from investors as the price of Bitcoin can go up or down by large amounts in a short period of time.
Ethereum also has significant market volatility, although it may be slightly lower than Bitcoin. However, Ethereum has shown large price fluctuations in some periods, which also exposes investors to a high level of risk.
Therefore, investors need to have a fairly high risk tolerance when considering an investment in Ethereum.
The Future of Bitcoin and Ethereum
The following is the future of Bitcoin and Ethereum that is important to know, including:
1. Bitcoin Development
Bitcoin has also undergone changes, with the introduction of the Taproot upgrade to enable smart contracts. The Bitcoin Lightning Network is another project being worked on as a second-layer protocol that takes transactions off-chain to speed up the network.
2. Ethereum Development
The Ethereum ecosystem is booming thanks to the rapidly increasing popularity of its dApps applications in areas such as finance (decentralized finance apps, or DeFi apps), arts and collectibles (Non-Fungible Tokens/NFTs), gaming, and technology.
In addition, Ethereum will also introduce danksharding sometime in the future to increase its scalability.
Conclusion: Which is Better for Investment?
Bitcoin is considered “digital gold” and is ideal as a store of value and medium of exchange. Its large market capitalization and widespread recognition make it a stable asset in the long run. However, price volatility is still high and evolving regulations may affect its value.
Meanwhile, Ethereum excels in the development of blockchain applications and smart contracts. Its constantly evolving and dynamic ecosystem provides many opportunities for innovation and growth.
However, like Bitcoin, Ethereum also experiences price volatility. In addition, technological improvements and potential scalability issues may affect its adoption.
Therefore, it’s a good idea to base investment choices on the investor’s goals and risk profile. If your goal is to store value over the long term and you have a moderate risk tolerance then Bitcoin could be a better choice.
On the other hand, if you are interested in technological innovation and blockchain application development with a higher risk tolerance then Ethereum may be a better fit.
As a disclaimer, by its very nature, crypto asset investment is highly speculative and high-risk. Therefore, it is important to always do thorough research before making an investment decision in crypto assets.
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Now you understand what Bitcoin and Ethereum are, the differences between them, performance and volatility, and which one is better for investment.
Don’t forget to always update your insights about the world of crypto and blockchain technology by reading various updated information from the crypto academy, by recognizing the crypto assets to be invested in later, of course, the more knowledge you have, the wiser the investment decisions that can be made.
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Furthermore, as a disclaimer, it is also important to remember that crypto asset investment also has its own risks like other types of investment.
Among the risks are fluctuations in the value of crypto assets and the high level of volatility in crypto assets. Therefore, it is better for you to do in-depth research first before investing in crypto assets.
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FAQ
1. What are the main differences between Bitcoin and Ethereum?
Answer: Bitcoin is designed as a digital currency and store of value, using the Proof of Work (PoW) mechanism. Ethereum, in addition to serving as a digital currency, is also a platform for smart contracts and decentralized applications, using the more energy-efficient Proof of Stake (PoS) mechanism.
2. Why is Bitcoin in limited supply while Ether is not?
Answer: Bitcoin’s supply is capped at 21,000,000 BTC to prevent inflation and ensure scarcity, making it an effective store of value. Meanwhile, Ethereum manages supply through a transaction fee burning mechanism, which helps control inflation without a fixed supply limit.
3. Is Bitcoin or Ethereum faster at processing transactions?
Answer: Ethereum is generally faster at processing transactions, with confirmations in seconds compared to Bitcoin which requires several minutes for each transaction confirmation.
4. What makes Ethereum unique compared to Bitcoin?
Answer: Ethereum supports smart contracts and decentralized applications (dApps), which enables a wide range of applications in areas such as decentralized finance (DeFi) and non-fungible tokens (NFTs). This makes it more than just a digital currency.
5. Is it better to invest in Bitcoin or Ethereum?
Answer: The choice between Bitcoin and Ethereum depends on your investment goals. Bitcoin is ideal for a store of value and medium of exchange, while Ethereum is suitable for investments in blockchain applications and smart contracts. Both cryptos have significant growth potential, but also come with the risk of high volatility.
