Ethereum vs. Bitcoin Are Head-and-Shoulders Above the Rest
Should I invest in Ethereum (ETC, ETH)? Should I invest in Bitcoin (BTC)? These are the Ethereum vs. Bitcoin questions that investors of these assets are trying to decipher these days, and with good reason. With the meteoric rise of both cryptocurrencies’ prices over the past couple of years—more recently with Ethereum—investors are scrambling for answers as they try to determine which asset will appreciate more.
In the deeply technical cryptocurrency universe, these answers aren’t as straightforward as they might appear.
Ultimately, investors will want to own the asset which has the best chance to obtain mass popularity with the public. In the battle of Ethereum vs. Bitcoin, public demand will be the supreme arbiter on which cryptocurrency receives the biggest market capitalization. Demand is one-half of the pricing dynamic that will never change.
The other half, supply, is a dynamic that is firmly in Bitcoin’s favor. With 16.24 million bitcoins in circulation, and a maximum amount of 21 million that can ever be created, Bitcoin’s supply will remain tight unless this restriction is lifted.
Ethereum, on the other hand, has 89,752,192 Ethereum coins, called “ethers” (ETH) currently in circulation, and no theoretical cap limiting supply. So, unless the demand dynamics change drastically in Ethereum’s favor, it’s unlikely that ETH/BTC price parity will ever be seen. In today’s dollars, one ETC would need to trade at $195.00 to be worth as much as one bitcoin, on a circulation-adjusted basis.
On the technical side, both cryptocurrencies operate in a similar decentralized manner, yet with different protocols. One of the major differences is the time it takes to process “blocks.” Bitcoin’s average block time is about 10 minutes, while Ethereum’s is only around 12–15 seconds. Ethereum’s “GHOST” protocol can process and handle greater amounts of data than can Bitcoin’s peer-to-peer cryptographic protocol.
This gives ETH a sizable advantage in the payments arena, where confirmations can occur in seconds rather than several minutes. This is still one of Bitcoin’s greatest hindrances toward its quest for mass adoption in arenas like retail and online sales.
For example, one confirmation on the Bitcoin network takes an average of 10 minutes but, due to statistical skew, users can expect a transaction confirmation within 10 minutes only 63.2% of the time. That means 36.8% of transaction confirmations take more than 10 minutes, 13.5% take more than 20 minutes, and 0.25% take more than an hour. This is an eternity in the retail world. (Source: “Toward a 12-second Block Time,” Ethereum Blog, July 11, 2014.)
Ethereum and Bitcoin hold differences in the way they cost their transactions. The Ethereum method, called “GAS”, measures how much “work” a set of actions takes to perform The costs of transactions depend on such variables as storage needs, complexity, and bandwidth usage. In Bitcoin, the transactions are limited by the block size and they compete equally with each other.
Ethereum can run “smart contracts,” which are account-holding objects on the ETH blockchain. These are code functions and have the ability to interact with other contracts, make decisions, store data, and send ether to others. It’s the ultimate secure data parser. Now imagine a payment system which allows you to pay a utility company using ETH, through direct smart-contract verification instead of going through a banking medium to verify the transaction. This would save everyone time and money.
Another difference in Ethereum vs. Bitcoin is ETH’s own Turing-complete internal code, which means that, given enough time, anything can be calculated. There are certain benefits to being Turing-complete, such as the complexity of problems a system is able to perform. Turing-completeness therefore refers to any system which, in theory, can calculate everything, assuming enough memory is available.
Since software is just programmed, and programming is just a chain of mathematical statements, everything can be implemented in a Turing-complete environment. Bitcoin does not have this ability.
Despite a few differences, both cryptocurrencies also share much in common. ETH and BTC are both open blockchain systems which sit on their own peer-to-peer (P2P) networks. Anyone can view or participate in transactions. Anyone can contribute code to the underlying technology or build higher-level applications. Like “Linux,” ETH and BTC are built using open-source software. This software is maintained by volunteers in a centralized manner. Both networks only require tokens for access.
Ethereum vs. Bitcoin: Similarities and Differences
|Market Cap||$16.0 billion||$4.0 billion|
|Scalable||Proof of work||Proof of work|
|Mining||Not at the moment||Yes|
|Development||21 million||81 million|
|Hash Rate||1.8 ExaHash||Small core team|
(Source: “Bitcoin VS Ethereum: Cryptocurrency Comparison,” 99 Bitcoins, June 26, 2016.)
Ethereum is a direct descendant of Bitcoin, born from a specific grievance with Bitcoin’s limited scripting language. This limited scripting architecture makes it more difficult to build higher-level applications for things other than currency. It’s for that reason that Ethereum may ultimately carry more corporate appeal, but both currencies are being tested for operational strength and robustness.
Big corporations are particularly interested in this ability, and with good reason. It may save them lots of time and money in managing, securing, parsing, and storing their vast sums of information. It can help streamline and compartmentalize data-intensive endeavors with greater efficiency. Some high-profile projects are being conducted now, with promising results.
Thirty of the Who’s Who in American Enterprise—including Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and JPMorgan Chase & Co. (NYSE:JPM)—are joining to build business-ready versions of the software behind Ethereum. The Enterprise Ethereum Alliance, as it is called, is scheduled to demonstrate a beta version of the technology it seeks to employ. The plan is to exhibit live settlement trades using an adaptation of the settle layer. (Source: “Big Business Giants From Microsoft to J.P. Morgan Are Getting Behind Ethereum,” Fortune, February 27, 2017.)
Bitcoin has seen similar high-profile use cases for its technology. The Depository Trust & Clearing Corporation (DTCC) recently announced that International Business Machines Corp. (NYSE:IBM) and select partners will re-platform DTCC’s “Trade Information Warehouse” (TIW) using blockchain technology. (Source: “DTCC Partners With IBM, Startups For Blockchain-Based Credit Default Swaps Solution,” Forbes, January 9, 2017.)
If enacted, this distributed ledger technology has the potential to revolutionize the way back-office trades are cleared and processed in the financial markets. The DTCC is the world’s largest credit derivatives clearinghouse, servicing approximately 98% of all transactions in the global marketplace.
Ultimately, it’s important to understand that the two cryptocurrencies are much more than simply a secure medium of exchange.
Ethereum vs. Bitcoin Investment
When it comes to the explosiveness of price action, the cryptocurrency comparison parallel continues. Ethereum is having its day in the sun, rising over 90-fold from trough lows in October 2015 (around $0.50/ETH) to all-time highs in late-March 2017 ($45.27/ETH).
Bitcoin followed a similar path early on, with prices bursting from the low single digits to the mid-hundreds (in U.S. dollars) within a few months between May 2012–April 2013.
Both cryptocurrencies have also experienced a second sizable price extension, proving the first go-around was no fluke. This is a great sign that both cryptocurrencies are far from “bubble” assets, since true “bubble” assets son’t recover from the initial euphoria.
Ethereum’s second thrust forward has taken it from around $7.00/ETH in December 2016 to all-time highs in late-March 2017 ($45.27/ETH). Likewise, Bitcoin’s second surge, following a consolidation off the bubble highs, saw prices extend from $230.00 to over $1,250, and beyond parity with gold. Many consider these second moves as validation of the primary move.
The general climate toward an exploration of fiat alternatives among investors is keeping demand strong. My Bitcoin forecast is based on positive catalysts, both domestic and abroad, in the evolving landscape for currency alternatives.
Such an atmosphere is bolstered by the possibility of a dollar collapse, political uncertainties, outright currency wars, over-indebtedness, and the drive for a cashless society. The reigning fiat monetary system, as currently constructed, has already entered its terminal phase, in which capital is being destroyed by outright monetization of debt, inflation, and more.
We also have the destruction of the money supply playing a huge role in the moves higher for both cryptocurrencies.
In India, the world’s second-most populous nation, with 1.24 billion people, the government has de-circulated 500-rupee and 1,000-rupee notes. The move is an attempt to fight corruption and untaxed transactions, but it’s also a big opportunity for digital currency players to enter the mainstream consumer payments arena and offer an cheaper means to transact.
In this context, traditional banking methods which rely on cash deposits might also suffer a competitive disadvantage versus cryptocurrencies, with a lack of high-denomination bills in circulation. A large segment of Indian society is essentially cut off from making large cash deposits going forward, opening the way for Ethereum and Bitcoin. If the government is making all payments digital anyway, why pay a middleman (bank) a slice of your savings?
In the end, we’re well past the point of discussing whether cryptocurrencies are here to stay. This is not a “Betamax” vs. VHS, or “Blu-Ray” vs. DVD comparison; it’s more a case of “Coke” vs. “Pepsi.” Both fiat and cryptocurrencies have a future in the new economy, even if some people don’t realize it yet.
The Ethereum forecast looks particularly appetizing at the moment, due to stronger versatility for program development, smart-contract function and faster processing times. But don’t discount Bitcoin’s extensive “first-in” advantage, brand-name recognition, and established payment architecture.
The market for each is still fraught with certain risks but, with applications well beyond an ideal currency, the future looks bright for both entities.