Bitcoin (BTC) and Ethereum (ETH) are the two largest cryptocurrencies in the world. Although both are decentralized means of exchange based on blockchain technology, they are very different. BTC wants to be a real form of money and an officially recognized digital currency. ETH, on the other hand, is more like microprocessor money – programmable money that can automate contracts between anonymous parties or allow you to build applications based on its technology.
Technically, Bitcoin and Ethereum are networks, Bitcoin (BTC) is the coin of the Bitcoin network, and Ether (ETH) is the token of the Ethereum network. For simplicity, we will use the abbreviations BTC and ETH when referring to each network and its coin.
What are the KEY differences between BTC and ETH?
While BTC has a fixed supply of 21 million coins, the supply of ETH is currently 107 million. Moreover, ETH does not have a maximum supply. This is because BTC acts as a currency. If its supply were unlimited, it would devalue, much like fiat currencies do when more money is printed. ETH, on the other hand, as programmable money, does not seek to stabilize. Instead, its goal is to increase value and utility by creating opportunities and attracting users and companies to build on its technology. Of course, this does not mean that the value of BTC will not grow. On the contrary, as BTC’s utility for peer-to-peer payments between businesses and individuals increases, it will experience increased demand and thus increased value.
BTC can be spent in far more places than ETH. BTC is accepted by 36% of small and medium-sized businesses in the US, as well as huge companies like Microsoft and Wikipedia. ETH can only be spent in a handful of places. However, this difference does not make BTC more valuable than ETH, or even more useful, as the two serve completely different functions.
more places than ETH. BTC is accepted by 36% of small and medium-sized businesses in the US, as well as huge companies like Microsoft and Wikipedia. ETH can only be spent in a handful of places. However, this difference does not make BTC more valuable than ETH, or even more useful, as the two have completely different functions.
In addition to being accepted in many places, BTC has begun to serve as a national legal tender, something that was just first observed in El Salvador. However, ETH offers another application, that of automating exchanges. Its smart contracts allow two parties to enter into a contract – for example, buying a house or hiring a cab. ETH not only cuts out the middlemen, thus reducing bureaucracy, waiting times, and fees, but also strengthens security by ensuring that every exchange is automatic, irreversible, and transparent. Both cryptocurrencies have a huge global range of applications in their respective fields, and decentralize influence and power, putting people’s wealth back into their own hands.
ETH and BTC rely on different types of blockchain technology. ETH uses its own Proof-of-Work (PoW) hashing algorithm called Ethash, which is designed to be ASIC-resistant to avoid centralization. BTC uses a PoW algorithm based on Secure Hash 256 (SHA-256), a one-way function designed by the US National Security Agency (NSA) to secure digital information. Both of these methods are secure and decentralized but have different benefits depending on the function of the cryptocurrency. These technological differences have also led to differences in scalability and block production times. A transaction can take minutes on BTC, but only seconds on ETH. ETH is preparing to move from a PoW system to a Proof-of-Stake (PoS) system, so it is likely that we will see further technological advances.
With increased awareness among consumers, positive environmental, social and zarWith increased awareness among consumers, positive environmental, social and governance (ESG) aspects are beginning to dominate the investment platform. Major corporate players have begun to filter investment opportunities based on ESG factors. This means that as soon as miners unite to create a green and sustainable mining system, more companies will enter the industry, demand will increase, and thus the price will rise. Currently, BTC and ETH are based on PoW mining, which means high carbon emissions. BTC poses a greater challenge to the environment. ETH, on the other hand, has a much smaller carbon footprint. Moreover, its plan to transition from PoW to PoS is a major step towards aligning with ESG values. By requiring validators to stake their coins in exchange for rewards for positive validation behavior, the PoS system will completely eliminate the need for mining, reducing energy costs by nearly 100%. Many analysts believe that this move toward sustainability will put a demand for ETH ahead of the demand for BTC.
How have recent events affected BTC and ETH?
Bitcoin has suffered due to Elon Musk’s comments on the value of ESG and China’s declaration to fight digital currencies. At the same time, its recognition as a national currency in El Salvador has given it a boost. El Salvador may not be a global superpower, but with 70% of the population unbanked, it offers great prospects for the coin. If just 1% of the BTC supply ends up in the hands of Salvadorans, the country’s GDP will increase by 25%. This is an economic boost that other countries will notice.
Since other cryptocurrencies tend to mimic Bitcoin, Ethereum was also affected by Musk’s comments. However, global confidence in Ethereum’s technology has recently increased. In April of this year, the European International Bank (EIB), which partially finances 27 European member states, issued a two-year bond worth more than $120 million on the Ethereum blockchain. If the EIB isn’t confirmation enough, Goldman Sachs was also one of the partner banks.
This faith in Ethereum technology from financial giants is making a big difference in the industry. The banks also have further plans to “evaluate other applications of the central bank’s digital currency in interbank settlements,” which will further enhance Ethereum’s global credibility.
China, on the other hand, has taken steps to limit domestic cryptocurrency mining. In May of this year, citing financial stability and emissions reduction as motives, the government cut off electricity to Chinese mining companies, which make up a large percentage of the world’s mining capacity. This caused the value of BTC to drop by 30% and the industry as a whole to lose $1 trillion. However, this turn of events has caused a mass exodus of miners to other places with cheap electricity, such as Texas and Kazakhstan, as well as a reshuffle among miners. On the positive side, this could lead to further decentralization of BTC, but on the negative side, it will mean a decrease in the percentage of renewable energy used for mining.
BTC vs. ETH: Which investment is better?
At the time of this writing (23/07/2021), BTC is worth $32,000 per coin and has a market capitalization of nearly $600 billion. Meanwhile, ETH is worth about $2060 per token and has a market capitalization of about $240 billion. ETH still has a long way to go before it surpasses BTC, and despite its moves toward sustainability and increased applicability, no one can be completely sure about its future. However, as shown in the charts below, both cryptocurrencies have previously fallen and recovered to previous levels.
With a lack of trust in government institutions and an increasingly tech-savvy population, we could see the value of both of these coins rise. On the other hand, a new generation of consumers is becoming more environmentally conscious, see China. Related events and sentiment could therefore threaten the value of BTC and ETH if they fail to adhere to ESG values. ETH is ahead of BTC in this regard, but it is a work in progress.
Cryptocurrencies have begun to rebound after these recent blows from Musk and China – a reminder that volatility is normal when it comes to new and radical technologies. Realistically, it will take more than that to crush decentralized technologies.
Due to the basic principles of supply and demand, BTC’s limited supply of 21 million coins will keep its value high – probably consistently above that of ETH. However, ETH, whose token supply is much higher and essentially unlimited, locks up some of its tokens in smart contracts, which are then used to expand the network. This means that despite higher demand for BTC than supply, ETH tokens can still surge in value and compete with BTC.
However, in terms of market capitalization, ETH’s adaptability and plans for an eco-friendly future could be very strong. Even if its coin value remains below that of BTC, many analysts predict that its market value will overtake the original coin
Overall, BTC and ETH promise to continue growing. Above all, Ethereum’s environment-friendly changes could lead to an explosion in value, and Bitcoin could become the legal tender of the future if more countries adopt it as legal tender.