Ethereum vs Bitcoin: Which Is The Best Investment?

About ten years ago, the mysterious Satoshi Nakamoto published a white paper on Bitcoin, detailing "A Peer-to-Peer Electronic Cash System.". This marked the beginning of the first cryptocurrency, which sparked a revolution in the financial world.. Since then, Bitcoin has maintained its position as the leading cryptocurrency.

Bitcoin has become a significant part of global news, culture, and the economy, showing no signs of fading away. Its price has soared exponentially, akin to a rocket. A few years later, the Ethereum project was launched, and Ether's price experienced remarkable growth, increasing by over 1000%.

Both Bitcoin and Ether have proven to be exceptional investments in the cryptocurrency industry. However, people often wonder: Ethereum or Bitcoin?  We will explore this topic in depth in the following sections.

First of all, it is important to understand what Bitcoin and Ethereum are before discussing their similarities and differences as the two largest cryptocurrencies.

Both Bitcoin and Ethereum are cryptocurrencies, representing a new form of digital money used as tools for exchanging value within a distributed network of users (peer-to-peer) without the need for intermediaries.

Bitcoin, launched in 2009 by the pseudonymous developer Satoshi Nakamoto, was the first cryptocurrency ever created and is the most famous one. Its main purpose was to establish an independent and decentralized digital payment system based on mathematical proofs and cryptography. Unlike traditional banking systems, Bitcoin transactions are tracked through a public digital ledger called the blockchain. The Bitcoin network uses cryptography to secure the economic system, ensuring the smooth creation of new cryptocurrency units and the validation of transactions. Notably, Bitcoin is not issued or controlled by a single authority; it is maintained by many computers (nodes) distributed around the world.

Bitcoin Chart in Mitrade (Click here)

In contrast, Ethereum is an open-source distributed computing platform based on blockchain technology that can run smart contracts—applications that execute as programmed without downtime, fraud, or third-party intervention. It is important to note that Ethereum refers to the platform, while the cryptocurrency is called Ether (ETH). The Ethereum white paper was written in 2013 by Vitalik Buterin, and the platform went live in July 2015. Developers aimed to differentiate Ethereum from Bitcoin by creating a platform with unique properties and a more versatile scripting language.

While Ethereum can also be used for payments like Bitcoin, it is primarily designed for creating decentralized applications (DApps) and smart contracts on its blockchain platform.

Bitcoin is a global digital currency that allows people to own their money instead of relying on banks or other financial institutions. Ether serves a similar purpose.

Both of these major cryptocurrencies are based on blockchain technology, which provides a tamper-proof record of all transactions on the network, accessible to all participants. This system is decentralized, meaning these currencies do not physically exist; they are simply balances associated with public and private keys.

Although Bitcoin and Ether have yet to be recognized as formal mediums of payment, they have established a strong presence in the financial industry. Notably, transaction fees are minimal compared to traditional payment methods.

Because they operate on a decentralized authority, these cryptocurrencies differ from those issued by governments.

It is essential to understand that, despite constant comparisons, Bitcoin and Ethereum are different projects with entirely distinct objectives.

Differences Between Bitcoin and Ethereum

Purpose

Bitcoin was created with the primary aim of building a peer-to-peer electronic cash system, as outlined in the white paper published by Satoshi Nakamoto. The goal was to establish an independent, decentralized electronic payment system based on mathematical proofs and encryption. Bitcoin operates on blockchain technology to function as a form of electronic money, enabling online purchases and transactions using BTC coins. It allows individuals to control their own money instead of relying on banks or other institutions.

In contrast, Ethereum is an open-source distributed computing platform built on blockchain technology. This decentralized platform produces Ether tokens, which are traded on exchanges. Ethereum serves as a platform for various applications based on “smart contracts,” enabling users to develop decentralized applications (DApps). While Bitcoin aims to replace traditional currencies, Ethereum focuses on providing a versatile platform for developers.

Technology

Bitcoin may not use the fastest blockchain technology, but it is the first and most recognized cryptocurrency, making significant waves in the fintech industry. On the other hand, Ethereum's technology is designed to facilitate smart contracts and the development of decentralized applications, attracting attention from developers and institutions worldwide, including Microsoft and Intel.

While there are notable technical differences, the most significant distinction lies in purpose and capability. Ethereum's uses are broader than Bitcoin's, as Ether can function as a cryptocurrency like Bitcoin, while Bitcoin primarily serves as a medium for online transactions. Moreover, Ethereum's blockchain is geared towards running software code for decentralized applications rather than just tracking transactions. Thus, in terms of technology, one could argue that Ethereum has advantages over Bitcoin.

Supply & Market Capitalization

Bitcoin has a limited supply, with a maximum of 21 million BTC coins to be generated. In contrast, Ethereum does not have a set market cap; approximately 18 million Ether tokens are released annually, resulting in over 120 million ETH tokens in circulation as of now. While the supply of Ether is unlimited and not affected by individual use, Bitcoin's supply is limited and influenced by mining, expected to conclude by 2140.

Bitcoin is more liquid, as it is primarily meant to be traded for goods and services, creating a sense of scarcity that may drive its value up. As of now, approximately 19.76 million BTC coins are in circulation. In January 2017, Ethereum's market cap reached 31.5% of the cryptocurrency market, while Bitcoin's was 39%. As of today, the market cap of Bitcoin (BTC) is at $1.3 Trillion, representing a Bitcoin dominance of 54.06% , meanwhile ETH at around 17%

Price History 

Price trends of BTC over the year (source: coinmarketcap)

Price trends of ETH over the year (source: coinmarketcap)

Currently, Ethereum does not have the same market value as Bitcoin, priced at less than $2,600 per Ether compared to around $65,000 per Bitcoin. However, BTC was valued at less than $1 in 2010 and soared to an all-time high of around $73,750.07 at March Of 2024, capturing widespread media attention.

Conversely, Ether, issued in August 2015, started at about $2.80 and reached an all-time high of $4,891 in November 2021 Both cryptocurrencies experienced declines in 2019. A key historical price difference is that Bitcoin's price has been more stable than Ether's.

Mining and Transactions

Both Bitcoin and Ethereum charge fewer transaction costs but differ in their transaction processes. Bitcoin transactions can take up to 10 minutes to confirm, while Ethereum transactions are completed within 15 seconds. Bitcoin has a block size limit and a production time of 10 minutes, while Ethereum's block size varies based on the information it contains, with a block production time of 3 seconds.

As of now, more than 90 % of all Bitcoin coins have been mined, while around 120 million  of Ether tokens are in circulation but there is no limitation in supply of ETH.  However, as part of the switch to Proof-of-Stake, Ethereum blockchain executed a triple halving exercise that reduced rewards by over 80%, which caused the currency to be deflationary.

It’s important to remember that the purposes of Bitcoin and Ethereum are completely different, even though both are cryptocurrencies.

Bitcoin was the first cryptocurrency created, making it the most famous and widely recognized, attracting significant investment.

In contrast, Ethereum focuses on developing advanced technology, and its adoption is increasing daily among various institutions.

In short, both are successful and worth investing in, each with its own distinctive features.

Investing in both Ether and Bitcoin can be profitable, but be mindful of price fluctuations, as cryptocurrency prices are subject to supply and demand. It’s important to follow proper investment rules.

Mining is an essential process for both Bitcoin and Ethereum, as it helps maintain transactions through the participation of numerous miners who use their computing power to validate them. Miners receive rewards in the form of cryptocurrency and often participate in mining to contribute to technological growth or invest beyond trading.

Deciding whether to invest in or mine Ethereum or Bitcoin depends on your goals and risk tolerance.Bitcoin is often seen as a store of value, akin to “digital gold,” and has a longer track record and greater name recognition. It is primarily used as an alternative to fiat currency and is secured through a proof-of-work (PoW) mining process. Ethereum, on the other hand, offers more utilitarian value through its ecosystem of decentralized applications (dApps) and smart contracts. 

While Ethereum also uses PoW, it is transitioning to a proof-of-stake (PoS) model, which could make mining less relevant. Both cryptocurrencies are highly volatile and require a high risk tolerance. If you are looking for a long-term store of value, Bitcoin might be the better choice. However, if you are interested in the potential for growth and innovation within the blockchain space, Ethereum could be more appealing. Always ensure you do thorough research and consider your financial situation before making any investment decisions.

If you plan to mine Ethereum or Bitcoin, be aware of two key points:

Mining is no longer feasible on a personal computer. Today, it requires specialized mining machines and a reliable electricity supply to be effective.

Use a Bitcoin or Ethereum calculator to estimate potential returns from mining and determine if it’s worth your time. It’s also recommended to join a pool of miners who combine resources to run a successful mining operation.

Ethereum and Bitcoin were not made to compete with each other, because they have different goals. Moreover, there are huge advantages and caveats held by both Bitcoin and Ethereum when it comes to earning extra money in the world of cryptocurrency.

#What is the main difference between Bitcoin and Ethereum?

The main difference is their purpose. Bitcoin is primarily a digital currency designed for peer-to-peer transactions, while Ethereum is a decentralized platform that enables the creation of smart contracts and decentralized applications (DApps).

#Can I mine both Bitcoin and Ethereum?

Yes, you can mine both Bitcoin and Ethereum. However, mining Bitcoin typically requires specialized hardware due to its Proof of Work consensus algorithm, while Ethereum mining is transitioning to Proof of Stake, which may change the mining process in the future.

#Is investing in Bitcoin or Ethereum risky?

Yes, investing in both Bitcoin and Ethereum carries risks due to their price volatility. It’s important to conduct thorough research and consider your risk tolerance before investing.

#How do I start investing in Bitcoin or Ethereum?

To start investing, choose a reputable cryptocurrency exchange, create an account, and deposit funds. From there, you can buy Bitcoin or Ethereum. Always ensure to follow secure practices, like using two-factor authentication.

#How do Bitcoin and Ethereum integrate with decentralized finance (DeFi) applications?

Ethereum is the backbone of the DeFi ecosystem, providing a platform for smart contracts and decentralized applications (dApps) that enable lending, borrowing, trading, and more without intermediaries. Bitcoin, while not as directly integrated, can be used in DeFi through wrapped tokens like Wrapped Bitcoin (WBTC), which allows Bitcoin to be utilized on the Ethereum network, thereby participating in DeFi protocols.