Bitcoin Or Ether: Which Crypto Is The Better Investment?

Bitcoin and Ethereum are the two leading cryptocurrencies in the market. They are both created through very different processes – mining vs. staking – and have different environmental footprints. Ethereum fees have tended to be higher than those for Bitcoin. Bitcoin was the first cryptocurrency and is still the first choice for big corporates. However, Ether, the second-largest cryptocurrency, rose to a record as interest in so-called alt coins continues to surge. So, what are the key differences between the two, and how do you decide where to invest?

Bitcoin's value as the first cryptocurrency

Bitcoin was the first cryptocurrency created and is now the most valuable and well-known. Its value rests mostly on its status as the first cryptocurrency and as an alternative to fiat currency.

Bitcoin's value has increased due to its finite supply, capped at 21 million, preventing inflation. It is also decentralised, meaning it offers a way to exchange value outside the control of any one person, group, or entity, including governments and central banks. This makes it particularly useful in countries where national currencies are unstable or at risk of seizure, such as in the case of the Russia/Ukraine conflict.

Bitcoin's value has also been driven by its increasing adoption by institutions, countries, and platforms. El Salvador became the first country to adopt Bitcoin as its legal tender in 2021, and in 2024, the US Securities and Exchange Commission approved the first 11 spot Bitcoin ETFs, simplifying investors' access to crypto markets.

However, Bitcoin's value is volatile and prone to significant fluctuations. Its value decreased by more than 70% from its all-time high of $68,789 in November 2021 to lows in the $16,000 range in December 2022.

Despite growing competition from other cryptocurrencies, Bitcoin remains one of the clear crypto market leaders. Its market cap of more than $1 trillion dwarfs that of its competitors, and it is still the first choice for many big corporate adopters.

Ethereum's utilitarian value

Ethereums utilitarian value

Ethereum is a blockchain platform that supports smart contracts and secure financial transactions. Its native cryptocurrency is Ether. Ethereum's utilitarian value lies in its ecosystem of decentralised apps (dApps), which offer a wide range of services including gaming, gambling, and socialising. The Ethereum network also powers the majority of non-fungible tokens (NFTs).

Ethereum is often compared to Bitcoin, the world's most popular cryptocurrency. While Bitcoin's value lies in its status as the first cryptocurrency and an alternative to fiat currency, Ethereum offers more utilitarian value through its network of dApps.

Ethereum's primary purpose is to serve as a platform for smart contracts and dApps, while Ether is the native cryptocurrency used to facilitate transactions. The Ethereum network is decentralised and operates on thousands of computers worldwide. In 2022, Ethereum transitioned from an energy-intensive proof-of-work (PoW) verification system to a proof-of-stake (PoS) model. The PoS system selects validators via an algorithm, with traders who stake more cryptocurrency having a higher chance of being chosen to validate a block and receive a reward.

The case for investing in Ethereum over Bitcoin is strengthened by the fact that Ethereum has been through upgrades that should improve the network, including a change that will reduce supply. This could boost the price by offering greater appeal while limiting the number of Ether available.

While Bitcoin remains the biggest single cryptocurrency by far, with a market cap of over $1 trillion compared to Ethereum's $380 billion, Ethereum's market cap is more than three times larger than any other crypto's.

Bitcoin's finite supply

Bitcoin has a finite supply capped at 21 million. This is because Bitcoin inventor Satoshi Nakamoto designed the cryptocurrency with a cap to limit the supply. This increases its scarcity over time, which tends to increase demand and price.

New bitcoins are added to the Bitcoin supply approximately every 10 minutes, which is the average amount of time it takes to create a new block on the Bitcoin blockchain. By design, the number of bitcoins minted per block is reduced by 50% after every 210,000 blocks, or about once every four years.

The total number of bitcoins issued is not expected to reach 21 million due to the use of rounding operators in the Bitcoin codebase. The Bitcoin network uses bit-shift operators—arithmetic operators that round some decimal points down to the closest smallest integer. This rounding down may occur when the block reward for producing a new Bitcoin block is divided in half, and the new reward amount is calculated.

After the maximum number of bitcoins is reached, no new bitcoins will be issued. Bitcoin miners will likely earn income only from transaction fees. If Bitcoin in 2140 serves primarily as a store of value rather than for daily purchases, miners could still profit, even with low transaction volumes and the disappearance of block rewards. Miners could charge high transaction fees to process high-value or large batches of transactions, with more efficient "layer 2" blockchains like the Lightning Network facilitating daily bitcoin spending.

As of December 18, 2023, there were 19.57 million bitcoins in existence, leaving about 1.45 million bitcoins to be released. At the current rate, the last bitcoin is expected to be mined around 2140. However, quirks in the Bitcoin network and the way it rounds numbers mean that Bitcoin will likely never reach 21 million.

Ethereum's infinite supply

Ethereums Infinite Supply

Ethereum, the second-largest cryptocurrency, has seen a surge in interest as investors branch out from Bitcoin. However, one of the key differences between the two cryptocurrencies is their supply cap. Bitcoin has a finite supply of 21 million, while Ether, the native cryptocurrency of Ethereum, has a theoretically infinite supply.

Ethereum has a capped issuance rate of 18 million Ethereums per year. The number of tokens released yearly is designed to balance out the number of tokens lost due to misuse, accidental loss, or other reasons, eventually reaching equilibrium. In 2018-2019, Ethereum changed its algorithm from a Proof-of-Work system to a Proof-of-Stake consensus algorithm called Casper, which affected the rate of token issuance. Despite the change, Ethereum has guaranteed that the new issuance rate will not exceed the previous maximum and is expected to be much less.

Ethereum's supply is managed through a process known as "burning". Users must pay a transaction or "gas" fee for every transaction completed on the Ethereum network. A fraction of each gas fee is burned, or destroyed, reducing the overall supply of Ether. This process has led to deflationary periods for Ether, where more ETH has been burned than created. However, following the Dencun upgrade in March 2024, which lowered fees significantly, Ether is currently in an inflationary state.

While Ether does not have a hard supply cap, the rate of issuance and the potential for deflationary periods through burning means that its supply is not truly infinite. The finite issuance rate and the impact of burning on the overall supply of Ether are important factors to consider when deciding whether to invest in Bitcoin or Ether.

Bitcoin's greater acceptance by traditional finance

Another sign of Bitcoin's greater acceptance is its higher brand recognition and commercial support compared to other cryptocurrencies. It has the most liquidity and is the most widely accepted cryptocurrency, making it a popular choice for investors and businesses alike. This widespread adoption has contributed to Bitcoin's status as the most highly valued cryptocurrency, with a market cap of over $1 trillion.

Furthermore, Bitcoin's value is based on supply and demand, rather than political interference, which aligns with traditional financial principles. The finite supply of Bitcoin, capped at 21 million, also sets it apart from other cryptocurrencies and adds to its appeal for investors. Overall, Bitcoin's greater acceptance by traditional finance is a result of its established presence, perceived investment value, and integration into the global financial system.

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