Bitcoin Vs Ethereum: Which Crypto Is The Better Investment?

Bitcoin and Ethereum are the two biggest cryptocurrencies by market cap. They are both established cryptocurrencies with proven track records, but there are key differences between them that make each a better investment in different ways.

Bitcoin is a decentralised digital currency that can be sent between users without a third-party intermediary. It was created in 2008 by a person (or group of persons) using the pseudonym Satoshi Nakamoto. It was the first cryptocurrency and has a finite supply capped at 21 million coins. It is well-established, has a strong brand, and is now accepted by major retailers, including Microsoft, Starbucks, and BMW.

Ethereum is a blockchain platform created to support smart contracts and secure financial transactions. Its native cryptocurrency is Ether. It is a more versatile platform than Bitcoin, with a wide range of applications, including decentralised finance, gaming, gambling, and socialising. It is also faster and has lower transaction fees than Bitcoin.

Both Bitcoin and Ethereum have experienced huge growth since their launch and have been exceptional long-term investments. However, both are prone to extreme price volatility and are high-risk investments.

So, which is a better investment? It depends on what you are looking for. If you are looking for a simple, established cryptocurrency with a strong brand and finite supply, then Bitcoin may be the better choice. If you are looking for a more versatile and innovative platform with a wide range of applications and lower transaction fees, then Ethereum may be the better option. Ultimately, it comes down to your risk appetite and investment goals.

Bitcoin's finite supply

Bitcoin has a finite supply capped at 21 million, while Ethereum has a theoretically infinite supply. This makes Bitcoin less susceptible to inflationary pressures and a more attractive investment option.

The limited supply of Bitcoin is a result of its creator Satoshi Nakamoto's vision for a hard electronic currency without inflation. By capping the supply, Nakamoto ensured that Bitcoin's value would not be diluted over time, unlike traditional fiat currencies, where central banks can print more money, leading to inflation.

As of December 2023, there were approximately 19.57 million bitcoins in circulation, with the remaining 1.43 million to be released over the next 117 years. The rate at which new bitcoins are introduced into the market is controlled by Bitcoin's algorithm, which halves the number of bitcoins rewarded to miners for solving complex mathematical puzzles approximately every four years. This process, known as "halving," further contributes to Bitcoin's scarcity and increasing value over time.

The finite supply of Bitcoin has already had a significant impact on its value. Since its inception in 2009, the value of Bitcoin has grown exponentially, increasing by a million-fold over a decade. As more people buy into the concept of Bitcoin, the limited supply drives up its price.

In contrast, Ethereum, Bitcoin's closest competitor in the cryptocurrency market, has an unlimited supply. While Ethereum has a mechanism called "burning" to remove ether from circulation, there is no overall limit on the number of ether that can enter the market. This unlimited supply makes Ethereum more susceptible to inflation, which can decrease the value of each individual coin over time.

Therefore, Bitcoin's finite supply is a crucial factor in its value proposition and a key consideration for investors when choosing between Bitcoin and Ethereum.

Ethereum's uncapped supply

The absence of a supply cap on Ethereum has implications for its value as a cryptocurrency. In the short term, it is unlikely that ethereum will be worth more than bitcoin because bitcoin has a limited supply, and this could mean that it will remain worth more than ethereum. However, in the long term, ethereum's uncapped supply could be advantageous. Ethereum is programmable, which means it is not just a currency but also a marketplace for financial services, games, and apps. This gives Ethereum significant untapped potential for the future.

While Ethereum's uncapped supply may be a concern for some investors, it is important to note that the Ethereum network has mechanisms in place to manage its supply. The London Upgrade introduced a burn mechanism that removes ether from circulation, and the network's transition to a proof-of-stake consensus mechanism has reduced the rate at which ether is created. These changes have led to deflationary supply dynamics for Ethereum, which means that its supply can decrease over time, potentially increasing its value.

Bitcoin's status as the first cryptocurrency

Bitcoin was created in 2008 and released as open-source software in January 2009 by a pseudonymous computer programmer or group of programmers known as Satoshi Nakamoto. It is a decentralized, peer-to-peer network that allows for financial transactions without the need for intermediaries such as banks. Bitcoin's blockchain technology, which serves as the backbone of the cryptocurrency market, ensures the integrity and chronological order of transactions.

As the first cryptocurrency, Bitcoin has had a significant impact on the global financial landscape. It has been adopted as legal tender in El Salvador and is used by some governments, such as Iran, to circumvent sanctions. Additionally, Bitcoin has attracted the attention of regulators and financial institutions, with some countries banning its use due to concerns over its potential for criminal use and environmental impact.

Despite growing competition from other cryptocurrencies like Ethereum, Bitcoin remains the most valuable and well-known crypto asset due to its first-mover advantage. Its status as the first cryptocurrency has allowed it to achieve widespread adoption and trust among investors, making it a dominant force in the crypto market.

Ethereum's greater versatility

Ethereum's blockchain platform is designed to support smart contracts and secure financial transactions, giving it a more diverse range of applications than Bitcoin.

Ethereum's smart contracts are software that allows decentralised apps (dApps) to run automatically on a blockchain when a set of predetermined conditions are met. These dApps can be used for gaming, gambling, socialising, and even decentralised finance (DeFi).

The Ethereum network's versatility is further demonstrated by the fact that most non-fungible tokens (NFTs) are also based on it.

Ethereum's decentralised nature and ability to support complex applications make it an attractive platform for developers and users seeking a broader range of functionalities beyond just digital currency.

Ethereum's blockchain is also more energy efficient than Bitcoin's. While Bitcoin currently operates on a proof-of-work (PoW) system, which requires a large amount of energy, Ethereum transitioned to a proof-of-stake (PoS) model in 2022, reducing its energy consumption significantly.

The PoS system selects validators via an algorithm, and to qualify, traders must "stake" some of their cryptocurrency as collateral. The more crypto they stake, the higher the likelihood they will be chosen to validate a block and receive a reward. This mechanism helps secure the Ethereum blockchain while reducing energy usage.

Ethereum's versatility extends beyond its technical capabilities. As a platform, it acts as a marketplace, enabling users to buy and sell goods and decentralised applications. This feature makes Ethereum more than just a cryptocurrency and gives it a wider range of use cases compared to Bitcoin.

In summary, Ethereum's greater versatility stems from its ability to support smart contracts, its energy-efficient PoS consensus mechanism, and its role as a marketplace for goods and services, making it a more attractive platform for developers and users seeking a broader range of functionalities and applications.

Bitcoin's security and decentralisation

Bitcoins Security and Decentralisation

Bitcoin is a decentralised digital currency, meaning it is not controlled by a central authority or intermediary, like a bank or government. Instead, it is powered by a network of users who facilitate financial transactions through a process called 'mining'. This involves users competing to verify transactions by solving complex mathematical puzzles using powerful computers. This verification method is known as 'proof-of-work'.

Bitcoin's blockchain is the most secure and decentralised of any cryptocurrency. Thousands of nodes and miners around the world help to verify transactions and maintain the network, making it less susceptible to hacking or manipulation. Bitcoin's decentralised nature also means it is not subject to the same level of centralisation or regulation as other cryptocurrencies, like Ethereum, which has been criticised for being too closely tied to its founders and developers.

• Using a strong password that includes letters, numbers, and punctuation marks.
• Keeping your software up to date to receive important stability and security fixes.
• Using two-factor authentication for added security.
• Backup your entire wallet regularly and store it in a safe place.
• Use multiple secure locations for your backups to prevent single points of failure.
• Be careful with online services and only choose them very carefully.
• Use an offline wallet, or 'cold storage', for higher security.
• Utilise multi-signature protection, which requires multiple independent approvals for transactions.

By following these security measures and staying vigilant, Bitcoin users can enhance the security and protection of their digital assets.

Frequently asked questions