Cryptocurrencies have undeniably piqued the interest of investors. Bitcoin (BTC), the first of its kind, began trading in 2009, with its value initially less than a penny. Despite some volatility, its price has steadily climbed, reaching an all-time high of $68,990 in November 2021. Ether (ETH), the native token of the Ethereum network, made its debut in 2015 at $2.83 and eventually hit its own record high of $4,865 in November 2021.
To put this into perspective, even after a significant crypto market downturn in 2022, Ether was recently trading around $1,888, representing a staggering 667-fold increase in less than eight years.
Compare this with Apple Inc. (ticker: AAPL), a paragon of successful stock and one of the best-performing equities ever. The last time AAPL traded at one six-hundred-sixty-seventh of its current price was two decades ago, in 2003. Many stocks will never see such growth.
The calculations behind Bitcoin’s extraordinary ascent from its inception are even more astounding.
Beyond their rapid growth and their status as the two largest cryptocurrencies by market capitalization, the similarities between Bitcoin and Ethereum (colloquially referred to as Ether or ETH) largely stop there. They are fundamentally different entities, created for distinct purposes and with unique internal mechanisms.
However, historical context aside, investors are keen to know which is the better investment: Bitcoin or Ethereum?
Here’s a brief overview of some of the key factors influencing each cryptocurrency’s investment prospects.
Operation of Bitcoin vs Ethereum
Bitcoin uses a proof of work algorithm, while Ethereum is migrating to proof of stake (POS). We will cover this more in-depth later on in the article so stay reading. Overall, this means that the Ethereum blockchain technology allows for less resource-intensive use of blockchain networks. Furthermore, the use of POS reduces costs. For this reason, ETH is frequently chosen as the crypto for transfers between exchanges.
Let’s dive deeper into the history of Ethereum and Bitcoin and what are further differences between these two coins.
Brief Overview/History of Ethereum vs Bitcoin
Bitcoin came into the world in 2008 and began to function in 2009 after it was released as the first publicly known public distributed ledger – also called a blockchain. Its founder was an unknown developer, who operated under the pseudonym, Satoshi Nakamoto.
On the other hand, the Ethereum network came into existence much later – on 30th July 2015 after several years of development by founder Vitalik Buterkin and his team. Ethereum tokens were first distributed with a process called pre-mine and later on sparked massive interest from miners around the world. Later on, the process of mining created massive outrage in microchip production as well as sparked debates about the massive power usage that blockchain network maintenance creates. Now cryptocurrencies were attractive not only for trading purposes but also for mining.
Ethereum has developed faster over the years
Ever since the Ethereum network has developed faster than Bitcoin, several new features have been introduced. The main one being the ability to develop decentralized apps that later sparked a massive boom in the form of Initial Coin Offerings or ICO`s for short. The creation of decentralized application technology created massive interest around the world from investors and financial experts. Smart contract was the new buzzword, and ether was the way to go.
Now, not only trading and mining was interesting for cryptocurrency enthusiasts around the world. ICO`s created a massive industry with millions upon millions raised for projects that were in their initial stages – often without any real proof of concept. Anyone could participate in the next major project by usually transferring their cryptocurrencies to a specific ICO address that kept records on Ethereum`s blockchain to track investments.
Hard fork for Ethereum created Ethereum Classic
The phenomenon of ICO`s and a large-scale hack of the chain caused a split in consensus for Ethereum miners and supporters. Ethereum founder Vitalik Buterin wanted to develop DAPP functionality further, while other supporters had a different opinion. This caused a split in Ethereum coin – Ethereum and Ethereum Classic (ETC) was created in a process called a hard fork. Now anyone with Ethereum in their wallet had two coins for the price of one. Additionally, miners could now be tuned to switch to mine the blockchain that offered the best reward at the time.
Ethereum still the leader of altcoins
Since the split, the original Ethereum speed has continued to develop further, while ETC remains a proof of work blockchain with limited transaction speed in comparison. Therefore, the original Ethereum platform is still the king, as we can see in the total market cap and sentiment.
Both ETH and ETC can still be traded on practically every cryptocurrency exchange. Initially, some of the exchanges did not recognize this split. This caused some debates in the ecosystem for the need to create a decentralized exchange that allowed for free trading of any digital asset possible.
A split of Bitcoin created Bitcoin Cash (BCH)
A similar disagreement between the development community as with Ethereum caused a split of the Bitcoin network. Some of the developers wanted increased transaction speed, while others were more concerned for the safety of each Bitcoin transaction.
Therefore, BCH was created as a spin-off of Bitcoin that allowed for faster block times and an increase in their block size limit, which resulted in reduced fees from one wallet or crypto exchange account to another. The increase in speed and decrease in transaction fees did drive a lot of money towards BTC Cash.
Bitcoin Cash – nice idea, but Bitcoin is still the king
Some of the Bitcoin miner power was switched to the BCH blockchain platform as it offered a better reward to any miner initially. Over time, the investors did choose the original Bitcoin network as the go-to option. This was further reflected in Bitcoin price over the following years as it is still the king of the market when looking at the total market cap.
As we can see today, Bitcoin is still the top virtual currency, while BCH is just another digital asset that was received as a bonus for holding Bitcoin and waiting for the Bitcoin price to increase.
Overall, the price did react bullishly to this event as everyone now had an additional coin on their exchange of choice. This caused even more interest in the technology and drove more fiat currency into the ecosystem.
Exchanges to push Altcoin dominance further?
Later on, exchanges joined the ICO game and became an intermediary to increase security. Smart contracts were created to keep a store on what was invested. Further, ICO`s saw their market cap grow exponentially and further increased interest in digital currency. However, many ICO`s turned to be nothing more than pump and dump schemes. This caused distrust for the cryptocurrency world, and many started to debate whether blockchain is even needed. ETH network saw its first major crisis – applications that promised to solve a lot turned out to let their investors down by not delivering promised features or even the platform itself.
Which was first – Bitcoin vs Ethereum?
Bitcoin is the most traded crypto across almost every exchange.
Bitcoin was the first cryptocurrency created. To this day the cryptocurrency has remained the largest blockchain network by market capitalization. For now, BTC remains the leader and is the most traded crypto across almost every exchange as measure by the publicly available data across exchanges. Almost anyone across the world has heard or seen the famous slogan “Buy Bitcoin”.
What Is Ethereum?
The Ethereum platform is one of today’s best-known decentralized blockchain technology solutions.
Ethereum (ETH), which is the digital coin that runs on the Ethereum platform is one of today’s best-known decentralized blockchain technology solutions that offers smart contracts functionality with the use of ETH tokens. At first, it used a proof-of-work algorithm to sustain and validate its blockchain, however, that is slowly changing. Ethereum is transitioning into the staking algorithm.
Additionally, a process called sharding allows ETH blockchain to run several parallel cryptocurrency chains at once, increasing network throughput and speed. Therefore, Ethereum is set to increase in price over the upcoming years as the ecosystem rewards projects that bring extra significance to the ecosystem.
Features of Ethereum
- Proof of stake algorithm
- Decentralized apps
- Less volatile than other altcoins
What Is Bitcoin?
Bitcoin is the first known public blockchain invented.
Bitcoin is the first known public blockchain invented. It uses a public ledger, also called blockchain, to secure, validate and maintain its network. It allows anyone to send value without the need of banks or other payment processors.
Since its inception in 2009, it has grown to a market capitalization of over $1 trillion and is “the” decentralized blockchain that can be traded on any exchange. Bitcoins’ popularity continues to increase as it has a very solid run in terms of performance over the past years, sparking interest from the conventional financial world.
Features of Bitcoin
- Proof of work algorithm
- Store of value
- Best-known cryptocurrency
- Most stable in terms of price fluctuations
BTC and ETH together are increasingly making news as an alternative to central control on the money. Instead of central servers that store records, Ethereum and Bitcoin allow the transaction processing to be distributed. This means that instead of one single central authority like a Central Bank, Ethereum and Bitcoin are not controlled by a single power based in one location.
Now, let`s take a look at the advantages and disadvantages of Bitcoin vs Ethereum.
Ethereum advantages over Bitcoin
Ether is the first to power a massive list of decentralized applications by the use of smart contracts
When comparing Bitcoin vs Ethereum, there are two main points that bring Ether in the lead. First, Ether is the first to power a massive list of decentralized applications by the use of smart contracts. Second, Ether has now transitioned to a proof of stake algorithm, which increases platform throughput and speed. Another power of the Ether platform is based on the transaction costs per block. This reduces transaction costs for both traders and exchanges, creating huge differences in trading and transaction fees.
Another strength for the token is that Ethereum miners are easily built. This drew a lot of money and interest to the space couple of years ago. However, since the move to staking mechanism, investors have mainly continued to build Bitcoin miner solutions as they offer the chance to acquire the digital coin at a reduced price and more stable return for money invested.
Smart contracts – Ethereum’s main advantage?
As mentioned, Ether is the first to use smart contracts. The use of Ether to invest in other projects raising funds through a process called Initial Coin Offering, sparked massive popularity in the digital ecosystem. Now anyone could participate in the hottest new crypto project by purchasing Ether and transferring it to a specific wallet.
Store of value – Bitcoin’s main advantage?
Both have increased in their value over the past years. However, Bitcoin is still considered to be the coin to choose when looking to invest for the long-term. For the past years, Bitcoin has been the go-to option when looking for the best crypto, similar to gold in the conventional financial system. Therefore, this is the main advantage for Bitcoin. The large total capitalization of Bitcoin simply creates more interest and stability when compared to any other blockchain platform.
An additional advantage for virtual currency is Bitcoin mining. It offers a more predictable return of money when compared to Ethereum mining as it is larger and less volatile. However, these days only an institutional investor can afford to set up the infrastructure necessary for a decent-sized mining farm.
Ethereum disadvantages over Bitcoin
The large total capitalization of Bitcoin simply creates more interest and stability
Too many platforms – Ethereum’s disadvantage?
Ethereum’s main advantage might also be its disadvantage as there are simply too many applications all running at once and competing for space on each block mined. As there are so many coins that use ethereum’s data block, it creates congestion on ethereum’s network, reducing the speed of transactions and increasing Ethereum transaction costs. This is likely to be solved by sharding. This works in a similar way as building and running the Ethereum blockchains at once. Therefore, many experts think that this will allow the second-largest cryptocurrency – Ether, to continue its dominance that was seen over the last years.
Slow speed – Bitcoin’s main disadvantage?
The point is that the difference between Bitcoins and Ethereums network operation lies in the way they operate. Bitcoin only produces a new block every 10 minutes. This reduces the speed at which Bitcoin can process transactions. Additionally, when any of the cryptos gets large price movements, this creates large inflows of transactions on exchange accounts, creating congestion of currencies network during times when it is needed the most.
Bitcoin Vs. Ethereum: Main Differences
Although Bitcoin and Ethereum both operate on the foundation of distributed ledgers and cryptography, they exhibit numerous technical differences. For instance, Ethereum network transactions can carry executable code, whereas Bitcoin network transactions only contain data for logging transaction details. The block time also varies between the two, with Ethereum transactions receiving confirmation in seconds compared to Bitcoin’s minutes. Furthermore, their consensus algorithms differ, with Bitcoin employing SHA-256 and Ethereum utilizing LMDGhost.
Proof-Of-Work (PoW) Vs. Proof Of Stake (PoS)
Bitcoin employs a consensus protocol known as proof of work (PoW), which enables network nodes to reach a consensus on the status of all recorded information and safeguards the network against specific types of attacks. In contrast, Ethereum transitioned to proof of stake (PoS) in September 2022, a series of interlinked upgrades aimed at enhancing Ethereum’s security and sustainability. As part of the shift to PoS to tackle scalability issues, Ethereum has adopted sharding, a process set to continue throughout 2023.
One of the main criticisms of PoW is its high energy consumption due to the extensive computational power it requires. PoS, on the other hand, replaces this computational power with staking, thereby reducing its energy intensity. It also replaces miners with validators who stake their cryptocurrency to gain the ability to generate new blocks.
Purpose And Future
While both BTC and ETH are forms of digital currency, the primary objective of ether isn’t to position itself as an alternative financial system. Instead, its main function is to enable and monetize the execution of smart contracts, decentralized applications (dApps), and any conceivable blockchain solution.
The Ethereum ecosystem is experiencing rapid growth due to the increasing popularity of its decentralized applications (dApps) in fields such as finance (decentralized finance or DeFi apps), arts and collectibles (non-fungible tokens or NFTs), gaming, and technology. Furthermore, Ethereum plans to implement sharding in 2023 to improve its scalability.
Bitcoin, too, has seen developments with the introduction of the Taproot upgrade to facilitate smart contracts. Additionally, the Bitcoin Lightning Network, a second-layer protocol aimed at off-chain transactions for network speed enhancement, is under development.
Predicting which cryptocurrency and blockchain will endure is speculative—perhaps both will. However, one certainty is that both have sparked crucial conversations about global financial systems.
Bitcoin Vs. Ethereum: Which One Should You Choose?
Both Bitcoin and Ethereum are cryptocurrencies built on blockchain technology, sharing several similarities. However, there are also substantial differences between the two.
- Bitcoin is the most valuable cryptocurrency, with a market capitalization exceeding $566 billion. Ethereum, although newer, is the second most valuable cryptocurrency, with a market capitalization of over $222 billion.
- Bitcoin primarily serves as a store of value and a medium of exchange.
- Ethereum is predominantly used as a platform for decentralized applications and smart contracts.
- Bitcoin has a finite supply of 21 million coins, whereas Ethereum doesn’t impose a hard cap on its supply.
- Bitcoin transactions are validated by miners who solve complex mathematical problems, while Ethereum transactions are verified by nodes rewarded with Ether.
- Bitcoin blocks are mined approximately every 10 minutes to validate transactions, while Ethereum blocks are mined roughly every 12 seconds. Hence, users pay transaction fees higher in Bitcoin network.
- Bitcoin’s usage costs are higher than Ethereum’s.
- Ethereum offers more flexibility and scalability compared to Bitcoin.
Attention From Investors
The Winklevoss twins, renowned Harvard graduates who alleged that Mark Zuckerberg appropriated their Facebook concept, attempted to initiate a Bitcoin ETF but were rejected by the Securities and Exchange Commission. Blackrock and Fidelity have filed for ETF applications, too, and now the approval depends on the SEC.
Despite the SEC’s reservations about BTC, institutional investors have gradually embraced it. Bitcoin was the first cryptocurrency to have futures contracts offered by CME Group Inc. in late 2017, enabling investors to speculate on future prices. In October 2021, the ProShares Bitcoin Strategy ETF (BITO) was launched, becoming the first SEC-approved crypto-based ETF.
Although Ether futures were eventually introduced on CME in February 2021, Bitcoin’s early dominance facilitated quicker institutional acceptance; there is still no ETF tracking the ETH price, even through futures contracts.
However, it’s not just investors who have greater access to BTC. Consumers can earn Bitcoin through services like Lolli, the inaugural Bitcoin rewards application that allows users to earn BTC back when shopping online. Initially an online-only rewards platform, Lolli has since expanded into physical store shopping rewards with a feature called Card Boosts, which enables consumers to convert their regular credit and debit cards into Bitcoin rewards cards when shopping at Lolli partners.
Over 10,000 vendors, including companies like Nike Inc., Walmart Inc., Best Buy Co. Inc., and McDonald’s Corp., offer rewards via Lolli.
While these milestones are noteworthy, perhaps the most significant endorsement of Bitcoin’s longevity is the fact that several multibillion-dollar companies have purchased Bitcoin to hold on their balance sheets.
Microstrategy Inc., an analytics company, is the largest corporate BTC holder. However, in recent years, even more prominent companies like Block Inc. (formerly known as Square) and Tesla Inc. have purchased Bitcoin to hold instead of cash.
No major companies have publicly purchased Ether to maximize cash returns. With S&P 500 companies alone holding trillions of dollars in cash and short-term investments, the growing acceptance of Bitcoin on balance sheets could potentially be a massive catalyst for BTC.
When it comes to choosing between Bitcoin and Ethereum for investment, the decision largely depends on your investment preferences. Bitcoin is an excellent choice for peer-to-peer transactions, while Ethereum is ideal for building decentralized applications and smart contracts.
Bitcoin Vs. Ethereum: Where To Buy?
Bitcoin and Ethereum can both be purchased on any exchange. Both of these cryptocurrencies have been the leaders for a long time. Therefore, the demand for them is simply too high for any digital currency exchange to ignore them.
The fact is, that most people around the world have only heard or read about Ethereum and Bitcoin. There is a lot more way to go before other cryptocurrencies gain similar popularity in the currency ecosystem. The data constantly shows ETH and BTC are the most traded cryptocurrencies with the most transactions per day as of right now, and that is unlikely to change soon. As long as Bitcoin’s dominance continues, we are sure that every major exchange will offer to purchase BTC.
Conclusion: Who wins?
Despite their unique attributes, both Ethereum and Bitcoin introduced revolutionary solutions unimaginable merely two decades ago. They were conceived with distinct objectives in mind, yet these contrasts turn out to be beneficial in their own right.
Bitcoin offers a robust store of value, made possible by the Proof of Work consensus mechanism and its finite supply. Furthermore, Bitcoin can function as a medium of exchange, particularly with the evolution of payment solutions like the Lightning Network.
Conversely, Ethereum provides access to a myriad of DeFi tools enabling you to trade, swap, and even borrow assets using cryptocurrency. Ethereum hosts the major Web3 projects, paving the way for innovative concepts such as NFTs and blockchain gaming.
The decision to utilize Bitcoin and Ethereum, individually or collectively, ultimately depends on your specific needs and objectives. Choosing to invest in BTC or ETH requires thoughtful consideration, just like any other potential acquisition, which involves thorough personal research to determine its relevance to your situation.
To purchase BTC and ETH, Binance serves as a suitable platform. However, prior to any transaction, account creation via the KYC process is mandatory.
Also, when trading or investing in cryptocurrencies, always stay updated with the last news. Therefore, see our news section or read our various long-term guides on various cryptocurrencies such as Bitcoin and Ripple.
Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.