For those new to investing in cryptocurrencies, follow the sage investment advice of not investing more than you can safely lose. Investing in cryptocurrencies is highly speculative. Cryptocurrency values fluctuate wildly with a high degree of volatility. Investing in cryptocurrency is gambling on a system based on complex math.
Cryptocurrencies are the ultimate fiat currency because they have no underlying valuable assets backing them up. Also, there is no government certifying them as legal tender. In fact, a government can make cryptocurrency trading illegal by legislation. The announcement of the South Korean plans to ban cryptocurrency trading in early 2018 caused the Bitcoin price to suddenly drop in value by $2,000.
It is possible to make some profits by investing in cryptocurrencies. However, there are significant differences in cryptocurrencies to consider. Let’s compare two of the most popular cryptocurrencies of Bitcoin and Ethereum.
Bitcoin was the first cryptocurrency. Blockgeeks gives history. The first Bitcoin transaction was on January 12, 2009. By November 6, 2010, the market value of Bitcoin exceeded $1 million.
CNBC reported that Bitcoin hit the all-time high of $19,783.21 on December 17, 2017. At that time, the market cap exceeded $300 billion. All cryptocurrencies suffered a steep decline and lost 80% of their value from their all-time highs. By June 2018, Bitcoin had fallen below $6,000.
Bitcoin value during June 2019 fluctuates around $9,000 and the market cap for Bitcoin is now around $180 billion.
Invest in Ethereum
In August 2014, Ethereum completed its Initial Coin Offering (ICO) and raised $18.4 million to develop the Ethereum platform. On July 30, 2015, the first stage of Ethereum called Frontier was released.
Ethereum encourages its use by others, which lead to the creation of Distributed Autonomous Organization (DAO) as a hard fork from Ethereum, Unfortunately, DOA was hacked in June 2016, causing the loss of around $50 million, which represented about 15% of the value of Ethereum at that time.
Since then, there have been other hard forks, which include Ethereum Classic on October 25, 2016, Metropolis Byzantium on October 16, 2017, and Metropolis Constantinople on February 28, 2019.
Since Ethereum is open source code, anyone can make a hard fork that creates a spin-off cryptocurrency. This may diminish the value of the original Ethereum.
Ethereum vs. Bitcoin Investments
To delve into the differences between Ethereum and Bitcoin more deeply let’s look at their purpose, price history, mining, and transaction fees.
One thing to consider is if a cryptocurrency extends applications of blockchain technology in useful ways besides investment speculation and as an alternative payment system. Bitcoin is only useful as a digital storage of value. It does not scale well enough to become an alternative to traditional currency. Ethereum is more useful for many other things than Bitcoin.
Ethereum is not limited to simply digital storage of value or payment transactions.
Ethereum allows programmers to develop applications called Smart Contracts, which run on top of the Ethereum blockchain. Bitcoin cannot function like this.
An Ethereum Smart Contract allows users to interact directly without the need of a middle person. Each step in a Smart Contract can be executed only in the proper order. The application is decentralized, and no one owns it, the recorded transactions become part of the Ethereum blockchain that is distributed widely on a peer-to-peer basis.
In June 2019, Ethereum is trading around $250 compared to Bitcoin at around $9,000. The market cap for Ethereum is around $28 billion compared to $180 billion for Bitcoin. The all-time high for Ethereum was $1,432.88 on January 13, 2018, compared to Bitcoin’s all-time high of $19,783.21 on December 17, 2017.
The maximum allowed number of Bitcoins is 21 million. As of June 2019, Buybitcoinworldwide reports that about 17.8 million have been mined (created), which represents 85% of the total allowed, so there are just around 3.2 million Bitcoins that can still be mined. About 1,800 Bitcoins are produced per day. At that daily rate, this means that in about 1,777 days (4.9 years) all the Bitcoins will be created.
Ethereum does not have a limit on the number of coins that can be created. The Ethereum supply already passed 100 million coins. Ethereum is moving away from a proof of work (POW) method of complex mathematical calculations needed to create new coins, such as used for Bitcoin, to a proof of stake (POS) method. A POS method allows those who want to validate transactions to bet on a transaction’s validity and then get rewarded for placing correct bets. If the transaction is not added to the blockchain because it is not valid, they lose the amount they bet on it.
Bitcoin miners who build blocks get paid a transaction fee to place the transactions in the blockchain. The average Bitcoin transaction is around two Bitcoins, which is over $18,000 in value at current prices. The average transaction fee is over $4 for a Bitcoin transaction.
For Ethereum, the transaction fees are very low in comparison to Bitcoin. They are based on a micro-payment system called GAS. The average Ethereum fee is about ten cents per transaction.
Ethereum is more useful than Bitcoin. Bitcoin will probably always remain significantly more valuable per coin than Ethereum because Bitcoin has a hard limit of 21 million Bitcoins and Ethereum has no upper limit all.
There is no way to predict what will be the better investment in the long run and there is always the possibility of a major unexpected loss to occur with any cryptocurrency.