When it comes to the most popular investment approaches of today, cryptocurrency represents a group of assets that have exploded in popularity. Whether or not you believe the hype, there is no denying that cryptocurrencies like Bitcoin have seen huge growth – in 2019, the average daily return of Bitcoin was 0.63%, a number that has increased further since.
Alongside Bitcoin, a number of altcoins are gaining traction within the crypto community – in particular, a notable altcoin that has seen significant returns is Ethereum, the second most popular cryptocurrency in the world.
While both coins are cryptocurrencies, they both serve very different purposes. While investors are pouring money into the assets, the reasons for doing so differ almost entirely between the two.
How Cryptocurrency works as a whole
Before getting into the differences between Bitcoin and Ethereum, it is important to have an understanding of how cryptocurrency works more generally, and why many people are excited about the impact it might have.
Essentially, cryptocurrencies are digital assets – they operate on blockchain technology, wherein a decentralised network facilitates crypto transactions whilst removing the need for a central authority.
Here is an example: investors will buy Ethereum at exchanges such as Independent Reserve – in doing so, a record of each transaction will be recorded on the blockchain. Given that this blockchain acts as a public, decentralised ledger, the transactions recorded are public and cannot be altered.
Built on this premise, cryptocurrencies offer unprecedented security and convenience, and now cover a huge range of uses, from digital currency, to the facilitation of Dapp (decentralised app) building and usage.
Why Bitcoin is the most popular cryptocurrency in the world
Bitcoin is the most popular cryptocurrency in the world – and for good reason. Aside from the fact that it was the first cryptocurrency ever made (created back in 2009), it set standards and got several key things right from the start.
Bitcoin’s main purpose is to act as a digital currency – it solves a number of problems associated with traditional cash and banking, from problems with physical deterioration and theft, to higher expenses, slow processes and centralisation more generally.
With this vision in mind, investors have piled into the asset over the past few years – the currency hit a previous high of $20,000 USD in 2017, and has since gone on to almost triple in price – as of March 2021, BTC hit $60,000 USD in value. This huge increase in price was thanks to a number of factors, including institutional investment and expansions in support and infrastructure. Our guide to investing in bitcoin is now one of the most popular articles on Financial Expert.
Today, Bitcoin has gained support from companies such as Tesla, Wikipedia, and PayPal. Some experts predict that Bitcoin will one day become one of the most popular currencies in the world – ultimately, only time will tell. Until then, we can only speculate whether it’s the best cryptocurrency to invest in.
Bitcoin accessibility as an asset class is also increasing. 2022 has seen the arrival of Bitcoin ETFs onto the US stock exchanges. These allow investors to invest in a collective investment linked to the price of Bitcoin without opening a separate cryptocurrency exchange account.
Why investors are seeing value in Ethereum
In contrast to Bitcoin, Ethereum is a cryptocurrency that offers value in a very different way – it is a platform for the creation and use of Dapps, utilising what are called ‘smart contracts’.
Firstly, Dapps are decentralised apps – applications and programs of which the backend runs on blockchain, rather than a central server. This means that applications can be developed where there is no central owner, and they can be run without risk of fraud, downtime, control, or interference.
Ethereum utilises ‘smart contracts’ in running these applications. Essentially, smart contracts are self-enforcing agreements that remove the need for the presence of a third party by executing contracts based on a set of rules. As a result, two parties will meet, and if the predefined rules of the self contract are met, the transaction will occur.
Despite this use, Ethereum is still traded as a digital asset across crypto exchanges around the world, just like Bitcoin. Ethereum was valued at around $185 USD at the beginning of 2020 – by the start of the next year, it was worth more than $1350 USD.
Deciding to invest in BTC or ETH
In deciding between Bitcoin and Ethereum, there are a number of considerations to make.
Bitcoin offers advantages of institutional support and mainstream hype, however the core value behind Ethereum, as well as plans for significant future developments and improvements to aspects like transaction speed and scalability (in an update called Ethereum 2.0) mean that Ethereum is becoming an asset of significant potential value.
Ultimately, the decision on whether to invest in Bitcoin or Ethereum (or both) will often come down to the long term value you see in each asset. Both cryptocurrencies have seen unprecedented growth and overall performance in recent years.
To learn more about Bitcoin, Ethereum, Cryptocurrencies & blockchain as a topic, check out the best cryptocurrency books.