2021-07-06 14:16:00

Bitcoin vs. Ethereum: Which One Is the Right Investment for You?

Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) have had a rollercoaster of a year so far. Over the past 12 months, Bitcoin’s price has surged by nearly 300%, and Ethereum is up by more than 900% — and that’s despite the massive downturn they’ve both experienced over the past few weeks.

Now that cryptocurrency prices are falling, it can be a smart opportunity to “buy the dip” and invest in Bitcoin or Ethereum while they’re more affordable. But if you have limited funds available to invest, which cryptocurrency will give you more for your money? Here’s what you need to know.

Image source: Getty Images.

The case for Bitcoin

Bitcoin is one of the original cryptocurrencies, and it has, by far, the most name recognition among the public. 

If any cryptocurrency is going to succeed, it’s going to need to earn widespread adoption among sellers. Because Bitcoin is the most recognized cryptocurrency, it already has an advantage in that department. More than 15,000 companies worldwide accept Bitcoin as a form of payment, according to Fundera, and the more merchants adopt Bitcoin, the better chance it has at becoming a mainstream form of payment.

In addition, Bitcoin is known as a deflationary currency, meaning it should only increase in value over time. This could give it a leg up over fiat currencies — such as the U.S. dollar — that are subject to inflation.

The major risks involved

The biggest risk involved in any cryptocurrency is that it’s highly speculative at this point. While thousands of businesses do accept Bitcoin, the vast majority of sellers are not on board with cryptocurrency yet. Right now, it’s anyone’s guess whether Bitcoin will eventually become widely accepted. And if it doesn’t become mainstream, it could eventually become worthless.

Another downside to Bitcoin is its energy consumption. The Bitcoin mining process uses an incredible amount of computing power, which is an energy-intensive process. In fact, Bitcoin transactions currently consume more energy than the entire country of Venezuela, according to a study from the University of Cambridge.

That energy usage is already causing concern among regulators and investors, and Tesla recently announced it was suspending Bitcoin as a form of payment because of its energy consumption.

Bitcoin symbol sitting on piles of gold coins

Image source: Getty Images.

The case for Ethereum

Ethereum is a blockchain technology that hosts a native coin called Ether. Ethereum is one of the biggest names in the blockchain space, and there is a wide variety of projects hosted on the Ethereum blockchain.

Decentralized finance, for example, uses the Ethereum blockchain, and so do non-fungible tokens (NFTs). Ethereum is an open-source technology that allows developers from all over the world to create new applications on the blockchain, and if any of those new projects succeed, Ethereum (and Ether) will benefit from it as well.

Developers can also create “smart contracts” on the network, which allow users to perform safe and credible transactions without help from a third party, such as a lawyer. Smart contracts could revolutionize a variety of industries, giving Ethereum an advantage over its competitors.

Finally, developers are working on an update to the Ethereum blockchain to make it far more energy-efficient. The new technology, Ethereum 2.0, will be released later this year and is expected to use 99.95% less energy than the current technology.

The major risks involved

Again, cryptocurrencies are highly speculative, so there’s no guarantee that Ethereum or Ether will become widely adopted. Ethereum also doesn’t have as much name recognition as Bitcoin, so if merchants only accept one form of cryptocurrency, they may be more likely to accept Bitcoin than Ether.

Similarly, there are no promises that blockchain will be as revolutionary as some people may believe. Because Ethereum’s biggest advantages lie in its blockchain technology, if blockchain itself doesn’t pan out, Ethereum could suffer for it.

Which one should you choose?

Cryptocurrency in general is a high-risk investment, so before you invest at all, make sure you’re willing to tolerate the high levels of risk and volatility.

While neither of these cryptocurrencies is necessarily a “safe” investment, Bitcoin may carry less risk than Ethereum because it has a longer track record and greater name recognition. However, Ethereum may have more opportunities for growth over time.

Whichever option you choose, make sure you’ve done your research and are comfortable with risk. Cryptocurrency isn’t right for everyone, but choosing the right investment can help you make the most of your money.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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