Why has Ethereum been outperforming Bitcoin?
Bitcoin may have pulled back 20% in the last few weeks, but that’s after a nearly five-fold sprint over the past year.
If that’s impressive, it’s not quite as spectacular as Ethereum, which is up over 530% over the last year – even after falling 25% from its recent peak of $1 958. This growth is in part thanks to the explosive rise in decentralised finance (DeFi), a subsector of the cryptocurrency industry where entrepreneurs are building automated trading and lending systems atop blockchain networks that don’t require any intermediaries like banks or brokers.
Bitcoin and Ethereum are the two largest cryptocurrencies in terms of total market cap. But when you dive into the details, you’ll find that these two concepts actually serve completely different purposes.
Main takeaways: Bitcoin vs Ethereum
- Bitcoin is a cryptocurrency; Ethereum is a platform.
- Bitcoin transactions are primarily monetary; Ethereum transactions may be executable instructions.
- Bitcoin is primarily a store of value and medium of exchange; Ethereum is not.
What is Bitcoin?
In January 2009, an enigmatic figure named Satoshi Nakamoto executed an idea that he had laid out in a white paper — a peer-to-peer electronic cash system that could operate securely without a central authority.
With bitcoin, the idea of a cryptocurrency, or money without any physical form, was born.
The primary purpose of bitcoin was to establish itself as a viable alternative to traditional fiat currencies backed by countries.
It is primarily a store of value and a medium of exchange.
What is Ethereum?
Ethereum was launched in 2015 and is more than a cryptocurrency.
Actually, Ethereum is not a cryptocurrency at all — Ether (ETH) is its native currency.
The Ethereum blockchain is powered by ETH, which can be used for several purposes, such as to pay for computational services on the blockchain.
Ethereum is the blockchain that Ether is built on, and many people get the two confused. But you don’t call Ether ‘Ethereum’ just like you don’t call Bitcoin ‘blockchain’.
Ethereum is a programming language and a decentralised software platform. Developers build decentralised apps (dApps) and smart contracts on top of the platform.
As the native currency on the Ethereum platform, Ether is used to power the platform, much like oil is used to power the global transportation networks.
Ethereum has pioneered the concept of a blockchain smart contract platform.
Smart contracts are computer programmes that automatically execute the actions necessary to fulfil an agreement between several parties on the internet. They were designed to reduce the need for trusted intermediates between contractors, thus reducing transaction costs while also increasing transaction reliability.
Comparing the two
Bitcoin accounts for about 72% of the total market cap of all cryptocurrencies, and Ethereum 15%. This is really a two-horse race at the moment, though other digital coins such as Cardano and Binance Coin are fast gaining on the market leaders.
Bitcoin was built to do one thing well — provide a way for people to transfer value from one to another without a banking or payment intermediary. Bitcoin is seen as a store of value and if often referred to as digital gold. There are currently 18.6 million bitcoin in issue, and there will only ever be 21 million of these digital coins. This is one key reason behind bitcoin’s remarkable price rise as an asset over the last decade. Institutional interest in bitcoin is growing, spurred by fears that fiat currencies such as the rand and US dollar are subject to continuous inflation of money supply, which devalues their worth.
The case for Ethereum is somewhat different. Unlike bitcoin, Ethereum does not have a hard cap, meaning the number of coins in issue expands every year (there are currently 114.8 million in issue); however, the ETH annual inflation per year will eventually trend to zero as more coins enter circulation.
Ethereum is built on the idea of a general multi-purpose blockchain. As a result, Ethereum is able to do many things well instead of just serve as a payment system. Ether can be used as a digital currency, but that is not its primary purpose. The Ethereum platform was built primarily to monetise operations of Ethereum smart contracts and dApps.
Ethereum does not intend to be a store of value as is the case with bitcoin, but derives its value from an expanding network that allows transactions between parties that do not have to trust or even know each other.
These transactions are known as “smart contracts”. Think of Ethereum as the iOS or Android operating system on your smartphone that allows applications and games to function. Ethereum is the operating system that will allow a similar explosion of decentralised applications to be developed – such as for lending, investing and earning interest, not to mention purchasing insurance and trading between countries.
So Ethereum is both a currency (called Ether) and a network.
Both Bitcoin and Ethereum are decentralised and so are not run or managed by a central authority. They are both built on distributed ledger blockchain.
There’s really no comparison
Researching Bitcoin vs Ethereum leads to a deeper discussion of what blockchain technology can do to improve every aspect of our lives. If you want to know the future of everything from finance to the judiciary to construction, Bitcoin and Ethereum will likely be a big part of it.
The blockchain that makes Bitcoin and Ethereum possible is the most important idea to understand. No longer do we have to rely on giving others our precious data to make transactions — blockchain gives us the power to create a trustless, immutable way to do business.
Bitcoin will likely remain king of the cryptos for the foreseeable future, but attention is shifting to the investment potential of other cryptocurrencies like Ether as other areas of the cryptocurrency ecosystem develops.
How to invest?
If you are working within an established, reputable crypto investing platform like Revix, you can invest in both bitcoin and Ethereum’s Ether token. Revix was launched to make it easy to invest in cryptos like bitcoin and Ethereum and, through its investment platform, to gain exposure to ready-made baskets of cryptocurrencies that they call ‘Bundles’ for as little as R500. Revix charges no sign-up, monthly account or subscription fees, but rather a simple 1% transaction fee for both buys and sells.
The Top 10 Bundle available through Revix spreads your investment equally over the 10 largest cryptocurrencies – which covers about 85% of the crypto market when measured by market capitalisation – with each having a 10% weighting. By default, you are buying the ten biggest success stories in the crypto space. The weightings are adjusted monthly to ensure no crypto exceeds a 10% weighting, and that can be a major advantage as other constituents of the bundle (like Ether, Chainlink, Cardano and Polkadot) have outperformed bitcoin’s amazing 300%-plus rise last year.
The Smart Contract Bundle tracks those cryptocurrencies that enable smart contract functionality and include several cryptocurrencies that are looking to challenge Ethereum’s smart contract dominance. Smart contracts use the blockchain to allow peer-to-peer transactions without the need for third party verification. This bundle comprises cryptocurrencies that enable developers to build applications on top of their blockchains, much like how developers build mobile apps on top of the Apple mobile iOS operating system. The cryptos in this bundle include Ethereum, Cardano, Tron, Neo, and EOS.
Revix also offers a Payment Bundle, which provides exposure to the largest five payment-focused cryptocurrencies looking to compete with government-issued fiat currencies to make digital payments cheaper, faster and more global. These cryptos include bitcoin (BTC), Ripple (XRP), Litecoin (LTC), Bitcoin Cash (BCH) and Stellar (XLM).
You can also buy and sell USDC (a ‘stablecoin’ fully-backed by the US dollar) and a physical gold-backed token called PAX gold which provides legal ownership of an ounce of gold through Revix’s online platform.
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For more information, visit Revix.
This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing please take into consideration your level of experience and investment objectives, and seek independent financial advice if necessary.