Bitcoin VS Ethereum: Know the Difference

Because the cryptocurrency sector is expanding rapidly, more investors are contemplating crypto investments for their portfolios. But which cryptocurrency is the best option?

Bitcoin (BTC), the market leader, has had a 16 percent price increase in the last month alone, and it is now worth over $45,000. Ether (ETH), the native cryptocurrency of the Ethereum network, easily outperformed Bitcoin's rise during the same period, returning more than 29 percent. Ether is currently worth around $3,400.

In the last decade, Bitcoin has been one of the best-performing assets. According to the Wells Fargo Institute's February 2022 research, "Cryptocurrencies — Too Early or Too Late?" Since its first recorded transaction in 2010, the price of the digital currency has increased at a 216 percent annual rate. Ethereum has also had a breakout performance since its debut, owing to the numerous use cases that its blockchain-based cryptocurrency provides. Since its inception in 2015, Ethereum has grown by more than 115,000%.

As Bitcoin and Ethereum continue to gain global traction, investors are still determining which investment options are best for them as the cryptocurrency market matures. Because Bitcoin and Ethereum are typically the beginning points for crypto investors, it's critical to grasp the distinctions between them and their potential for growth.

Bitcoin and Ethereum are the leading cryptocurrencies in the world. Here are the fundamental qualities that set bitcoin and Ethereum apart from the competition — and from one other.

Although there are dozens of cryptocurrencies, two dominate the market: Bitcoin (BTC) and Ethereum (ETH). By far the most popular cryptocurrency in terms of market capitalization, Bitcoin will account for 66 percent of the cryptocurrency industry in 2020. As per real-time tracking of the top 100 cryptos by market capitalization, Bitcoin is by far the most popular, with Ethereum in second place. 

The dominance of these two cryptocurrencies was underlined by Deutsche Bank senior economist and market strategist Marion Laboure, who stated in September 2021 that "if bitcoin is often dubbed 'digital gold,' Ethereum would then be the 'digital silver.'"

Here are the fundamental qualities that set bitcoin and Ethereum apart from the competition — and from one other.

Bitcoin: The world's cryptocurrency pioneer

Bitcoin was born in 2009, shortly after the pseudonymous Satoshi Nakomoto published a lengthy white paper outlining the goal of bitcoin: to develop a decentralized peer-to-peer payment system that depends on encryption to verify transactions. The concept was revolutionary, and it quickly attracted a large following among investors and others who believed that the current financial system was vulnerable to change.

Many other cryptocurrencies followed in bitcoin's footsteps, but none ever gained the same traction as the original. With a first-mover advantage as cryptocurrencies gained popularity, bitcoin's value skyrocketed from $1,000 in 2013 to more than $68,000 in 2021.

Aside from its status as the recognized standard-bearer of cryptocurrencies, another major feature of bitcoin that attracts investors is the hard limit on the number of coins that may be created. There will never be more than 21 million bitcoin accessible, giving the cryptocurrency built-in inflation protection. This naturally leads to the connection between bitcoin and gold: many people regard it as a store of value and a hedge against traditional currencies.

Ethereum: The multipurpose cryptocurrency 

Ethereum, like bitcoin, is a digital money based on blockchain technology. However, the similarities between the two popular investments virtually end there. While bitcoin's only objective is to act as a substitute for existing currencies, Ethereum was created with a different goal in mind: to build a platform for developers to use its underlying blockchain technology.

Ethereum is all about useful and innovative real-world applications, such as its well-known "smart contracts."" Smart contracts allow parties to sign a contract that will automatically execute transactions if certain circumstances are met. They benefit from the decentralized, "no third-party required" model "approach that has contributed to the popularity of cryptocurrencies Ethereum can also be used to produce non-fungible tokens (NFTs), which have recently gained popularity due to high-profile sales in the digital art industry.

Users must pay in Ether, the money traded on the Ethereum network, in order to access Ethereum's applications (technically, Ethereum is the name of the network and Ether is the name of the cryptocurrency, however, the terms are generally used interchangeably). Bullish ETH investors believe that the Ethereum network's creative applications will lead the value of its associated cryptocurrency to rise. There will be no limit to the overall number of Ethereum available, unlike bitcoin.

Which should investors pick?

In the same way that gold and silver may play a role in any portfolio, bitcoin and Ethereum can as well. Bitcoin is a well-known alternative currency with strong historical returns and the potential to hedge against inflation. Ethereum has several practical applications and an incredible potential for innovation. The best option is determined by an individual investor's goals, outlook, and predictions for the future.