The hype about cryptocurrencies began in 2009 when the Bitcoin concept was developed. In the meantime, over 2000 different digital currencies have developed. With market capitalizations in the billions, Bitcoin and Ethereum stand out in particular. Both are digital currencies, but they differ in some aspects. These are the biggest differences.
Bitcoin was launched in 2009 with the aim of creating an independent monetary system in which transactions can be executed more cheaply and faster. The concept was well received around the world. The value of a Bitcoin has risen by several percent in the past twelve months alone, reaching a record high of around 20,000 dollars.
Another cryptocurrency that Bitcoin is currently competing with is Ethereum. Within seven months of its launch in July 2015, Bitcoin’s second most popular digital currency reached a market capitalization of over $500 million. Only a few weeks later, the 1 billion mark had already been crossed. Today Ethereum has a market capitalization of around 21 billion US dollars. Ethereum is particularly popular with start-ups that use Initial Coin Offerings (ICOs) to circumvent the strict processes involved in bank capital allocation and thus raise capital.
Cryptocurrency is not the same as cryptocurrency
What both forms of digital currency initially have in common is the fact that they can only be bought and sold digitally and are independent of banks or public institutions. But they can be used to pay for real things, and in many countries digital currencies are allowed as a means of payment. They are subject to block-chain technology, which is a decentralized connection of all computers in the network and thus enables secure and counterfeit-free data transmission. Transactions on such a network are public and can be accessed by all parties at any time.
Although Bitcoin and Ethereum are classified as digital currencies, they differ in some aspects. The biggest difference is that Bitcoin was designed as a currency from the beginning. Ethereum, on the other hand, serves first and foremost as a platform on which two parties can enter into a contract, the so-called Smart Contracts. For this purpose there are apps distributed on the platform, the so-called Distributed Apps (Dapps), which serve to simplify contract negotiations. The currency of the Ethereum blockchain is ether, which can be used to create and manage smart contracts.
Ethereum and Startups
Ethereum can be used as a currency, but it also stands for a number of other things, including virtual shares and membership certificates. Startups take advantage of this by using ICO processes to raise capital via crowdfunding. They offer investors tokens that they can pay for with ether. With this financing method third parties as well as their rules and fees are cancelled. This allows start-ups to bypass the strictly regulated capital allocation processes of banks.
This form of financing not only collects financial resources, but also ideas and suggestions for the company’s future course of action. By asking their supporters for advice on the Ethereum platform, entrepreneurs save on managerial and formal costs and create a new business structure.
The finer differences
Bitcoin and Ethereum also differ in many other aspects. For example, the processing time of a block. While Bitcoin takes an average of ten minutes to process a transaction from A to B, Ethereum only takes about twelve seconds. This is made possible by Ethereum’s GHOST protocol. In addition, there is also a difference in the amount of money that can be spent. Two thirds of the maximum 21 million Bitcoins available are currently in circulation, a large part of them in the hands of early miners. The creators of Ethereum, on the other hand, were able to generate millions in starting capital by selling their currency in advance, which strongly influenced the amount of Ether money available. 72 million ether coins could be created at that time. Nevertheless, the number of ethers is not unlimited, and in 2014 it was agreed that a maximum of 18 million ethers would be distributed per year.
So Bitcoin and Ethereum are two different projects, designed with different backgrounds. While Bitcoin has established itself as a stable currency, Ethereum aims to establish a complete technology. Which of the two is the better investment? What matters here is what personal interests you pursue as an investor. If you only want to secure digital money as an investment, Bitcoin offers itself as an investment form. However, if you are interested in the FinTech industry, Ethereum may be the more suitable investment.
The platform has not only appealed to private investors, but is also very popular among entrepreneurs, which has accelerated the success of the second most popular crypto currency. Relatively early in 2015, large Wall Street and tech companies such as JPMorgan Chase, BP, Microsoft and others joined forces to form the Enterprise Ethereum Alliance. The aim of the project is to integrate the Ethereum platform into their own company. In addition, according to a survey conducted by the New York Times, 94 percent of the companies surveyed rate Ether as positive. In comparison, Bitcoin received only 49 of the positive votes. However, you shouldn’t limit your focus to a single form of investment. Anyone who invests all his capital in an investment runs the risk of losing everything. Therefore it is to be recommended in accordance with the diversification principle to keep an eye on various projects and to position oneself more broadly. This also applies and even more so in the still young market for digital currencies.