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Demystifying Cryptocurrencies: Bitcoin vs Ethereum

Cryptocurrencies have made waves in recent years.  In fact, it has been revolutionizing the way we do finance since its launch in 2009.  Thanks to Satoshi Nakamoto, the one believed to be responsible for this breakthrough, cryptocurrencies have taken center stage.

cryptocurrencies written on a keyboard

Arguably the most popular cryptocurrency to date is Bitcoin, which currently has $130,467,386,339 market cap as of writing.   Then, behind it, with a market cap of a whopping $42,707,624,178, is Ethereum.

You can imagine these two cryptocurrencies are ‘frienemies’—both helpful and good, but at the same time competing against each other.

We know it seems hard to choose between the two fighting sides.  But, really, all you need to do is know what they do and what they can offer to you.  In this article, we’re going to compare Bitcoin’s features with Ethereum’s and explore the pros and cons of each digital currency.

Let’s start with some appetizers.  See the following definitions for the each cryptocurrency.

Bitcoin

Bitcoin is a digital currency that came into existence along with the Blockchain in 2009.  As mentioned, it was one Satoshi Nakamoto who created them, though the identity has never been verified or proven.  Some say it may be a group of people instead of just one.  The real person or people behind this revolutionary tech is/are still shrouded in mystery.

There are no physical Bitcoins.  But there are balances on a public ledger (the Blockchain) in the cloud.  A massive computing system is needed to verify all Bitcoin transactions.

Governments and banks do not issue Bitcoins, which are not considered as legal tender.  In spite of that, Bitcoin still ranks high on charts due to its popularity.  And perhaps one of its greatest impacts in the financial realm is that it triggered the launch of various other digital currencies, called Altcoins, among which is Ether.

[RELATED:  What Investors say about Bitcoin]

Ether

Ethereum, on the other hand, is a decentralized platform that has the so-called Smart Contracts and Distributed Applications.  Smart Contracts and Distributed Applications can exist and run without any downtime, fraud, control, or interference from any third party.

Ethereum is where one can find its own cryptocurrency, called the Ether. In addition, Ethereum is not just a platform; it’s also a programming language that runs on a Blockchain.  This enables developers to build and publish different distributed applications.  It goes without saying that the potential applications of the Ethereum system are wide-ranging and far-reaching.

Though it has only been created in 2015, Ethereum still runs high on the lists of cryptocurrencies to be reckoned with.

[RELATED: Initial Coin Offering: The Pros and Cons of Executing an ICO]

Differing Purposes of Cryptocurrencies

Both Bitcoin and Ethereum run on the back of distributed ledgers and cryptography, but they differ in many technical ways.  For one, Ethereum’s programming language is Turning complete, but Bitcoin’s is in a stack-based language.

Bitcoin and Ethereum also differ very much when it comes to their purposes.

Bitcoin is on its way to becoming an alternative to regular money.  This means it acts as a medium of payment transaction and store of value.

Meanwhile, Ethereum is a platform that enables peer-to-peer contracts and applications using its own currency vehicle.  One can say that Ethereum’s foremost goal is not to be payment alternative but to facilitate and monetize its working for developers to create and run distributed applications.

Bitcoin Pros

Bitcoin has a lot of advantages and benefits that its investors can enjoy.   Here are some of the best benefits of investing in Bitcoins.

cryptocurrencies - bitcoin 3D rendering on black background

“Digital Gold”

A Bitcoin’s price is perhaps more comparable to gold than a foreign exchange asset.  The pricing is beyond what would be considered as reasonable for a traditional currency altcoin.

Another similarity that it shares with gold is that it may never lose its intrinsic value.  Needless to say, Bitcoin will always have a devout community ready to promote and trade Bitcoins.  After all, it’s the first digital coin and is the proof-of-concept for the whole Blockchain community.

That being said, Bitcoin’s price of course will experience fluctuations.  The current pricing bubble will not last forever; it will likely seek a more stable and sustainable level.

Prices will go up

It is highly possible that the value of the coin will go up before it corrects itself.  Prices should reach sky-high levels.  For some analysts, Bitcoin will have a market cap that’s more than $1 trillion by 2025.

Hedging Instrument

A huge number of the first Bitcoin investors purchased the digital currency out of deep dissatisfaction with monetary markets.  The Bitcoin system is decentralized, meaning it’s not reliant on fiat currencies or central banks. You can use Bitcoin as a hedge against the depreciating value of fiat currencies.

[SEE ALSO: Hedge Fund: What is it All About?]

Bitcoin Cons

In spite of the great benefits one can get when investing in Bitcoin, there are also downsides to it.   Here are some of them.

Bitcoin is intangible.

The existence of Bitcoin derives from a complex mathematical equation.  It sports nothing more than hashcode address, a set of encryption keys, and transaction record.  The distribution ledger has all of these.

To put it simpler, a Bitcoin is nothing more than a computer code.  Even though most of currencies and debts nowadays practically belong to this category, they usually ride on the back of something real that determines their value.

Bitcoin has no underpinning value determinant.  Consequently, the digital currency is worth only what the buyer is willing to pay. To make things a little grimmer, we daresay that it’s possible for Bitcoin to become worthless.

Rival coins

Since its launch and fame, Bitcoin has spawned other feature-packed alternative digital coins.  It has string of successors that all try to improve the first cryptocurrency’s flaws and shortcomings.

For instance, there are coins that can answer to Bitcoin’s artificial scarcity, slow transaction, processing time, among others.

Altcoins, like Ethereum, have given Bitcoin quite a run for its money, especially when they are perceived outside the stiff definition that Bitcoin has long established.

Volatility

As with any other great financial instruments, Bitcoin’s price is highly volatile.  It has swings that are wild and sudden.  Its peaks and valley are steep and deep.  Even if most commodities have some volatility in their pricing, a slip of 40 percent in Bitcoin is not rare.  For locations where the local currency is stable, the value of such investment is doubtful.

Ethereum Pros

Ethereum is arguably Bitcoin’s nemesis, though the two are very different beasts.  Here are the reasons why many other people choose Ethereum instead of Bitcoin.

ethereum cryptocurrencies digital illustration

Smart Contracts

A smart contract refers to a computer code than can facilitate the exchange of money and properties, among other things.  A smart contract is like an autonomous computer program when running on the Blockchain.

It automatically executes when specific, predetermined conditions are met.  Since they run on the Blockchain, they run exactly as programmed.  There’s not a chance for censorship, downtime, fraud, or third party interference.

Even if all Blockchains can process codes, many of them are extremely limited.  Not Ethereum, though.   Instead of giving limited operations, Ethereum enables developers to do whatever operations they want.

This means that developers can create thousands of various applications that can exceed anything seen before.

DAO

Smart contracts and the Ethereum network utilize Distributed Autonomous Organization (DAO).  Similar to the network itself, DAO is open-source and decentralized.  This also means that no country, person, or entity owns it.

The DAO, in other words, is an autonomous organization on the network.  It has no traditional structure, board of directors, and such things.  Every smart contract on the Ethereum network must operate within the rules and requirements of the DAO.

Smaller Expenses

Since the Ethereum network executes smart contracts on DAO, the network gets rid of the need for third-party supervision.  It does all the functions by itself with a contract.  For instance, you can create an organization on the Ethereum network that hires people.  You can create a contract that will ensure that the people get paid.

Ethereum Cons

Ethereum also has its own disadvantages and risks.  Such items do not necessarily negate the great advantages it has, though they are still worthy of consideration.

User’s legal inexperience

The network indeed removes the need for lawyers and judges in terms of organizational operations.  However, it still doesn’t remove the need to know what the parties are doing once they enter the agreement.

Some agreements may have loopholes and issues that you can easily prevent by sitting down with an attorney and making changes to the agreement.

Changes in the Network

The changes and updates in the network may not seem like a disadvantage at first.  Until you arrive at an urgent project with a deadline.  You find yourself frustrated because the server has just gone down to install new updates.

This is the reason why constant progress is a good thing that can sometimes be a bad thing.  This is especially true for a decentralized network that will not always send you a prior warning.

Remoteness

Even if the Ethereum network allows users to create remote decentralized organizations, it doesn’t guarantee success for all organizations.  Indeed, you can use the Blockchain technology for secured payments.  You also don’t need a physical office.

At the same time, having no office where the employees can come every day also has its disadvantage.  People working from their homes may have different time zones.  They may have personal problems, issues, and distractions.  Such things can decrease the quality of their work.

Conclusion

Cryptocurrencies are definitely worth your time.  Bitcoin and Ethereum are two of the many cryptocurrencies that are popping around this time.  And each digital currency offers something new, fun, and exciting.

However, you must always take things with a tubful of salt.  There will always be inherent risks and downsides to them.  That’s why you need to learn more risk management strategies.

Nonetheless, if you’ve been quite involved in the financial markets, you’ll know that this is a worthy investment.  Cryptocurrencies are good additions to your portfolio of investments.

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