Ethereum merge and how it may affect me as an Investor
20.08.2022
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Ethereum which claims a second position after the bitcoin blockchain is one that continues to…
Key Differences between bitcoin and Ethereum that investors should know
Everyday sees a new crop of ambitious men and women, especially in their middle ages who wish to make it big through cryptocurrency investing and trading. People have this mad rush to get rich, rightly so because as Scarface sang, money makes the world go round. Actually, success stories of ambitious early investors who became insanely rich edify the sheer urge of new crypto investors.
WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.
Ambition and exuberance aside, people have to start making the decision on which crypto exactly to invest in. So many personal and particular considerations go into making this choice. Among the key things is knowing which is which of the major cryptocurrencies in the market.
At the risk of promoting ignorance, so many have always considered bitcoin as synonymous with cryptocurrency. The fact of the matter is that bitcoin was the first cryptocurrency to emerge and has since then held a position of prestige. Alternative coins, also known as altcoins have not been able to upstage bitcoin. So, the pioneer coin remains so popular and widely accepted. This popularity culminated into its being made a legal tender in El Salvador. Let’s try to shine light on the key differences between bitcoin and its close rival, Ethereum.
Want to invest in crypto? You must know first things first
There are things you need to know before jumping into the crypto bandwagon. If you are ready to dive into a crypto investment market, but still unsure of the differences that exist between Bitcoin and Ethereum, you’re definitely in the right place. Bitcoin vs Ethereum is arguably the biggest ongoing topic of discussion within the crypto industry. Ideally, both Bitcoin and Ethereum constitute two popular cryptocurrencies in circulation currently. The development of digital currencies has created a platform for modern crypto markets.
Remember, these two currencies are similar in a number of ways. For example, investors trade both the cryptos online through crypto exchanges. They are also stored in digital wallets. Most important thing to note in this case is the fact that both Bitcoin and Ethereum are decentralized. Meaning, the government or any other central authority does not have power to issue or regulate them. They also use blockchain technology, which helps to regulate and secure them.
Bitcoin vs Ethereum
It is important that you understand the differences that exist between these two cryptocurrencies. Having a better understanding will help you make an informed decision to go for a coin that you think is suitable for you. In addition, please avoid investing in cryptocurrency because someone close to you did so. Whatever worked best for them may not work for you. Let us look at the differences between Bitcoin and Ethereum.
Highlights of the outstanding attributes of Bitcoin
As you might have already read, Bitcoin was the first cryptocurrency to be introduced in 2009. Although it was originally a novel idea on paper by a secretive Satoshi Nakamoto, the coin has gained a significant growth to provide a secured online currency. Bitcoin uses the blockchain technology and therefore does not depend on any centralized or regulated systems from any central government. You should not expect to touch a physical coin in this case. Instead, it is purely based on the balances linked to the cryptography.
Remember, Bitcoin does not have a formal recognition as a medium of exchange or store of wealth. Despite such restrictions, the digital currency has defied huge oppositions against the existing financial regulations to form part of the global payment system. It is currently the best performing asset in the world.
A snapshot of Ethereum Basics
Bitcoin uses blockchain technology and allows attachment of each message to every transaction. Ethereum does nothing differently save for improving this functionality. Notably, it uses blockchain technology to establish a decentralized computing network that operates on Ether (ETH). Because of the usage of smart contracts, the potential applications of Ethereum are limitless and is therefore a cryptocurrency that currently chases bitcoin.
The key differences between Bitcoin and Ethereum that any investor needs to know
So what makes Ethereum different from Bitcoin?
To answer this question, I have categorized the differences into several subsections that will give you a clear picture to understand better. I have also explained how each currency functions in relation to each category. See below:
1. Function as a Currency
Bitcoin was developed mainly to provide an alternative to traditional fiat currency. So, the original idea was to resolve fiat currency challenges. It’s use was therefore to be a medium of exchange and payment. It also has other functions, which benefits the users in the end.
Ethereum on the other hand, exchange is not the primary reason for it’s creation. Instead, it was created as a platform and ecosystem that would allow numerous applications to run concurrently. As such, you can use the platform in numerous ways based on its main currency, Ether.
2. Level of Supply
Arguably, level of supply constitutes the major differences between the two currencies, and will help us answer our question. Only a limited amount of bitcoin is in existence and projected to be so in future due to the halving effect and capping at 21 million bitcoin. So, while it is possible for a company to issue exceedingly more stocks, the amount of Bitcoin will hardly surpass 21 million. Its creator, Satoshi, set this number to promote scarcity and subsequently help hold its value, just like gold. You will be prompted to look at other alternative revenue streams such as the transaction fees once the upper supply limit of the coins is accomplished.
On the other hand, there is nothing like the upper limit in the case of Ethereum. Although recently Vitalik Buterin (the co-founder of Ethereum) hinted at introducing a limit to prevent and protect the overall supply of Ether, the supply itself is controlled through ‘burning’. This process prevents miners from gaming the system and any effort to cause deflation.
3. Consensus Protocol
Currently, both Ethereum and Bitcoin use the consensus protocol known as the proof of work (PoW). Here, investors are able to verify the accuracy of any new transactions that take place or added into the blockchain. It also prevents the system from any economic attack on the networks.
Although there appears to be a similarity here, Ethereum has hinted at moving to a different system known as the proof of stake (PoS) as part of its upgrade project to ETH2.0. Without any doubt, the ETH 2.0 update aspires to solve the challenges of scalability. This process will make the cryptocurrency more environmentally friendly.
4. Transactions in bitcoin or Ethereum
A major difference also exists when it comes to the nature of transaction between Ethereum and Bitcoin. You will note that Bitcoin transactions occur on a monetary basis. In this way, any transactions you perform can have notes and messages linked to them through coding in the transactions.
Whereas similar codes exist in Ethereum, their use remain primarily for establishing smart contracts. The codes also help to facilitate the interactions in all the apps built using them. This technology allows its developers to establish a limitless number of apps that do not depend on third parties for transactions between users to occur.
What the differences between bitcoin and Ethereum mean
If you’re looking to invest in cryptocurrencies and willing to stay within the field for some time, I will suggest that you understand both Ether and Bitcoin well. As I have explained above, these two currencies are not the same in most of their parts. With a proper understanding, you can make better investment decisions suitable for your financial goals.
