We’ll be talking about the two biggest cryptocurrencies out there, Bitcoin and Ethereum. And which is better for your investment long term. Bitcoin has recently broke highs of $19,500 and Ethereum recently broke $1,000 and we’re just getting off the ground.
Maybe you’re a seasons cryptocurrency trader, maybe you’re new to this. Perhaps you’re curious about where you’re putting your money. Cryptocurrencies are the wild west, things happen very fast and often times without reason. You’re only investing what you’re ready to lose, perhaps you’re diversifying into alternative coins and taking more risk, but for now you just want to build a core portfolio of blue chip digital currencies. It makes more sense the least risky cryptos are the ones with the largest market cap, Bitcoin and Ethereum are by far, so parking your money with them is a great idea if you want to watch your money grow without taking on too much risk, cryptocurrencies haven’t even been around for 10 years, so who knows where they’ll be 10 years from now.
Investing in Bitcoin and Ethereum is about the safest bet you can make, so which is a better investment 10 years out. Well, Bitcoin and Ethereum are powered by the principle of distributed ledgers and cryptography and both us the blockchain, the two differ in many technical and philosophical ways, for example the programming language used by Ethereum is Turing complete, while Bitcoin is a stack-based language that isn’t Turing complete. A Turing complete language means anything can be done with it. Given enough time and computing power.
What this boils down too is Bitcoin is primarily used for a specific purpose, the store and transfer of value. Sometimes people refer to Bitcoin as digital gold, on the contrary Ethereum has a broader based market to enter as it isn’t just locked into being a value transfer ledger.
You know this is where you might hear the analogy TCP/IP basically what makes the internet. And in comparison, Bitcoin is like email. One is very general use, and the other is very specific. Although Bitcoin could be built upon to allow the functionality that Ethereum has it could be very clunky. Remember that Bitcoin is the oldest and largest crypto making any changes, even small ones has proven to be hard because the consensus on the network is not easy to achieve.
This is why we’ve seen a rise of cryptocurrencies that are forks, or copies of Bitcoin that iterate or improve upon it’s structure in just about every conceivable way. Litecoin, Bitcoin Cash, Dash these are all cryptocurrencies that branched off Bitcoin protocol in different and interesting ways, but the important thing is that they are NOT Bitcoin. Of all the digital currencies, Bitcoin is the only household name and even then, you’ll be pressed to find even a few people on the street to tell you just a few things about Bitcoin.
So again Bitcoin itself is revolutionary and the movement itself started is going to have a lasting impact about how we look at money and government issued currencies and economies, but Bitcoin isn’t much more than that, it’s a digital currency and a store of value, that’s why Ethereum is an exciting addition to the cryptocurrency space. Ethereum’s blockchain technology is being used to create applications which are beyond just supporting a digital currency. Ethereum is a decentralized software platform that enables a lot of really new stuff, the two most prominent being smart-contracts and distributed applications, or dApps. These are able to be built and run on Ethereum’s blockchain network without any downtime, fraudulent activity, control or interference from a third party.
Before we look at the coins in detail, let’s start with the potential ROI (100% = 2x original investment).
Bitcoin’s current market cap is $143,165,354,468 in order for you to make 100% this number would need to double to just under $300 Billion.
Ethereum’s current market cap is $69,315,990,083 , roughly 1/5th of Bitcoins. In order for you to make 100% the price would need to increase to just under $140 Billion. – Mathematically this is more probable.
Which cryptocurrencies are investors more likely to put their money into?
What is Bitcoin?
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Peer-to-Peer (P2P): is a technical way of saying computers (peers) that are connected together via the internet.
Timestamps: are a sequence of characters that identify exactly when a certain event occurred, giving the exact time and date.
Hashing: is the process of compacting large quantities of data into smaller fixed sizes (the image below might help)
Proof-of-work: is the verification that the individual peer created the said hash
Nodes: are computers that are connected to the blockchain
Bitcoin is a first generation cryptocurrency, that was created in 2009 with the intention to become the currency of the internet. However, Bitcoin faces several scalability issues.
The Problems with Bitcoin
- Energy consumption
A study found that each transaction on the Bitcoin blockchain uses 236 KWh worth of electricity, this amount is enough to power 8 U.S households for an entire day.
Now to put things into perspective, there are over 300,000 transactions per day. At this rate, Bitcoin uses more electricity per year than the whole of Nigeria and this is only increasing.
Read more here: https://coinjolt.com/bitcoin-a-digital-store-value-for-wealth/
Proof of work is vastly uneconomic and damages the environment at an alarming rate.
- Scalability issues
Energy consumption will hinder the scalability issues of Bitcoin, however, the other issue that arises with POW mining is that with the increase in cost associated with mining BTC it is less economical to mine Bitcoin. This would limit the distributed nodes (miners) globally and allow a larger percentage of control to the dominant mining pools/farms.
This would lead to a more centralized blockchain, where they can change the rules of BTC as they please.
- The unknown future
Bitcoin is not a superior blockchain, there are hundreds of projects that are faster, cheaper and more valuable than Bitcoin. Bitcoin has market dominance because it is one of the first and most topical cryptocurrency (did you know that the price of BTC has a direct correlation to the number of google searches). Here are a few things that could really end Bitcoin’s dominant era:
- I) Blue chip company coming into the markets
This is more so for all cryptocurrencies, but Bitcoin in particular. It’s not a matter of if but a matter of when a blue-chip company such as Facebook, Amazon or Google decides to implement their own cryptocurrency, they will dominate the market.
The consumer’s trust is already with these big companies, and they have the power and capital to influence the entire market.
Another possibility is a potential ‘world coin’ which global governments will all agree on using, this may seem unrealistic but it is definitely not impossible and many benefits would arise from having such a currency.
- II) Quantum computing
Bitcoin is said to be Quantum resistant, on the whitepaper it mentions that:
‘To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.’
This may seem quantum resistant but it is important to understand that the difficulty is changed every 10 minutes and this is more than enough time for QC to mine all of Bitcoin’s remaining coins.
The other issue that QC represents is that there is a possibility of QC calculating people’s private keys for their BTC wallet. I do not know the technical details of how this is done, but from what I have read this is possible.
III) Bitcoin bubble
My last point for this section is that Bitcoin is not being bought as a store of value or a currency by most people, for most people Bitcoin is a speculative investment hoping to make a fortune on something they really don’t know much about.
Once the bubble reaches its peak, and people start panic selling, Bitcoin will inevitably crash with that. After all, Bitcoin’s price is determined by demand vs supply.
To conclude, Bitcoin’s price is driven by demand. With the massive publicity of Bitcoin, and the introduction of Bitcoin Futures, this has lead to a massive increase in price.
However, as an investment, I believe the scalability issues will hinder BTC’s growth.
What is Ethereum?
Ethereum was created in 2015 by a man called Vitalik Buterin.
Vitalik had the vision of not only having a decentralized cryptocurrency (like Bitcoin) but also allowing decentralized applications to be created on the Ethereum blockchain that use Smart Contracts.
The whole idea of blockchain is to remove the power from the third parties and allow the user to control their own data.
What is a decentralized application?
“Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.
This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.” – Ethereum Project
To understand this better, I’m going to give an example of how decentralized apps and smart contracts will change the world we live in:
I’ll use pizza as my example because everyone can relate to pizza!
Say you wanted to order pizza to your house, you have to create an account, enter your banking details and give the app your address to receive your pizza. Many people overlook the risks that are associated with trusting a third party to handle such sensitive data. If this companies’ servers are hacked into, the hacker will have your bank details and your address… Scary stuff.
So, you ordered a chicken BBQ pizza, which is everyone’s favorite, and they turn up with a ham and pineapple pizza (wtf), or worse yet they don’t turn up at all! As you have already paid for this pizza, what do you do? The process of refunding this money is entirely reliant on a third party (often PayPal or your bank) and can take weeks if the refund even happens. Placing your trust in this pizza company is again a risk that is overlooked.
Now let’s use the same example using Ethereum’s blockchain.
You want to buy pizza, you go onto the decentralized app and place your order – your data is stored on the blockchain and you give permission via a smart contract for the pizza company to view your address.
Your order is created in a smart contract and once the order is delivered and verified by you that it is correct, the funds are released to the pizza company.
This may seem minor for a pizza company but think about more expensive goods and services that users will benefit from this blockchain.
Here are a few:
- A smart contract can be created to pay a worker for every hour they work, they log their hours on the blockchain and then after verification, the funds are instantly transferred to them
- Buying goods internationally can be tracked and verified – reducing fraud.
- Property buying can be facilitated through the contract
- Every industry that has a contract in place will be able to use the blockchain of Ethereum
I hope that it is now clear that the technology behind Ethereum will have a real-world use and change how business operates entirely.
It is worth noting that Ethereum is also vastly quicker than BTC, average block time being 15 seconds for Ethereum opposed to 10 minutes for BTC.
Ethereum is a second generation blockchain, and the implementation of smart contracts and decentralized applications can make it a far more valuable investment.
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