Bitcoin and Ethereum are two cryptocurrencies that are often lumped together in discussions about crypto. However, while they have some similarities, their differences are distinct and the two are not interchangeable. Investors buy Bitcoin and Ethereum directly with their bank accounts now more than ever – and knowing the characteristics that make each of these cryptocurrencies unique can help you understand the benefits of both. If you want to invest in Ethereum or Bitcoin, then this is the article for you.
How are Bitcoin and Ethereum similar?
Both Bitcoin and Ethereum are built on blockchains. These are systems that rely on high levels of encryption to secure their transaction records, creating unchangeable ledgers without the need of a third-party to verify them. Both blockchains are public, meaning anyone can go on the internet and view information on the transactions.
Importantly, both are also decentralized – meaning many participants across the globe are active in securing their networks. This decentralization gives them fewer points of failure and provides an opportunity for anyone to take part.
Bitcoin and Ethereum have also both attracted institutional investors’ attention. In recent months, major announcements from multi-million-dollar companies have rocked the news, with enterprises like MicroStrategy and Square announcing their plans to hold Bitcoin as a reserve asset. Meanwhile, large players like J.P. Morgan, a member of the Ethereum Enterprise Alliance, have developed their native coins using the Ethereum network, while others are even experimenting with issuing bank bonds on the Ethereum blockchain.
How are Bitcoin and Ethereum different?
It’s true, however, that Bitcoin and Ethereum have more differences than similarities. The primary difference between them is that Bitcoin was essentially designed for one thing – to be the money of the internet. A true cryptocurrency, it was intended as a store of value and means of transacting. Bitcoin’s hard cap of 21 million coins makes it an ideal hedge against inflation, and its lack of need for third-party approval combined with simple functionality makes it fast, cost-effective, and accessible to anyone with an internet connection.
Ethereum, on the other hand, can be used as currency, and it’s capable of so much more than simple transactions that it’s rarely used for such. Sometimes referred to as “programmable money,” Ethereum can execute what are called smart contracts, or essentially any set of parameters that a user decides to input.
What this translates to is that things like insurance contracts, ownership verification, and even apps, games, and various types of financial products can run on the Ethereum blockchain. While Bitcoin serves a primary function, Ethereum’s utility is practically unlimited. This means there are more use cases, which can potentially boost its price over time.
Bitcoin’s simplicity, however, has its advantages as well. The Bitcoin network, in part due to its incredible depth, is more secure than Ethereum. While both can be volatile in price, Bitcoin’s functionality remains more stable than that of Ethereum due to its continuous and rapid development.
Likewise, while Bitcoin will continue to use Proof of Work (PoW) to secure its network, Ethereum will soon begin the process of switching over to Proof of Stake via Ethereum 2.0. This is a process that’s expected to take years, however, it will also result in investors being able to earn rewards, similar to an annual interest rate, when they invest in Ethereum by staking their coins on the network – a benefit that will be unique to Ethereum (relative to Bitcoin).
It could be said that Bitcoin is indeed like digital gold: a more stable, scarce resource that increasing numbers of investors are adding into their IRAs and 401(k)s. Ethereum, meanwhile, is more reminiscent of Big Tech – with the learning curve that comes with any rapid development, but also with all of its extensive potential.
Not Bitcoin vs Ethereum, but Bitcoin and Ethereum
Bitcoin and Ethereum are not competitors, but rather completely different investments that both have the potential to generate healthy returns over the coming years. We make it easy to buy Bitcoin or other cryptocurrencies with a retirement account easy and quick, and you can invest in Bitcoin and Ethereum as part of your long-term retirement strategy.
Likewise, we make self-trading both cryptocurrencies within your portfolio simple. You may also be able to earn passive income through staking interest earned on Ethereum 2.0 when it launches. When it comes to choosing to buy Bitcoin or Ethereum, experts suggest investors may consider the benefits of both.
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