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What is a better investment, Bitcoin or Ethereum?

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  • What is a better investment, Bitcoin or Ethereum?

    Before I explain why, I need you to understand something. Bitcoin and Ethereum are at two completely different stages within their potential. They also do not share the exact same mission; therefore, you do have to understand their differences to form an opinion about which one has the biggest use.

    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 $193,165,354,468 in order for you to make 100% this number would need to double to just under $400 Billion.

    Ethereum’s current market cap is $44,715,990,083 , roughly 1/5th of Bitcoins. In order for you to make 100%, the price would need to increase to just under $90 Billion. - This is obviously more probable.

    This will not serve as the only variable in making a decision, we now need to break down their uses and differences.

    Bitcoin

    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.

    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.

    Its Applications

    Safe Haven

    Being that billions of people are under the control of a broke economy or volatile dictatorship, Bitcoin is beginning to become a medium in which people within underdeveloped countries feel as a more secure place to store their value.

    Remittances

    The current operation costs roughly $600B annually, all at the expense of separated families. Bitcoin can now serve as a tool that operates the exact same way and only costs 1/10th of the price.

    A transaction on the Bitcoin network also processes faster therefore giving the people a strong reason to make the switch.

    Currency

    Bitcoin is recognized as an asset, but can also be identified as an efficient currency in which people can buy and exchange with. With this being an application of Bitcoin, as the market continues to decrease in volatility, the use for Bitcoin will increase within businesses and everyday people that transact on a daily basis.

    These are just a few, but for the sake of answer length, let’s move onto some of the scalability issues with Bitcoin that hinder my decision of choosing Bitcoin over Ethereum.

    Bothering Issues with Bitcoin

    Energy

    A study from Digiconomist 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.

    Scalability

    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 supply of Bitcoin is finite, capped at 21 million. Eventually (currently predicted for 2140) Bitcoin's supply will run out. Once this happens, miners will no longer receive rewards for completing blocks but instead will be given fees. The fees will be drastically high in relative terms, and people will stop using the blockchain.

    Also, if miners decide that this is uneconomical for them to process the transactions and use their computing power elsewhere the speed of transactions for Bitcoin will drastically slow down, rendering one of the fundamental values of a Bitcoin (speed) useless.

    Blue chip Companies

    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.

    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.

    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.

    Bitcoin Bubble

    The last point of this section is to recognize that the Bitcoin bubble could pop loud enough to crash the market. Due to a whole lot of hype, and even more speculative and uneducated buyers, Bitcoin could face a peak in which a simple spark could cause a panic sell in the market.

    Ethereum

    What is Ethereum?

    Ethereum is an open source platform with the mission to build and inspire next-generation decentralized applications. In other words, the applications being built on the Ethereum network would have no middle men. Users are able to interact safely with social and financial systems to transact peer to peer, therefore opening a new realm of opportunity within decentralized development on specifically the exchange of value.

    Like the Bitcoin network exchanges Bitcoin, applications within the Ethereum network would exchange ETHER. Therefore, making the Ethereum network have its own digital currency or, cryptocurrency that these decentralized applications would run on.

    On the Ethereum network, developers are able to build these decentralized applications simply, within this seemingly complicated new technology. Think of it as Shopify or Volusion, these are centralized networks in which users/developers can build e-commerce stores more efficiently and cost effectively.

    Ethereum is similar in this aspect, the network was essentially created to assist and fuel the growth of decentralized blockchain applications within its network.

    Smart Contracts

    Now, what Ethereum is based on, is a thing called “Smart Contracts”

    Developers are extremely excited about this tool, a smart contract is similar to how it sounds, it’s a digital contract that self-executes… Think of it as a virtual vending machine.

    A smart contract is a digital contract between two people in which the technology or tool handles the management, performance, enforcement and payment of the agreement. The smart contract has its own digital bank account of ETHER and settles once the product is received or the service is completed therefore greatly improving the efficiency of data tracking, payment processing and user friendliness of each decentralized application.

    Let’s dive into an example

    Music

    The first age of the internet brought quite a bit of disruption to the music industry… Idk if you knew, but if you we’re a songwriter 25 years ago and produced a hit song that got a million singles you would acquire royalties of up to $50,000. Now if you were to produce a hit song that gets a million streams you don’t get $50,000, you get $45… Enough to cover the first round at the bar.

    In result, musicians are now finding other ways to produce revenue with their music. One being the utilization of a blockchain ecosystem like Ethereum. Music applications are now being built for musicians to reclaim their content, smart contracts are being implemented into the music itself, therefore the music protects the intellectual property rights of the artist.

    You want to listen to the song? It’s free… or maybe a few micro pennies to download. You want to put the song in your video or movie? Make it your ringtone? These each cost a different price and presented at the point of purchase would be its underlying IP rights for the use of that piece of music.

    Musicians are absolutely hyped about this because now, the song becomes a business. It’s out there on this platform marketing itself, protecting the rights of the author and because the song has a payment system; in the sense of a bank account, all of the money then flows back to the artist, and they control the industry rather than these powerful intermediaries.

    This concept could apply not only to just songwriters but any creator of content, from art, to inventions, to scientific discoveries or the work from independent journalists. There are endless industries in which people do not gain fair compensation in which the underlying technology of Ethereum could benefit in a big way.

    Other examples:

    · 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

    It is also worth noting that Ethereum is also a lot quicker than Bitcoin, average block time being 15 seconds for Ethereum opposed to 10 minutes for Bitcoin.

    Personally, I am invested into both. If I HAD to choose, like I said it would be Ethereum simply because of where it is now in comparison to its potential as well as its very transparent, direct, opportunistic mission towards the hosting of decentralized blockchain applications.

  • #2
    Out of the choices above, Ethereum.

    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 $193,165,354,468 in order for you to make 100% this number would need to double to just under $400 Billion.

    Ethereum’s current market cap is $44,715,990,083 , roughly 1/5th of Bitcoins.In order for you to make 100% the price would need to increase to just under $90 Billion. - Mathematically this is more probable.

    Which cryptocurrencies are investors more likely to put their money into?

    Bitcoin

    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

    1. Energy consumption

    A study from Digiconomist 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: Bitcoin Energy Consumption Index - Digiconomist

    Proof of work is vastly uneconomic and damages the environment at an alarming rate.

    2. 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 centralised blockchain, where they can change the rules of BTC as they please.

    The supply of Bitcoin is finite, capped at 21 million. Eventually (currently predicted for 2140) Bitcoin's supply will run out. Once this happens, miners will no longer receive rewards for completing blocks but instead will be given fees. The fees will be drastically high in relative terms, and people will stop using the blockchain.

    Also, if miners decide that this is uneconomical for them to process the transactions and use their computing power elsewhere the speed of transactions for Bitcoin will drastically slow down, rendering one of the fundamental values of a Bitcoin (speed) useless.

    3. 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 amount 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 issued 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.

    Ethereum

    What is Ethereum?

    Ethereum was created in 2015 by a man called Vitalik Buterin.

    Vitalik had the vision of not only having a decentralised cryptocurrency (like Bitcoin) but also allowing decentralised 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 decentralised 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 middle man or counterparty risk.” - Ethereum Project

    To understand this better, I’m going to give an example of how decentralised 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 decentralised 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’s 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 decentralised applications makes it a far more valuable investment in my opinion.

    Comment


    • #3
      Bitcoin is the original Blockchain entity. Ethereum exploits the full potential of the blockchain. It puts the blockchain to work for purposes beyond the bookkeeping of financial transactions.

      I wouldn’t use the word “better”, but I accept the challenge of your question, which I rephrase thus: “Can Ethereum—or any altcoin—overtake Bitcoin?”

      Comment


      • #4
        Bitcoin has a lower coin supply and is more liquid than Ethereum, but Ethereum has better technology and provides more uses than Bitcoin does. Based on the fact Ethereum has more use cases than Bitcoin — and therefore serves a bigger purpose — I can say that it is indeed an overall better Bitcoin alternative.

        Comment

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