Great rivalries don’t have to be built on hatred. They’re built on respect, on a respect for excellence. – Mike Krzyzewski, coach, U.S. Olympics Men’s Basketball
Coke has Pepsi.
Nike has Adidas.
Bitcoin has Ethereum.
These two crypto-assets represent a classic rivalry, as cryptocurrency investors seek answers to the following questions, “What’s the difference between Bitcoin and Ethereum” and “Which is the better investment?” But as the quote above from Coach K implies, rivalries don’t have to be a zero-sum game – both options can be embraced because of their respective “excellence.” The concept – “rivalry of excellence” – is applicable to Bitcoin and Ethereum networks.
While there are significant differences between the two cryptocurrencies (Bitcoin – BTC and Ether – ETH) and their respective blockchain networks (Bitcoin and Ethereum), there are several similarities that should be considered first. Both crypto-assets are traded on most major exchanges including Robinhood and Coinbase. They can also be stored online via “hot” wallets such as MetaMask or Coinbase Wallet as well as moved to encrypted “cold” storage wallets offline. The coins for each are decentralized, which means they’re not issued by a central bank or government. Currently both coins are produced on a distributed ledger, called a blockchain, where the coins are created by “mining.” The current mining method for both is “Proof of Work,” which relies on a consensus mechanism where all “miners” or nodes on the blockchain race to solve an incredibly complex mathematical puzzle that requires vast computing power. The first one to solve the puzzle earns payment in either BTC or ETH depending on the network.
Before looking at the differences between the BTC and ETH cryptocurrencies specifically, it’s worth establishing some baseline concepts and functions regarding money. It’s generally accepted that currencies serve the following three functions:
1. Unit of account: a comparative measuring stick for different goods or services
2. Medium of exchange: an accepted method of payment for settling debts or acquiring goods
3. Store of value: inherent ability of a given asset to maintain its payment power in the short- and long-term
With these benchmarks as context, the comparison between these two cryptocurrencies will be more applicable to everyday life. Fundamentally, Bitcoin was created to be a secure, peer-to-peer alternative to government issued currencies, while Ethereum was created “…as a community-built technology behind the cryptocurrency ether (ETH) and thousands of applications you can use today.”
So, Bitcoin is basically a revolutionary (albeit limited use-case) collection of computer code designed to be an alternative to fiat currency. While Ethereum is the software programming bedrock for apps that drives decentralized finance, non-fungible tokens (NFTs), smart contracts – virtually anything a developer can imagine.
Think about it this way – if they were camping gear, Bitcoin would be a solid gold hatchet, and Ethereum would be an ever-upgradable Swiss Army knife on steroids.
Specific to the aforementioned monetary functions, Bitcoin has evolved into a virtually unmatched asset regarding store of value and is the benchmark unit of account within the crypto-sphere by which all other currencies are measured. The Bitcoin currency is often called “digital gold” due to BTC’s many similar attributes to the literal “gold standard” of stored value – gold. Like gold, Bitcoin’s most defining attribute is its scarcity. Only 21 million BTC will ever be produced, and the halving of Bitcoin mining every four years ensures continuing appreciation of each coin as the mined supply available each year is cut in half compared to growing demand.
However, BTC’s bare-bones coding standard chokes transaction speeds to a painfully slow 5-10 minutes to settle – making BTC a sub-par mechanism of exchange. For Bitcoin “maximalists” and other diehard supporters, that doesn’t matter because they can use their BTC as collateral to take loans using other liquid currencies to pay bills or buy things.
In stark contrast, a primary strength of Ethereum is that its robust network effect continues to expand as more applications launch on it for widely popular use cases such as NFTs and decentralized finance. Even supposed “ETH Killers” that could someday supplant Ethereum, such as Cardano and Polkadot, run on the very network they’re supposed to replace. According to State of the Dapps, there are currently more than 2,400 decentralized applications (Dapps) built on Ethereum. These Dapps support use cases that span a broad spectrum of every aspect of life including: health information, identity, marketplaces, finance, data security, insurance, physical property, media, gaming as well as many others. And the literal coin of this vast realm is Ether. It is not only a better medium of exchange than Bitcoin, it’s becoming a better store of value than it previously was. ETH continues to make all-time-highs, exceeding a market cap of $450 billion, second only to Bitcoin’s $1.1 trillion.
Ethereum is also undergoing two significant programming upgrades to its underlying network. These coding enhancements will reduce the cost of transactions on its network, shift to a “Proof of Stake” consensus mechanism, and automatically “burn” or reduce the available coin supply of Ether on a systematic basis, making it a more deflationary investment and improved store of value.
But as stated at the start of this article, it doesn’t have to be an “either or proposition” – it should be both. Each asset is an excellent investment in its own right, and each continues to strengthen its respective positions within the crypto-verse, which is a better place with both cryptocurrencies in it. The same can be said for any crypto investor’s portfolio, meaning there should be room to dollar cost average into this dualistic “rivalry of excellence.”
On the Flipside
- Several “ETH Killers” are gunning to swipe share from ETH including ADA, which has said its developing programming code to seamlessly migrate current Dapps from the Ethereum network to Cardano.
- The growing popularity of cryptocurrencies this year is also growing the risk of government regulation for this particular asset class according to the CEO of cryptocurrency exchange Kraken. Regulation could cause problems for decentralized coins such as ETH and BTC
- Fake news and unproven assertions that cryptocurrencies are worthless and that Bitcoin mining is “killing the planet,” continue to be promulgated by pundits and commentators.