Ethereum vs. Bitcoin

Ethereum Is Not Intended as a General Currency

While bitcoin aspires to be a general means of making payments, ethereum was never designed for that. Instead, ethereum being exchanged as a currency is really intended to be an add on to its smart contracts’ functionality, where parties enter into agreements using the ethereum software to manage them from a compliance standpoint, which includes payments being ultimately made by way of ethereum’s currency, Ether.

Users ultimately decide such things though, and there is really nothing stopping Ether from being used as a general digital payment method, for online purchases for instance. This is definitely a good thing for ethereum though, as the more popular it becomes, the more valuable it is due to its being more useful generally.

While ethereum has grown somewhat in its being used for smart contracts, this application mostly exists as potential, and we are still at a very early period in the development of this idea as far as taking full advantage of it. In years to come, smart contracts, either by way of ethereum or through a similar means, has the potential for a lot of growth, as we further leverage our digital capacity and move away from our traditional centralized way of managing data.

Bitcoin and ethereum are similar in this respect, as they both seek decentralization, moving from data being stored on closed networks run by companies and governments, and moving toward an open source solution where the information is stored on public rather than private ledgers.

Bitcoin looks to move currency to a public ledger, where ethereum sets its sights a lot bigger, looking to use public ledgers to store and verify just about anything that could benefit from a more robust and verifiable means than just trusting and being reliant upon private ledgers.

An example would be bitcoin verifying how much bitcoin you have, with the world so to speak doing the verifying, and ethereum verifying how much money you have in the bank, where you don’t have to rely on or trust your bank anymore, as the world’s network of computers become leveraged as a disinterested means of verification.

While bitcoin’s ambitions to become a major currency at this point would have to be considered to be far too ambitious, due to bitcoin’s quite limited ability to process a lot of transactions and its lack of scalability, it certainly has proven its usefulness as an investment.

Ethereum vs. Bitcoin as Digital Currencies

Ethereum, on the other hand, is poised to realize more of its potential as a means of verifying projects generally, and its scalable design also makes it more efficient and usable than bitcoin as a currency as well.

Bitcoin is better known, and has had head start on ethereum by several years, and when people think of cybercurrencies, they usually think of bitcoin. There are many other cyberurrencies in existence these days, but bitcoin has established such a big lead that we still think of digital currencies as bitcoin versus everything else, and the everything else still includes the number two digital currency, ethereum.

Bitcoin is considerably bigger than all of the other cybercurrencies combined though, and is about 4 times larger than ethereum by market capitalization. Ethereum may catch up one day, but it will need to be a household name like bitcoin is, and it is not as of yet.

If we had to choose between the two for a digital payment method though, in other words if we looked at the two cybercurrencies to decide which functions better as a cybercurrency, ethereum would win hands down.

The biggest challenge with currencies that are verified on public ledgers is capacity, and while neither come close to the capacity of traditional digital payment processors such as Visa and MasterCard, ethereum is much closer, and also has the capacity to scale up to meet increasing demand.

We’ve already seen bitcoin’s ability to process transactions become completely overwhelmed, at a time where the number of transactions occurring were far less than what would be needed for it to become at least a reasonably popular means of exchange, where users had to often wait hours in many cases to have their transactions processed.

Ethereum is considerably faster and could potentially make a bigger dent in the currency market as a result, if it gained enough popularity. Bitcoin is far more hyped though, but over time, results end up speaking more, and over time we may see the considerable advantages of ethereum driving its popularity more.

A lot of this is determined by the number of places that accept a given digital currency, as this impacts usefulness as well. So far, bitcoin has a big lead in this, but ethereum has grown as well in this regard. Both have a long way to go to bring them up to a level where we could say that they are widely accepted by online merchants though.

Ethereum vs Bitcoin as Investment Vehicles

Ethereum is also used as an investment, and the only thing that seems to be holding it back from approaching or even exceeding bitcoin’s market capitalization as an investment is that ethereum is lesser known and therefore attracts less investor interest.

Ethereum does have a pretty impressive amount of money invested in it nonetheless, over $27 billion worth at the time of this writing, which may pale in comparison to the $114 billion held in bitcoin, but ethereum is well ahead of its closest rivals and has been solidly in second place in the cybercurrency world for quite some time now.

Whether one would prefer to invest in either currency depends a lot on what one is looking for. In terms of its sheer potential, ethereum is clearly ahead, for a lot of reasons actually. Not only can it be used for more things, it’s being a clearly superior currency has it beating bitcoin at its own game, and beating them handily, at least in terms of performance.

What we really want to realize is that it is not users that drive the price of digital currencies, it is how much that they are speculated on. People that buy and sell according to need really don’t change the price of these assets very much, as that really doesn’t change that much over time, and in fact the growth of both bitcoin and ethereum has been painfully slow if anything.

The attention that the investment side of things has gained has been anything but slow, and the massive amount of money that people have poured into these cybercurrencies has simply overwhelmed the market and produced upward moves such as we have never seen, and also has seen them drop pretty fast as well.

Focusing on what we may consider to be differences in fundamentals between these two cybercurrencies would be a mistake though, as their prices are clearly not driven by this sort of thing. While we may rightly say that technical analysis is superior, in this case, it reigns supreme.

Therefore, to decide which to invest in and especially in deciding the timing of these investments, we’re going to have to look at their price action. It makes sense to do this with all investments, but with cybercurrencies, how the money is flowing in and out of them is what is driving their markets and therefore we cannot afford to ever ignore this.

So far at least, bitcoin has proven to be the more stable of the two assets, and this is to a large degree influenced by its greater popularity over ethereum. Whether this continues may be another matter, and over time, perhaps ethereum’s greater usefulness may at least influence it more and bolster it up.

Cybercurrency prices will likely always be primarily driven by speculation though, at least as long as they remain viable investments, and if this all went away we’d see their prices plummet all the way down to where they were before people started to wildly speculate on them, which means almost all the way to the bottom.

At this stage we could say that the intrinsic market would remain, the interest in them for what they actually are designed to do, a means of exchange either generally or in the case of ethereum, as payments for the agreements reached by using the software.

This is very unlikely to happen, seeing all the interest in speculating on these currencies completely go away, although this interest is subject to a lot of deviation and we’ve seen plenty of that already, and more is very likely to come.

Ethereum and bitcoin are different in many ways, but from an investment perspective, they are just two financial assets that people may buy and sell to speculate on, and they will both produce very notable trends that involve larger potential gains and risk than you would ever possibly encounter in anything else.

The future appears far brighter for ethereum, but this is only from the perspective of those who seek to use it for practical purposes, and we need to always separate this from its investment potential, which is ever present but must always be viewed from the perspective of market demand, which is only really driven by the prospects of gains.