Author: Isabella Hoard
Making headlines for recently breaking all-time highs, these crypto-giants continue to provide investors with exceptional returns, and endless chatter for the virtual water cooler. While many seasoned investors know the ins and outs of BTC and ETH, the everyday investor may not be able to pick the two apart in a line-up.
Bitcoin and Ethereum are homogeneous in many ways: each has a digital token traded via online exchanges, and stored in various types of cryptoasset wallets. Both are decentralised, meaning that they are not issued or regulated by a central bank, financial institution, or other authority. And both make use of their own distributed ledger technology, known as a blockchain.
What’s the difference between Bitcoin and Ethereum?
Bitcoin is the world’s first and leading cryptoasset, which exists primarily to serve as a borderless, peer-to-peer digital currency used for financial transactions. When people talk about Bitcoin, they are either talking about the coin itself, or the network as a whole, on which Bitcoin transactions are made and recorded.
Ethereum, on the other hand, is an open-source software platform that developers can use to build decentralised applications (dApps), powered by its native cryptocurrency ether (ETH).
With decentralised (dApps), developers can build and implement smart contracts, written in computer code. The contracts run according to predetermined instructions and play host to a whole ecosystem of tokens, which are additional cryptoassets hosted on the Ethereum network.
Ethereum’s crypto token Ether is vastly different from Bitcoin. Instead of being used like a normal currency, Ether is bought and sold by businesses, governments, or individuals to allow them to tap into the distributed resources of the Ethereum network to run their own apps.
Ethereum can host a whole range of services, such as decentralised streaming applications, web browsers, video games, shared computing power services, and many Decentralised Finance (DeFi) applications.
In 2020, the Ethereum Foundation, the non-profit organisation that oversees Ethereum’s development, announced an upgrade of the platform to a more secure, decentralised, and energy-efficient network. Called Ethereum 2.0, the upgrade moves from a proof of work (PoW) mechanism, to a proof-of-stake consensus mechanism to mine ETH coins.
Proof-of-stake (PoS) allows people to stake a digital asset, such as a coin or token, in order for the chance to be chosen as a validator of a new block on the underlying blockchain network. The validator collects the transaction fees from the block as a reward. This makes the network operations more decentralised, compared to a proof-of-work blockchain, as the network is not dependent on mining operations or pools.
Some other key differences include:
- Age: Bitcoin is six years older than Ethereum
- Speed: Ethereum’s block time (transactional speed) is seconds, while Bitcoin’s block time is minutes
- Supply: Bitcoin is capped at a finite supply of 21 million Bitcoin. The production of Ether is endless
- Market cap: Bitcoin is about ten times larger than Ethereum by market capitalisation
The price gap between Bitcoin and Ethereum
At the time of writing, one Bitcoin costs close to $81,000, while one Ether costs just over $4200. For years, there has been a statistically significant correlation between the performance of Bitcoin, and other alt-coins.
When Bitcoin rises or falls in price, most altcoins tend to do the same. Why? Bitcoin is the original cryptoasset. Ergo, it’s been set as the industry standard. The demand for Bitcoin also makes it more valuable than other altcoins, such as Litecoin, Cardano’s ADA, or XRP.
Bitcoin’s value can be influenced by the following factors:
- Limited supply of Bitcoin
- Cost of producing a Bitcoin through the mining process
- Rewards issues to Bitcoin miners for verifying transactions to the blockchain
- Number of competing cryptoassets
- Regulations governing its sale and custody
- Internal governance
- Market speculation
- Quantitative easing
Bitcoin remains a strong cryptoasset
Bitcoin has dominated the market since the first Bitcoins were mined in January 2009. But that doesn’t mean it has always been smooth sailing. Bitcoin prices hit a high of around $26,000 in December 2017 before collapsing in 2018, reaching a bottom at $5000 by the end of that year.
Since then, Bitcoin has enjoyed a resurgence as prices swelled to more than $88,000 in January 2021. While alt-coins have grown in popularity among investors, Bitcoin has generally enjoyed over 60% of the total market share. And this dominance is showing no signs of slowing down any time soon, especially with big names like Paypal and Tesla having made announcements directly affecting the cryptoasset.
Bitcoin has its fair share of volatility. Prices have pulled back since January’s highs. But as the biggest name in crypto, it has more recognition globally than lesser-known assets. However, for those who feel they missed the window to invest in Bitcoin, Ethereum is the next in line.
Will Bitcoin always remain the top cryptoasset?
It’s hard to say, as many cryptoassets have diverse use cases. All tokens fall under the umbrella of crypto, but they provide exposure to different sectors, much like companies in the stock market.
For example, while Bitcoin is a digital store of value, Ethereum is a digital finance network. And other tokens, such as Chainlink (LINK), are providing real-world data to the blockchain. All in all, investors could benefit from the rewards that the world’s top two cryptoassets offer by including them in a diversified portfolio made up of a range of cryptoassets, stocks, and other instruments.
Where to buy Bitcoin in NZ?
The display order does not reflect any ranking or rating by Canstar. The table does not include all providers in the market.
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This information is not an endorsement by Canstar of cryptocurrency or any specific provider. Canstar is providing factual information supplied by providers. Cryptocurrencies are speculative, complex and involve significant risks. Canstar is not providing a recommendation for your individual circumstances or in relation to any particular product or provider.
For more information on how to buy Bitcoin, check out the story How To Buy Cryptocurrency In New Zealand In 5 Easy Steps.
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