Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
A cryptocurrency is digital cash that runs on a ledger distributed across thousands of computers scattered across the world. The production of new coins is not controlled by any central authority.
Cryptocurrency is mostly traded on a crypto trading platform like Wealthsimple or on an online exchange like Coinbase. These crypto buying platforms allow crypto investors to buy and sell digital assets. When trading on cryptocurrency exchanges, crypto investors need to be aware of transaction fees, which are usually around $0.50 for trades under $10,000.
You can also buy digital currencies directly through crypto exchanges that work on a decentralized network. These decentralized exchanges (or DEXs) allow you to trade directly with other users through “smart contracts” and eliminate interference from any third party. There are many popular Crypto DEXs including PancakeSwap, Uniswap, and SushiSwap.Buy and Sell Bitcoin, Ethereum, and dozens more cryptocurrencies with Wealthsimple. Sign up and Trade here.
What is Bitcoin?
There are several thousand cryptocurrencies. And Bitcoin, or BTC, is the largest of them by market capitalization. At the end of 2021, the total value of all Bitcoin in existence was over $1 trillion. In January 2021, when Bitcoin’s price started to reach a new all-time high, there were around 400,000 Bitcoin transactions per day. It’s often referred to as digital gold, and for good reason.
Bitcoin is also the first cryptocurrency. On October 11, 2008, “Satoshi Nakamoto” published the Bitcoin whitepaper, titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In it, Nakamoto, whose identity still remains unconfirmed, despite numerous individuals claiming his name to fame as their own, described a system that lets “online payments to be sent directly from one party to another without going through a financial institution.” The first Bitcoin was mined on 9 January 2009.
Since the creation of the first Bitcoin in 2009, the price of Bitcoin has increased considerably, with a remarkable spike in price in November 2021, when the price of Bitcoin hit close to $64,000.
Since then, Bitcoin’s value has continued to decrease. Despite its value going down, more and more traders are adding Bitcoin to their portfolio because of its worldwide adoption, unique supply and demand economics, and blockchain technology.
What is Ethereum?
Ethereum is a blockchain network, while Bitcoin is a cryptocurrency, intended as an alternative to the fiat currency that is printed by banks. And that’s the key difference: Bitcoin doesn’t really do anything else. Ethereum, on the other hand, is an entire platform.
The Ethereum platform allows developers to build their own blockchain-based programs, called dApps (decentralized applications), and have them run on the network using blockchain technology.
Ethereum smart contracts are made up of code and data that reside on a specific address within the Ethereum network. Developers can create smart contracts to build applications on the Ethereum network. With dApps, developers can build and implement smart contracts—computer code that automatically carries out tasks when certain conditions in the contract are met and without the need for human intervention.
Much like regular apps on a computer or mobile phone, dApps can do a bunch of interesting things. On the Ethereum network, there are social networks, advertising systems, and payments services that facilitate billions of dollars in cross-border payments. Board game companies, stock exchanges, and investment banks have all started building on Ethereum.
Ether, or ETH, is the cryptocurrency used to pay to run programs on the Ethereum network, a little like using gas to power a car. Just like Bitcoin, ETH can also trade against other cryptocurrencies, (including Bitcoin). ETH’s market cap as of March 6, 2022, is $313 billion, compared to Bitcoin’s market cap of over $738 billion. Ether is valued at around $2,628 and Bitcoin’s value is over $38,000. The trade volume of Bitcoin is also higher than ETH. Bitcoin’s trade volume is currently around $13 billion USD, while Ethereum’s trade volume is around $7.6 billion USD.
Bitcoin is a lot more valuable than ETH at this stage, but with more dApps coming on the Ethereum network and Ethereum 2.0 launching in the near future, ETH is predicted to gain much more investors and popularity in the upcoming years.
Under the hood of Bitcoin and Ethereum
How Bitcoin is minted
New Bitcoins are minted via a process called “Bitcoin mining.” Bitcoin mining is based upon a concept called "proof of work,“ which involves computers solving difficult cryptographic puzzles that verify transactions made using Bitcoin. These verified transactions are subsequently added to the Bitcoin blockchain as a part of a “block” (a blockchain is just a chain of these blocks).
Bitcoin mining is integral to the Bitcoin network because it means that the transactions its users make on the network can be verified by other users on the network. In other words, it doesn’t need a centralized party, like a bank, to maintain the ledger. Since the blockchain’s ledger is distributed across all of the “nodes” in its network, anyone can verify that a transaction has occurred. This prevents scammers from making up transactions, as each user has an accurate version of the ledger.
Changing the data in any one block in the ledger would be really difficult—you’d have to alter the ledger in over half of the computers in the network (or control over half of the computing power in the network) and do so within the block verification time, which is around 10 minutes. Given how expensive it would be to get so much computing power, the ledger is pretty safe.
Verifying each of these blocks rewards the miners with a certain amount of Bitcoin. The reward for the first block was 50 BTC, and the reward halves every four years or so. In March 2022, the reward is 6.25BTC. This process is computationally intensive, which is why most Bitcoin mining is done by specialized “mining rigs”—computers specifically designed to be efficient at mining Bitcoin.
Bitcoin has a hard-cap of 21 million Bitcoin. Once this limit is reached, no more will be produced. It’s estimated that the last Bitcoin will be mined in 2140. This figure can’t be changed, as it was written into the code by Bitcoin founder Satoshi Nakamoto.
How Ether is minted
Ether, like Bitcoin, is also produced by mining, although the blocks are added every 12-14 seconds rather than every ten minutes. And, like Bitcoin, it runs on a proof of work system.
But the issue with proof of work is that it’s very expensive to pay for all of the mining computers, and it requires a great deal of energy. In addition, the mining process itself has become centralized, with mining “pools”—companies who control thousands of miners—controlling the bulk of the network.
That’s why Ethereum has been in a process of transition toward a different mining mechanism, called “proof of stake” since 2017. While proof of work relies on high-powered computers to solve very difficult puzzles, proof of stake avoids such an energy-intensive process. “Validators” put up a certain amount of their cryptocurrency as a “stake.” (Staking, essentially, means to hold cryptocurrency on the network.)
The algorithm then selects a validator to create a block—those who hold more cryptocurrency on the network are more likely to be selected to produce the next block. The block is then processed as normal and added to the blockchain. As miners no longer compete for blocks with their computing power, the process is far less energy-intensive, and could make Ether a greener alternative to Bitcoin in the future.
Still, the technology remains under development and hasn’t been implemented. For the purposes of trading and mining, Ethereum and Bitcoin are more alike than different (a popular Google search is “Ethereum Bitcoin”!).
Bitcoin is more than two times larger than Ether by market cap as of March 2022. An individual Bitcoin is also worth considerably more. One Bitcoin costs around $38,000, and one ETH costs around $2,628. But despite the difference in price, research by cryptocurrency exchange Binance has shown that the prices of the two are correlated. Both currencies peaked in price in late 2021, with Bitcoin reaching a market high of over $64,000 and ETH at around $4,600. Bitcoin skyrocketed as El Salvador accepted it as a legal tender, while Ethereum exploded to new all-time high thanks to the boom of NFTs.
Still, nothing’s certain in crypto-land. When Bitcoin fell toward the end of 2018, Ethereum fell even further. But when the cryptocurrency market briefly picked back up in 2020, Ethereum’s price started to become correlated with Bitcoin’s once again. Since then, the prices have remained highly correlated.
Most crypto indexes, such as the Galaxy Crypto Index Fund, still include Bitcoin and Ether as their primary components.
|Consensus mechanism||Proof of work||Proof of work, to be supplemented or replaced by Proof of stake.|
|Scope||Digital currency as an alternative to fiat currency||Platform to build decentralized apps, one of which is a cryptocurrency|
|Market cap as of March 2022||$738 billion||$313 billion|
Why you might choose Ethereum over Bitcoin, and vice versa
Choosing Ethereum over Bitcoin is a little like choosing an apple over an orange: It depends on your taste.
If you’re into crypto solely to trade it, there’s little practical difference between Bitcoin and Ethereum, and it’s up to you to speculate on the price. Ethereum is moving to a proof of stake chain, known as Ethereum 2.0, which is expected to be fully released by the end of this year, and that could affect the price. But, simultaneously, the mining difficulty of Bitcoin is due to halve in 2024 (the result of a rule hardcoded onto the Bitcoin protocol), and pundits say that’s supposed to pump up the price, too. Nobody can predict the future, or future worth, of these two technologies.
If you still can not pick between these two coins as an investor: you do not have to. In fact, you might be interested in a recent development in Canada; Canada’s first registered cryptocurrency investing firm, 3iQ Corporation, announced on March 1, 2022, the launch of 3iQ Global Cryptoasset Fund. Similar to its predecessor, the fund will invest in both Bitcoin and Ethereum. Moreover, this Fund will hold some of the top cryptocurrencies including Cardano (ADA), Polkadot (DOT), Polygon (MATIC), Chainlink (LINK), Avalanch (AVAX), and Solana (SOL). The Fund will be composed of 40% Bitcoin, 25% Ethereum, and 35% other leading cryptocurrencies.
Previous to this, First Block Capital had crypto funds that contain both Ethereum and Bitcoin. It created a diversified portfolio called the Global Cryptoasset Fund. This fund was established as a mutual trust fund. The fund was composed of Bitcoin, Ethereum, and Litecoin (another popular cryptocurrency). Specifically, its assets were divided into 51 percent BTC, 37 percent Ether, and 12 percent Litecoin.
Remember that all investments are risky, and that cryptocurrency investments could be among the riskiest, if historically volatile prices are anything to go by. Never invest more than you’re willing to lose, and only use well-known and trusted crypto trading platforms like Wealthsimple to avoid online hacks and enjoy secure crypto purchases.
Frequently Asked Questions
Bitcoin is a technology is limited to payments and is mostly seen as a store of value. Ethereum is a decentralized computing platform where developers can make dApps (decentralized applications) and have them run on the Ethereum network. Bitcoin is nothing more than a digital currency, while Ethereum is a digital universe. Ethereum has far more developers and functionalities, but Bitcoin is still unmatched when it comes to global adoption.
There is no clear answer here. Cryptocurrency investments are highly risky. Although Bitcoin and Ethereum are two of the largest digital currencies in the crypto market, it’s never recommended to put all your eggs in one basket. A diversified portfolio is how you minimize your risk.
Ethereum has far more developers on the network and can process much more volume than Bitcoin on a regular basis. Bitcoin is only a medium of exchange, while Ethereum allows developers to build dApps (Decentralized applications) and smart contracts. As of March 2022, there are more than 3,000 dApps deployed on the Ethereum blockchain. Like Bitcoin, Ethereum can also be used as a store of value, but it’s made to do much more than that. Bitcoin is much more widely accepted as a cash replacement.
As of March 4, 2022, Bitcoin’s market cap is $791 billion, while Ethereum’s is $329 billion. This means that Ethereum has to more than double in value to claim the first spot (assuming that Bitcoin’s price stays the same). You might think that it’s not possible for Ethereum to outpace Bitcoin, but due to the increased use of dApps and smart contracts, a few investors like Jim Cramer (CNBC host) and huge firms like Goldman Sachs believe that there’s a possibility of Ethereum taking over Bitcoin’s top spot in the future. However, the cryptocurrency market is highly risky and speculative. It’s important to do your own research before investing into any digital currencies.
With much lower gas fees and increased functionalities, Cardano (ADA), Solana (SOL), Stellar Lumens (XLM), and Polkadot (DOT) are some of the biggest Ethereum’s competitors, also known as the top “Ethereum Killers.” Though Ethereum is currently the clear leader when it comes to market cap and the number of dapps.
Although Bitcoin and Ethereum are the two largest cryptocurrencies by market capitalization, they still are a high-risk investment because they often fluctuate by huge amounts within a short period. While they are becoming popular and gaining more investors every day, their future growth and regulation still remains uncertain.
Transactions on Ethereum are much faster than on Bitcoin, but the transaction cost (also known as gas fees) is very high. If the Ethereum network gets congested, you might have to pay a huge amount in fees so your transaction can proceed. Ethereum can normally process 12-15 transactions per second, while Bitcoin can process 2-5 so you can say Ethereum is faster than Bitcoin.
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