Despite growing competition from hundreds of popular altcoins, Bitcoin (BTC) and Ethereum (ETH) remain the clear crypto market leaders in 2024. Together, the market caps of Bitcoin and Ethereum make up nearly 72% of the entire global cryptocurrency market. Bitcoin’s $2 trillion market cap dwarfs Ethereum’s $400 billion market cap, but Ethereum’s market cap is more than three times larger than any other crypto’s.
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Other competitors may emerge to challenge the two crypto market leaders in the coming years, but for now, the two most obvious choices for crypto investors are Bitcoin and Ethereum. But before you choose which top crypto is right for you, make sure you understand the differences between Bitcoin and Ethereum and why each has a distinct role in the crypto landscape:
— What is Bitcoin?
— What is Ethereum?
— What are the differences between Bitcoin and Ethereum?
— Bitcoin and Ethereum performance.
— How to invest in Bitcoin and Ethereum.
What Is Bitcoin?
Bitcoin was the first cryptocurrency. It is a blockchain-based, decentralized digital currency powered by a network of users that allows financial transactions without relying on a central authority or intermediary.
Bitcoin and other cryptocurrencies are alternatives to fiat currencies such as the U.S. dollar, which are backed by federal governments and central banks. Bitcoin is secured by cryptography, with transactions verified by a process known as mining in which users compete to verify transactions by solving complex mathematical puzzles using powerful computers. This verification method is known as proof-of-work, or PoW. Bitcoin transactions are permanently recorded on a public ledger that can never be changed or manipulated in any way.
If a Bitcoin miner successfully adds a block of verified transactions to the blockchain, they will receive a reward of newly minted Bitcoins. That reward is currently 3.125 BTC per block, but the reward is cut in half every time 210,000 blocks are added to the blockchain, which typically takes around four years. Unlike fiat currencies, Bitcoin has a hard cap of 21 million BTC that cannot be exceeded. This cap limits Bitcoin supply and will end its inflation when that cap is reached, characteristics that Bitcoin investors believe will make the crypto an effective store of value in the long term.
What Is Ethereum?
Ethereum is a blockchain platform created to support smart contracts and secure financial transactions. Ethereum’s native cryptocurrency is Ether.
Smart contracts are software that allows decentralized apps, or dApps, to run automatically on a blockchain when a set of predetermined conditions are met.
The Ethereum network includes dApps for gaming, gambling, socializing and even decentralized finance, or DeFi. Many non-fungible tokens, or NFTs, are also based on the Ethereum network.
The Ethereum network is decentralized and operates on a network of thousands of computers around the world. In 2022, the Ethereum network transitioned from an energy-intensive PoW verification system to a proof-of-stake, or PoS, model. Instead of miners competing to solve mathematical puzzles, Ethereum’s PoS system selects validators via an algorithm. To qualify as a potential validator, traders must “stake” some of their cryptocurrency as collateral. The more crypto they stake, the higher the likelihood they will be chosen to validate a block and receive a reward.
Ether does not have a hard supply cap, but supply is managed via a process known as burn. Every time a transaction is completed on the Ethereum network, users must pay a transaction, or “gas,” fee. The Ethereum protocol specifies that a fraction of each gas fee will be burned, essentially destroying the ETH. As a result, Ether has been deflationary for extended periods, meaning more ETH has been burned than has been created. However, Ether is currently slightly inflationary following its Dencun upgrade in March 2024, which lowered fees significantly and reduced burn.
It should be emphasized that, while the supply of Ether is growing, it’s doing so at a fairly consistent, and exceptionally slow, rate. In the eight months between late March 2024 (the point of its lowest supply) and late November 2024 (the point of its highest), the Ether supply grew from 120.07 million to 120.43 million, or just 0.3%. For all intents and purposes, the crypto’s growing supply can be considered negligible.
What Are the Differences Between Bitcoin and Ethereum?
Both Bitcoin and Ethereum are popular cryptocurrencies that operate on decentralized blockchain networks, but beyond that, there are very few similarities between the two investments. Here are some of the many differences between Bitcoin and Ethereum:
— Bitcoin’s network operates on a PoW verification system, while Ethereum uses a less energy-intensive PoS consensus verification system.
— Bitcoin’s primary purpose is to be a digital currency and an alternative to fiat currencies like the U.S. dollar that can be exchanged easily for goods and services. Ethereum’s primary purpose is to serve as a platform to run smart contracts and other dApps, and ETH is simply the native cryptocurrency used to facilitate transactions.
— Bitcoin has a finite supply capped at 21 million, while Ether has a theoretically infinite supply. Ether has been deflationary at times, but its supply has been increasing (albeit very slowly) since fees were significantly reduced in March 2024.
— Bitcoin’s future price performance will likely depend on its adoption as a legitimate global currency and its popularity as an inflation hedge and store of value for investors. Ether’s future price performance will likely depend more on the popularity of the Ethereum network and growth in dApps and smart contracts.
Bitcoin and Ethereum Performance
Both Bitcoin and Ether have been exceptional long-term investments, but both are prone to extreme price volatility. Buying either crypto requires a high risk tolerance.
Looking at past performance, it’s difficult to choose a winner between Bitcoin and Ether because their relative returns fluctuate depending on the time frame. In the past year, Bitcoin prices are up 171% compared to a 62% gain for Ether. If you look back over the past five years, Bitcoin prices are up about 12x, while Ether prices are up more than 20x.
Although Ether has been the better investment over that time period, that trend has reversed in the past year on growing enthusiasm surrounding the recent launch of spot Bitcoin exchange-traded funds, as well as anticipation over its acceptance as an asset to be owned by corporate treasuries and held on the balance sheets of central banks. Of course, past performance is no guarantee of future results, and it’s extremely difficult for even professional analysts to accurately predict crypto market movements.
How to Invest in Bitcoin and Ethereum
Investors can buy Bitcoin and Ether directly on popular cryptocurrency exchanges such as Coinbase, Gemini and eToro. They can also buy both cryptocurrencies via a brokerage account with Robinhood, Interactive Brokers, TradeStation or other platforms that support crypto trading. They can even buy Bitcoin or Ether in their PayPal or Venmo accounts.
Both Bitcoin and Ether have futures contracts that trade on the Chicago Mercantile Exchange. While futures trading is somewhat advanced for the average investor, there are several Bitcoin and Ether ETFs that hold futures contracts. The ProShares Bitcoin Strategy ETF (ticker: BITO), the VanEck Ethereum Strategy ETF (EFUT) and the ProShares Ether Strategy ETF (EETH) are three examples of popular crypto futures ETFs.
As of January 2024, Bitcoin investors can also buy spot Bitcoin ETFs that hold the cryptocurrency itself rather than futures contracts. The Securities and Exchange Commission has approved the following spot Bitcoin ETFs to trade on major U.S. exchanges:
— ARK 21Shares Bitcoin ETF (ARKB)
— Bitwise Bitcoin ETF (BITB)
— Fidelity Wise Origin Bitcoin Trust (FBTC)
— Franklin Bitcoin ETF (EZBC)
— Grayscale Bitcoin Trust (GBTC)
— Hashdex Bitcoin ETF (DEFI)
— Invesco Galaxy Bitcoin ETF (BTCO)
— iShares Bitcoin Trust (IBIT)
— Valkyrie Bitcoin Fund (BRRR)
— VanEck Bitcoin Trust (HODL)
— WisdomTree Bitcoin Trust (BTCW)
Spot Ether ETFs are also available. Here are nine spot Ether ETFs available to buy today:
— BlackRock iShares Ethereum Trust ETF (ETHA)
— Grayscale Ethereum Trust (ETHE)
— Grayscale Ethereum Mini Trust (ETH)
— Bitwise Ethereum ETF (ETHW)
— Fidelity Ethereum Fund (FETH)
— Franklin Ethereum ETF (EZET)
— VanEck Ethereum ETF (ETHV)
— Invesco Galaxy Ethereum ETF (QETH)
— 21Shares Core Ethereum ETF (CETH)
The Bottom Line
Bitcoin and Ethereum may seem similar at first glance, but the investment thesis for each is very different. Bitcoin’s biggest challenge in the future may be scalability, given its energy-intensive PoW consensus mechanism. Ethereum’s biggest challenge may be fending off competition from so-called Ethereum killer blockchains that often have faster transaction speeds and lower gas fees, such as Solana (SOL) and Avalanche (AVAX). It’s difficult to say if Bitcoin or Ether will be the better long-term investment moving forward, but if history is any indication, investors can’t go wrong with either one.
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Bitcoin vs. Ethereum: Which Is the Better Buy? originally appeared on usnews.com
Update 11/22/24: This story was previously published at an earlier date and has been updated with new information.
