Bitcoin marked a radically new way of handling money outside of government control. It was launched in 2009 with the idea of promising an insured currency without any central authority, in a totally decentralized manner and it revolutionized the financial system. Besides, Bitcoin’s blockchain technology was what was truly revolutionary.
Ethereum, meanwhile, leveraged this blockchain technology to power decentralized financial applications and contracts. It was launched in 2015 and became the world’s largest decentralized platform, enabling the implementation of smart contracts and applications, without third-party intervention.
To function, these programs need Ether, the native cryptocurrency of the Ethereum network. Bitcoin and Ethereum networks are different in essence, nature and functions.
Bitcoin was created as an alternative to national currencies and therefore wants to fulfill the role of a medium of exchange and store of value. Its blockchain only allows sending and receiving transactions.
Ethereum, on the other hand, was born as a platform that finds application in numerous areas, such as decentralized finance (DeFi), smart contracts and non-fungible tokens (NFTs). It is also used as a digital currency for payments or as a store of value. Unlike Bitcoin, the supply of Ether is not limited, but 18 million units are issued per year.
Both Bitcoin and Ethereum currently use a consensus protocol called Proof of Work, which involves solving cryptographic problems (mathematical equations) using heavy energy and computational expenditure.
But Ethereum will be upgraded (Eth 2.0) and move to a different system called Proof of Stake, which will provide greater security and scalability, and will not require such energy expenditure.
Bitcoin and Ether are the two main cryptocurrencies, which today have a market valuation of US$880,000 million and US$405,000 million, respectively.
Within the total assets of the crypto world, Bitcoin accounts for 42% and Ether for 19%. They move with an almost perfect correlation, but in the last two years Ether has taken advantage.
When Bitcoin goes up, Ether usually goes up more. And when Bitcoin goes down, Ethereum tends to go down more. Therefore, the odds are high that Ether will do better than Bitcoin, as long as the crypto world continues to develop and consolidate.
Ethereum serves immense commercial functions and its value will derive from its utility, beyond the fact that it is also used as a store of value. Bitcoin, on the other hand, will depend on its adoption and use as a store of value only.