Synopsis: This article explains Bitcoin and Ethereum, how these two cryptocurrencies differ, and pros of investing in these two cryptocurrencies. Upon reading the article, you can make the decision whether to invest in Bitcoin or Ethereum.
Should I invest in Bitcoin or Ethereum only? Should I invest in both Bitcoin and Ethereum? How do we make this decision? Read this article to get a perspective on the pros of investing in Bitcoin or Ethereum, then make your investment decision.
Bitcoin and Ethereum are the two cryptocurrencies in the world. If you want to invest in cryptocurrencies, then it is essential to be aware of the risks associated with volatility. Bitcoin provides BTC tokens and Ethereum provides ETH tokens as a reward for participation in these networks. These tokens work on different platforms of different nature like BTC on Bitcoin and ETH on Ethereum.
Bitcoin works on the concept of proof of work, whereas ETH works on the concept of proof of stake. Proof of work means that people need to solve mathematical problems to validate the transactions. Proof of stake means that people need to stake the amount of Ether they hold in order to create a block. BTC involves a lot of energy resulting in slower execution time, whereas ETH involves less energy leading to faster execution time.
Bitcoin is a digital currency used as a medium of exchange and store of value. Ethereum is a platform to create programmable contracts and decentralised applications with its own token Ether. Both use blockchain technology.
BTC may suit only people who prefer low volatile instruments with deep liquidity and institutional adoption, whereas ETH will best suit people who prefer riskier instruments.
Why Many Investors Prefer BTC Over ETH
Scarcity and fixed supply: Since there is a fixed supply of 21 million, the price can fluctuate only based on the change in demand. Compared to cryptocurrencies with unfixed supply, the inflation in BTC can be controlled to a great extent.
Adoption by many institutions: Many corporates are adopting BTC quickly, primarily for holding it in reserves and diversification.
Store of value: BTC is viewed as digital gold for hedging against inflation. Recently, many rich Indians are selling gold to buy bitcoin for the same reason. Moreover, it suits any conservative Indian’s investment style.
Lower volatility: This cryptocurrency faces matured price swings, making it suitable for long – term HODLers. HODL is a strategy where you hold on to the cryptocurrency until the price is more than the amount you have spent to buy it.
Deep liquidity: There are many active buyers and sellers for BTC, due to which there won’t be a huge price fluctuation. Slipping can happen only when trade is executed at the worst price. Since there won’t be huge price fluctuations, slippage is less.
Outperformance: BTC has historically outperformed ETH in terms of profitability and market value. Any investor who wants more profit and asset value after purchase will tend to lean towards BTC.
Network security edge: BTC’s proof of work is more secure than ETH’s proof of stake due to its longer history and large user base.
Lower transaction costs: BTC has lower transaction costs than ETH. The main reason is because Ethereum is used for decentralised applications, whereas Bitcoin is used for payments. Ethereum’s gas fees depend on the computational effort required for transactions, and these fees can be high during peak times.
Why Many Investors Prefer ETH Over BTC
Smart contract platform: ETH runs on decentralised platforms like financial apps. India is home to many fintech startups in recent times. Most of the operations in fintech involve usage of programs and code, like releasing funds only when the person is eligible for collateral requirements.
Deflation: Ethereum burns more tokens than Bitcoin as the burning mechanism of EIP-1559 removes transaction fees from circulation. This burning contributes to deflationary effects, making all coins valuable.
Scalability: Ethereum can process approximately 30 transactions per second compared to Bitcoin’s approximately 7 transactions per second, making Ethereum more scalable than Bitcoin.
Dominance of stablecoins: Over 54% of the stablecoins get hosted on Ethereum.
Ecosystem diversity: An investor can play games and earn ETH through play-to-earn games. Some of the games provide passive income. Some of the top games in ETH include RavenQuest, Axie Infinity, PEPENODE, and Big Time.
Faster transactions: ETH is faster than BTC. The average time for a block in Ethereum is 13 to 15 seconds, whereas the average time for a block in Bitcoin is 10 minutes. Ethereum enjoys this speed advantage due to proof of stake.
Institutional growth: Most of the Indian HNIs have started selling gold to buy ETH as ETH is gaining momentum in terms of market performance and trading volume.
Higher upside potential: ETH outperforms BTC in terms of trading volume and market performance. However, this cryptocurrency carries additional risk due to its exposure to the stablecoin ecosystem.
Now, you have understood the concepts of BTC and ETH. Most of the people follow the crowd and end up losing a lot of money. Since you know the differences and can comprehend between BTC and ETH. You can make the decision yourself to invest in BTC or ETH.
Written by Parvati Anilkumar
