Competition has always been there in every booming industry. It has the ability to accelerate growth and open doors for innovation. We can talk of Pepsi and Coke, Microsoft and Apple, Real Madrid FC and FC Barcelona, etc.
In the crypto industry, it was mostly a one-sided race until Ethereum emerged with undisputed innovations and projects. In 2013, Bitcoin dominated the crypto market with over 90% dominance. Every beginner first got to know about Bitcoin, before learning about other assets. However, this is changing in the past few years.
In January 2021, Bitcoin’s dominance had reduced to 68 percent while Ethereum had a 10% market dominance. By the end of May, Ethereum had taken hold of 19 percent of the market value while Bitcoin had fallen further to 42%. From this, it is safe to say that Ethereum is establishing itself as a very able competitor of the largest crypto in the market.
I look at what sets the two competitors apart.
Ethereum is a Development Platform – Bitcoin is Not
It is important to understand that Ethereum transcends the normal “currency” tag. It was built as a programmatic and application platform that runs its currency “ETH”.
Bitcoin on the other hand was created as an alternative to traditional fiat currency. It was introduced as a store of value and medium of exchange meant to offset the known drawbacks of traditional fiats. Backed by blockchain technology, it seeks to eradicate middlemen from transactions while settling as a self-bank.
The Chief Operating Officer of Oasis Pro Markets Pat LaVecchia could not have explained them in a better way: “Ether is a blockchain platform that functions like the Apple store or Android app store. Bitcoin is a commodity like gold or a store of value.”
Bitcoin has a Finite Supply – Ethereum has an Infinite Supply
Bitcoin was created to be finite with a supply of 21 million BTC. This should explain why institutional investors are moving in lately with millions of investments. MicroStrategy, for instance, has accumulated about 100,000 Bitcoins with the likes of Ark invest and Tesla stockpiling more of the asset. With its finite supply, it is seen as a perfect hedge against inflation.
Ethereum, however, has an infinite supply (at the moment as this will change with ETH 2.0) and caps the amount released each year. Regardless, many institutional investors have also found interest in the Ethereum project and are investing heavily. This is part of the contributing factors that caused its price to surge to an all-time high before the market pullback.
Speed and Security
It is interesting to learn that Bitcoin which was created as a medium of exchange processes transactions slower than Ethereum. Bitcoin block times are 10 minutes, compared to the 14 seconds of Ethereum. This means Bitcoin takes 42 times longer to release a block. Bitcoin transactions become visible after up to 40 minutes while Ethereum takes 5 minutes to complete a transaction. Ethereum is therefore 8 times faster than Bitcoin.
However, Bitcoin has an edge in terms of security. With a programming language of C++ and restricted to only 70 specific commands, Bitcoin appears to be very secure. To be able to hack the blockchain with the specified command is nearly impossible. Ethereum on the other hand is still finding its Identity with the ever-evolving platform. The Ethereum 2.0 set to be released with completely different rules speaks a lot about this.
Proof of Work Algorithm and ETH 2.0 (Proof of Stake)
Today, Ethereum has emerged with a lot of technological innovations like decentralized finance (Defi), Non-Fungible Tokens (NFTs), etc. But one of the most important aspects of these two assets is their mining algorithms. Both use the Proof-of-Work (PoW) algorithm which is environmentally unfriendly.
Bitcoin mining alone consumes more energy than countries like Sri Lanka. This has forced environmental activists to shun receiving donations in BTC as a protest. In fact, the growing concerns of the carbon footprint, forcing miners to either switch to renewables, or developers to switch to Proof-of-Stake algorithms is mounting pressure on the price. China is already cracking down on Bitcoin mining facilities.
Ethereum is currently working to switch to the PoS which is said to conserve energy by more than 99.9%. Recent research conducted by Square Inc and Ark Investment disclosed that Bitcoin incentivizes renewable energy. Once this finding is generally accepted by the crypto community, its price may rebound a little.
Bitcoin and Ethereum in the Future
Bitcoin supporters also believe that Bitcoin can overthrow Ethereum when it comes to DeFi.
“Today, Ethereum powers most of the DeFi (decentralized finance) platforms, but shortly, we’ll be able to build DeFi platforms on top of Bitcoin thanks to layer 2 solutions. Eventually, Bitcoin will become both the global standard of value and the monetary settlement layer of the world.”
Ethereum has been predicted by Lark Davis, a crypto influencer and Youtuber that it may surge to as high as $19,000. His prediction was backed by the many projects emerging and booming on the Ethereum Network. Bitcoin is currently enjoying some positive publicity as it is now a legal tender at El Salvador, with Paraguay potentially following.