The debate between Bitcoin (BTC 2.72%) and Ethereum (ETH 0.51%) as a better investment has been a hot topic in the cryptocurrency community for years. Both are popular and established cryptocurrencies, but there are key differences between them that make Bitcoin a better investment. The reason for this belief can be boiled down to three simple reasons.
Image source: Getty Images.
1. The market cap difference
Market capitalization, or "market cap," refers to the total value of a company or asset. In the case of cryptocurrencies, it is calculated by multiplying the total number of coins in circulation by the current market price of each coin. As of April 1, 2023, Bitcoin has a market cap of over $545 billion, while Ethereum's market cap is just under $220 billion.
Essentially what this means is that Bitcoin is currently a more established asset than Ethereum and makes up a disproportionate amount of value in the entire crypto asset class. As of today, Bitcoin accounts for more than 45% of all the value in crypto.
Its higher market cap indicates that it has more adoption and more trust among investors. Additionally, it suggests that Bitcoin is less volatile than Ethereum, as it would take a larger amount of money to move its price significantly.
2. Increasing scarcity
One of the most significant differences between Bitcoin and Ethereum is their supply. Bitcoin has a hard cap of 21 million coins, which means that there will never be more than 21 million bitcoins in circulation. Currently, there are around 19.3 million circulating, with the remaining 1.7 million yet to be mined. Even better, though, these remaining 1.7 million bitcoins will be released at a diminishing rate for the next 117 years until the last bitcoin is mined.
Currently, Bitcoin's inflation rate is a minimal 1.7%. However, due to the gradual decrease in the rate of new coins being created, it is estimated that by 2056, this number will fall below 0.1%. By the year 2100, Bitcoin's inflation rate will be somewhere around 0.000001%. No matter the asset, an inflation rate this low helps to ensure that prices are not only maintained but grow as demand competes for a more limited supply.
Ethereum, on the other hand, has no hard cap. While it does have a mechanism known as burning to remove ether from circulation, there is, technically, no overall limit on the number of ether which could enter the market. Unlike Bitcoin, this means that Ethereum is subject to unknown levels of inflation, which can decrease the value of each individual coin over time.
3. Decentralization and security
Furthermore, Bitcoin has a stronger track record when it comes to security and decentralization. Bitcoin's blockchain is the most secure and decentralized of any cryptocurrency, with thousands of nodes and miners around the world helping to verify transactions and maintain the network. This makes it less susceptible to hacking or manipulation than Ethereum, which has had several high-profile security incidents in the past. Additionally, Bitcoin's decentralized nature means that it is not subject to the same level of centralization or regulation as Ethereum, which has been criticized for being too closely tied to its founders and developers.
In addition, Bitcoin has a more established and secure network than Ethereum. Bitcoin's network has been operating securely for well over a decade, and its underlying proof-of-work technology has proven to be reliable and resistant to attacks. Ethereum, on the other hand, has had some security issues in the past, including a major hack in 2016 that resulted in the loss of millions of dollars worth of ether. While Ethereum's security has improved over time, it still lags behind Bitcoin in terms of reliability and security.
Keep it simple
While Ethereum might be deserving of a spot in your portfolio, Bitcoin provides investors with a safer and more dependable option. Likely the greatest advantage Bitcoin has over Ethereum is its simplicity. Bitcoin's value proposition is clear and easy to understand: it is a highly decentralized and secure digital store of value that provides holders with reliability.
Ethereum, on the other hand, has a more complex value proposition that is tied to its smart contract functionality and decentralized applications. While this complexity can be appealing to some investors, it also makes Ethereum more difficult to understand and evaluate as an investment, as many of these use cases are in their beginning stages.
For investors looking to keep it simple and wanting to invest in cryptocurrency, look no further than the original digital asset, Bitcoin.
RJ Fulton has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
As an avid enthusiast and expert in the field of cryptocurrencies, I bring a wealth of firsthand experience and a deep understanding of the intricate dynamics within the crypto market. Over the years, I've closely followed the evolution of various digital assets, including Bitcoin and Ethereum. My insights are not only grounded in theoretical knowledge but also stem from a practical awareness of market trends, technological developments, and the underlying principles of blockchain technology.
Now, diving into the debate presented in the article, let's break down the key concepts discussed regarding the investment comparison between Bitcoin and Ethereum:
1. Market Cap Difference:
Explanation: Market capitalization is a crucial metric indicating the total value of a cryptocurrency. It is derived by multiplying the total number of coins in circulation by the current market price of each coin.
Bitcoin (BTC):
- Market Cap: Over $545 billion (as of April 1, 2023)
- Represents more than 45% of the total value in the crypto asset class.
- Higher market cap implies greater adoption, trust among investors, and potentially lower volatility.
Ethereum (ETH):
- Market Cap: Just under $220 billion (as of April 1, 2023)
- Holds a smaller share of the total crypto market compared to Bitcoin.
2. Increasing Scarcity:
Explanation: The supply dynamics of cryptocurrencies play a crucial role in determining their long-term value and inflation rates.
Bitcoin (BTC):
- Hard cap of 21 million coins.
- Currently around 19.3 million in circulation.
- Remaining 1.7 million to be mined, with a diminishing release rate.
- Predicted inflation rate to fall below 0.1% by 2056 and around 0.000001% by 2100.
Ethereum (ETH):
- No hard cap on the number of ether.
- Subject to unknown levels of inflation due to the absence of a maximum supply limit.
3. Decentralization and Security:
Explanation: The security and decentralization of a cryptocurrency's blockchain contribute to its resilience against hacking and manipulation.
Bitcoin (BTC):
- Most secure and decentralized blockchain.
- Thousands of nodes and miners globally verify transactions and maintain the network.
- Well-established proof-of-work technology.
Ethereum (ETH):
- Has experienced security incidents, including a major hack in 2016.
- Despite improvements, lags behind Bitcoin in terms of reliability and security.
In conclusion, the article argues that Bitcoin provides a safer and more dependable investment option compared to Ethereum. The simplicity of Bitcoin's value proposition, combined with its higher market cap and predictable supply, makes it an attractive choice for investors seeking reliability in the volatile world of cryptocurrencies.
