Innovation vs. tradition. Why Ethereum is no rival to bitcoin
The first cryptocurrency in recent years has become a means to transfer and store value, while altcoin is actively used by developers as a platform for creating decentralized applications.
- How bitcoin differs from Ethereum
- Not competitors
- Different industry statuses
Bitcoin is often compared to Ethereum and makes various predictions about the future of these assets. For example, in August, the head of CryptoQuant analytics company Ki Yong Ju said that altcoin will surpass the main cryptocurrency in terms of capitalization. He justified his prediction by Ethereum’s transition to the 2.0 protocol, which will increase the scalability, security and decentralization of the blockchain.
The Ethereum network has seen important changes in the past two months. In early August, a London update was released that launched a token-burning mechanism. Thanks to this, already on September 4 for the first time in the history of Ethereum the issue of altcoin became negative. During that day, more digital coins were burned than new ones were issued.
Burning is the destruction of a certain number of tokens to reduce their number in circulation. This method is used to fight inflation and increase the value of cryptocurrency. All coin burn operations are recorded on the blockchain as a transaction, and anyone can verify that the coins were destroyed.
At the same time, in the blockchain of the first cryptocurrency the deflationary model was laid initially, as the number of bitcoins is limited to 21 million (almost 19 million have been mined so far). Also worth considering is the fact that about 20% of bitcoins already mined ($158 billion at the current rate on September 28) are in the wallets, the passwords to which were irrevocably lost. This reduces the number of bitcoins in circulation.
This November, the bitcoin network will release an update to Taproot, which will add the ability to create smart coattails on the blockchain of the main cryptocurrency.
How Bitcoin differs from Ethereum
Bitcoin was created as a peer-to-peer payment system, the performance of which depends entirely on its users. Bitcoin’s creator Satoshi Nakamoto stated in a white paper that the main advantage of the cryptocurrency is its decentralization and the absence of privileged users who can influence the network in any way.
Ethereum also has the structure of a decentralized peer-to-peer payment system with a token of the same name, but altcoin developers went further and developed a virtual machine that allows the creation of smart contracts and decentralized applications (dApps). The technology has been so successful that it is already used by major companies such as Microsoft, IBM, Sber, Lufthansa, the international charity organization UNISEF and others.
At the moment, Ethereum blockchain is used by many different projects: from games (CryptoKitties, Axie Infinity) to NFT-marketplace (OpenSea) and decentralized crypto-exchanges (Uniswap).
The first cryptocurrency is based on the Proof-of-Work (PoW) algorithm, which requires large computing power of miners to keep the network and transactions running. The PoW algorithm was also used to create Ethereum, but at the moment the altcoin is in the active phase of the transition to another algorithm – Proof-of-Stake (PoS), which completely eliminates mining. In PoS, cryptocurrency holders make the network work and are rewarded for doing so. This process is called stacking.
Bitcoin and Ethereum were initially positioned as completely different projects, says Mikhail Karkhalev, a financial analyst at the cryptocurrency exchange Currency.com. According to him, Ethereum is more of a technology for creating decentralized applications, while bitcoin has become a means for transferring and preserving value.
“It makes no sense to consider them as competing products,” the analyst explained.
Ethereum has already firmly taken its place in the market, but other similar projects that can compete with it will emerge, Karkhalev noted. He also added that other blockchains for creating decentralized applications are becoming more and more numerous because Vitalik Buterin’s creation is far from perfect.
Last week, buyers of non-interchangeable tokens from TIME magazine spent four times as much on commissions as they did on buying NFT themselves. One user paid a commission of more than $70,000 on the purchase of 10 NFT tokens from TIME, which were worth 1 ETH ($3,100 at the time of purchase).
According to Karkhalev, at the moment there are no projects on the crypto market that could really compete with bitcoin. The similar project is Litecoin, but if bitcoin is a “digital gold”, then LTC – is a “digital silver”, summarized the analyst.
Litecoin is a digital coin that was created on the basis of the bitcoin blockchain. It differs from the first cryptocurrency with low fees and fast transactions.
Different statuses in the industry
Ethereum is the backbone of blockchain products and in principle the foundation of the modern blockchain industry, while bitcoin is an exchange-traded investment asset with limited supply and deflationary properties, said Victor Pershikov, lead analyst at 8848 Invest. According to him, in terms of investment attractiveness these assets can be compared if we consider them as digital tokens, but in terms of their fundamental characteristics these assets are fundamentally different.
In the future, one should not expect any confrontations between Bitcoin and Ethereum because the main cryptocurrency has taken its niche as a “whipping boy” from the position of regulators and financial authorities, as it identifies the entire sphere of digital assets in its face.
Author: Alexey Korneev