By Fernando Sanchez, title image from Pixabay here.
The crypto race is on between Bitcoin and its current main rival Ethereum. These blockchain riders trek across a global network, seeking to outrun each other, and become de facto standards in an increasingly challenging environment.
But despite some superficial similarities, their paths are quite divergent underneath. While Bitcoin is merely developed to enable peer-to-peer financial transactions, Ethereum’s array of application-building opportunities easily outdoes its rival.
Thus, some questions arise: Is it wise to choose one over another? Or should the industry have to choose at all? Will Bitcoin v Ethereum become the crypto
equivalent of the perennial Coke v Pepsi dilemma?
Or perhaps these two entities can adapt into a long-standing, uneasy truce, and share the spoils of a global market, until natural selection makes a choice. What’s their respective value proposition?
Let’s find out the answers to these questions.
Bitcoin v Ethereum: The good, the bad, and the smart
Bitcoin rose up from the ashes of the scorched financial earth left behind by the 2008 crash. Traditional money went up in smoke, wiping the value and riches of many individuals and organisations overnight. Money burned because it was real, and tangible.
So digital currency was born, the next stage in financial evolution. Conceived as a hybrid of technology, digital asset, and money, cryptocurrency uttered its first cry and took a few tentative steps in a chaotic world before rising to prominence. In a way, Bitcoin was the father of cryptocurrency, and though it has aged since, it has done so handsomely.
When Bitcoin needed a medium to thrive in, the blockchain was created. The blockchain ecosystem is awash with information. A neverending stream of data zooms across the network, keeping the system alive.
A blockchain is a global electronic infrastructure upon which a number of decentralized applications can be built. Bitcoin currency is one such application, but there are many hundreds of apps out there using the same infrastructure. At their core, blockchains are decentralised payment networks.
The concept of decentralization is key here, and vital to identifying and understanding the weaknesses of both Bitcoin and Ethereum. A decentralized system functions without a central repository, or a single administrator. It relies on mutual trust and consensus by every blockchain user instead.
Enter the next contestant, Ethereum. While Bitcoin is primarily a currency that allows for a more or less traditional buy stuff-sell stuff dynamic -and therefore very restrictive and lacking in flexibility-, Ethereum focuses on acting as a platform to build and run decentralized applications. These application running on the Ethereum blockchain can be used for purposes as varied as storing and accessing medical records, legal applications, supply chain management, and much more.
Ethereum’s lifeblood is Ether, which is a tradeable commodity, a crypto token of sorts, and also currency that can be used to pay for transaction fees and other services. Ether currently stands as the second most valuable form of digital currency, racking up a market capitalization of almost $28bn. Ethereum trails behind Bitcoin’s $65-66bn, but it’s catching up fast.
Ethereum also has another ace up its digital sleeve: Smart Contracts.
These entities are computer programs (called ‘autonomous agents’ in an Ethereum White Paper) that work independently to facilitate the exchange of money, property, or any other tradeable commodity of value. Smart Contracts are designed to handle
every aspect of the transaction, and to automatically execute when certain parameters are met.
Smart Contracts are not without weaknesses, however. Since they are designed and written by humans, they are inherently open to errors and bugs which may lead to disastrous consequences. And because the very decentralized nature of the blockchain, if a Smart Contract goes bad, there is no single control point to contain the problem.
Conclusion: In the cryptocurrency world, no one is king -yet
The blockchain ecosystem is vast, and over populated. Bitcoin and Ethereum are far from the only dwellers there. An estimated 800 independent cryptocurrencies are vying for a slice of the digital pie, and only time and natural selection will determine which ones survive and which ones are confined to the digital charnel house.
Right now, Bitcoin and Ethereum lead the race, and their purpose and raison d’etre are not mutually exclusive. Both entities have their uses, their strengths and weaknesses, and more importantly, a chance to stay in the cryptocurrency game.