The world of cryptocurrency has a wealth of information that sometimes it can be challenging to know where to start. This article will focus on what Bitcoin and Ethereum are and how they compare to one another.
Cryptocurrency: Bitcoin vs. Ethereum
A lot of us may view these types of cryptocurrency options as the difference between Microsoft and Apple, but there are different objectives of each that are important to keep in mind.
Bitcoin: The Basics
First launched in 2009, Bitcoin was the first type of cryptocurrency available on the market and the first to use blockchain technology. This type of digital currency set out to fix issues within the global finance realm and was dubbed the “bank of the people.” It was mostly created as an alternative option to a regular currency that differs depending on location (like USD, EUR, etc.), which makes it accessible to anyone, anywhere.
Unlike other banks and forms of currency, Bitcoin does not necessarily require any kind of third-party application like your bank or PayPal. Like typical money, Bitcoin can be used for any type of manual transaction like purchasing a good or service and even receiving money.
Today, Bitcoin allows for simplicity when converting it into cash. Still, the trading volume varies from day to day, so you will want to make sure you check the rates before converting your Bitcoin to your local currency. Completing any kind of Bitcoin transaction can be completed in minutes and is accessible anywhere in the world.
Ethereum: The Basics
Another option in cryptocurrency is Ethereum, which was created in 2015. What sets this apart from other options is the elimination of any need of any third-party system and is not solely limited to financial systems.
Ethereum is blockchain-based and enables SmartContracts and their system of apps that allows users to run without any downtime, additional control, fraud, and absolutely zero interference from a third party. The actual currency is called Ether, but the two names are typically used interchangeably.
Ether is designed to use within and fuel the Ethereum network and power transactions. Unlike Bitcoin, whose transactions are manual, Ether transactions can be programmed to be automatic, which is a significant factor when deciding between the two.
Key Differences Between Bitcoin and Ethereum
When comparing the two, it is evident that they have quite different goals and depending on what you are trying to achieve will lead you in different directions.
Regarding their overall concepts, Bitcoin is essentially digital money, whereas Ethereum is more of smart contracts. This is an extremely simplified example of the difference between the two. When you are comparing the purposes of the two, Bitcoin is more of a store of value and also a way to send money to other people or to purchase things online.
While Ethereum is also a way to send money to people, the circumstances are specific, and you can only do it when certain things happen. Another difference with Ethereum, in particular, is it serves as a building platform for dApps or smart contracts, so instead of sending money, you are sending a token that represents a specific value. Unlike Bitcoin, Ether values can be something other than digital currencies, which is a big difference.
Coin limitations can also show another difference between the two. Bitcoin is limited to 21,000,000 coins to create a supply and demand for others to get Bitcoin. This is a great aspect of cryptocurrency. Ethereum is not limited, which means the production of Ether is continuous. Over time, this will mean that the possible supply of Ether will decrease because there is only so much available.
While both are decentralized, meaning it is not in one central position of control, trust, or failure. It is this reason exactly that gets people in the mindset that cryptocurrency is the way of the future.
Emotional Trading: What Bitcoin and Ethereum have in common
Frequently, budding investors will see the stock market as an overwhelming place for beginners. It is very tricky and heavily regulated. As such, they will often turn to cryptocurrency, namely Bitcoin and Ethereum.
Professional investors know not to trade on emotions, but the cryptocurrency market is not exactly ripe with investing experts. This lack of experience and lack of regulations makes the crypto market extremely susceptible to emotional changes. These emotions can be broken down into two main categories:
Cryptocurrency Trading Fear: Without any rules or regulations in place, the crypto markets are very volatile — subject to change on a whim — and this can cause crypto investors to be anxious about their money. The slightest hint of a drop is enough to send many crypto investors into a selling frenzy as they worry about losing money. These selling frenzies are what can cause crypto values to drop drastically.
Cryptocurrency Trading Greed: The inverse to fear is also true. People see how fast the value of crypto can jump up. At its highest, bitcoin traded at nearly $20,000 apiece when, just a few years prior, it was almost virtually worthless. This greed causes investors to get FOMO, or Fear Of Missing Out.
Together, Trading Greed and Trading Fear cause the Bitcoin and Ethereum markets to be extremely volatile. Many cryptocurrency investors make the mistake of buying high (greed) and selling low (fear), which often results in a loss. The first rule to investing, regardless of what you are investing in, is to understand that you cannot trade emotionally. You must use facts and logic with your investments, less you miss out on significant returns, or lose out big from selling at a loss.