BITCOIN vs. ETHEREUM

It is common to consider Bitcoin vs Ethereum these days, with both rising dramatically in price and being featured in mainstream news more often.  I’ve been researching and watching Ethereum to ascertain the differences between it and Bitcoin for a while now.  In my pursuit of knowledge about both these cryptocurrencies, I’ve come to agree with Andreas Antonopoulos’ view that there shouldn’t be any headon “bitcoin vs ethereum” comparison.  The two are alike but different, and if you plan to invest in them both, it’s a good idea to understand them both.

In the past three months, Ethereum has soared – why?  Some will tell you it is due to the brewing scaling issue finally coming to a head August 1, 2017 and is the result of nervous capital moving from Bitcoin.  The issue – read more here – is about how to increase the Bitcoin network’s capacity to process transactions: or “scale”.  Currently it is close to capacity and transactions are being delayed, fees are rising because those that offer higher fees get priority, and something needs to be done.  One side wants to increase the size of Bitcoin blocks from 1MB to 2MB – or more, to fit more transactions.  The other side wants to implement SegWit technology to squeeze more transactions into the space available.  The debate over a course of action has become quite a war between the two sides, and a “line has been drawn in the sand” for August 1st.

Yes, it is very probable that some have bought ETH to hedge against any adverse effects of this current BTC drama and the possibility of a hard fork.  However, since one usually has to buy Bitcoin with fiat and exchange it for Ethereum – I’m not sure I agree with those who think the spike in ETH price is 100% the result of “nervous capital moving from BTC to ETH.”  From what I can tell, there are a lot of new people entering the cryptocurrency arena these days – and most of them are clueless about the bitcoin scaling issue.  Some that I know personally are buying ETH because it’s going up in price – no other reason.  They don’t even know what the purpose of ETH is, how it is intended to be used.

Ethereum is designed to function as somewhat of a “giant global computer” because the network can actually run programs – tech-term for this is “Turing complete” FYI.  It means that Ethereum can run digital applications and “smart contracts” – something Bitcoin was never intended to do.  An example of how this might work is…imagine a sports bet programmed into the Ethereum network.  Both betting parties would send their bets to the program – and assets would be held in a kind of digital escrow account.  When the game is final, the program would check the score and automatically pay off the winner based on the wager made, including any handicap or point spread.  No middleman needed or involved.

Ethereum because of this ability is better suited and appealing to financial institutions and the “fintech” industry for the blockchain-based use cases that are now being explored.  The Enterprise Ethereum Alliance debuted in February 2017 and is a consortium of leading banks, tech companies and others interested in developing “enterprise-grade software capable of handling the most complex, highly demanding applications at the speed of business.”

Members include banks like JPMorgan, Bank of New York Mellon Corp. (NYSE: BK), Credit Suisse Group AG (NYSE ADR: CS), and UBS Group AG (NYSE: UBS). Tech companies on board range from titans like Microsoft and Intel Corp. (Nasdaq: INTC) to blockchain startups like Tendermint and Consensys. The EEA also has some less predictable members, such as oil giant BP Plc. (NYSE: BP).  Clearly such corporate diversity coming onboard behind Ethereum would suggest it has a bright future regardless of what is happening with Bitcoin.

There are other recent developments also likely to be contributing to the spike in Ethereum price, such as the venture capital firm Blockchain Capital’s announcement that it was planning to create a new $50 million venture capital fund in part by selling digital tokens to accredited investors in the U.S.  Those tokens will be based on the Ethereum network, and this project represents just one real-world application and the promise of what may become commonplace in the future.

So, what’s next for Ethereum?  Will it inch closer to $500 by the end of June – $1000 by September?  Should make for an exciting summer to see how the current Bitcoin scaling drama plays out, and the effect it might have on ETH, XRP, and other cryptocurrencies.  While the strong interest in bitcoin does boost investor’s appetite for altcoins, and huge gains are being seen.  But there is a fundamental demand for Ethereum in its own right because it serves a very different need from that of Bitcoin, and the two do not directly compete – so no Bitcoin vs Ethereum comparison is really required.