Despite their growing popularity, especially during times when they hit all time highs, cryptocurrencies are misunderstood by many. Are they all the same? Are they a collectible item? Are they a storage of value? Well, cryptocurrency projects in most part have practical uses and are constantly refined to work towards certain goals. In this blog, ‘first generation’ cryptocurrencies of Bitcoin and Ethereum, the two largest ‘coins’ by market capitalization will be explored.
In terms of the largest cryptocurrencies, this is often measured by market capitalization.
This blog will explore the two leading cryptocurrencies of Bitcoin and Ethereum.
Bitcoin – Why are people saying this is the way of the future?
Bitcoin was launched in 2009 as a digital currency that can be sent and received via a centralized system called a blockchain. A blockchain refers to ledger that records the sending and receiving of these digital tokens, a similar idea to a receipt with a sender and receiver identified by a wallet code.
Use 1- Medium of Payment
Bitcoin can be used as an alternative to currency, like Australian dollars, to buy and sell goods and services. The benefit of this medium of exchange is the ability to send money globally in a small amount of time. It also provides security in that Bitcoin sent to another wallet cannot be intercepted in between. However, there are scams out there – this idea is contingent on accurate wallet codes being provided. Another limitation of this use is that the value of Bitcoin is very volatile, meaning that valuing assets in terms of Bitcoin may not be an effective and sustained pricing option.
Use 2- Storage of Value
Bitcoin has also been compared to gold and often called the “digital gold” due to its qualities as a storage of value. Like gold, Bitcoin has grown its reputation in this space and often has also been attached with the idea of a safe haven asset or inflation hedge. Both these ideas have not been tested over long periods of time, so it is quite hard to come to this conclusion just yet. In the recent weeks, its vulnerability to influencers like Elon Musk driving its value in a volatile fashion suggest that these uses are quite dubious.
Ethereum – An upgraded Bitcoin?
Ethereum was launched in July of 2015 and has been the second largest cryptocurrency after Bitcoin. Also known as Ether, the cryptocurrency has expanded blockchain technology to provide more use cases beyond Bitcoin.
Ethereum also has the same capabilities of Bitcoin as a storage of value and means of transacting. There are some additional capabilities outlined below.
- Time to Transact
Time to transact is significantly lower through Ethereum taking only a few seconds in comparison to Bitcoin’s few minutes time frame.
Bitcoin was created as an alternative to currency whilst Ethereum aspires to facilitate immutable, programmatic contracts and applications – more on this below.
- Ethereum Foundation
Ethereum has a body that oversees the cryptocurrency and actively looks to improve its capabilities. This foundation is led by its founder and have been responsible for enhancements such as “Ethereum 2.0” adjusting the network to reduce costs and improve environmental footprint. Bitcoin does not have a body like this and hence is limited in its ability to be upgraded as needed.
- Smart Contracts
Smart contracts are coded protocols that can facilitate the verification, control, or execution of an agreement. Apps are also able to be made through these smart contracts, where data can be stored and run on a decentralized network rather than a centralized network. Within this capability, the Ethereum network also allows transactions to occur in its currency. This could involve buying other cryptocurrencies or non-fungible tokens (better known as ‘NFTs’). Ethereum provides a network for these transactions.
There are uses, but now what?
There are use cases for both cryptocurrencies – with many more that only backend software engineers can properly decipher. Nonetheless, there are limitations including environmental impact and high running costs which are yet to be solved. With blockchain technology only in its early stage, there are more refinements and developments to come, some of which are being led by other cryptocurrencies which will be explored in a future article.