Saturday, September 21, 2019

What is a better investment, Bitcoin or Ethereum?

Ethereum.

Before I explain why, I need you to understand something. Bitcoin and Ethereum are at two completely different stages within their potential. They also do not share the exact same mission; therefore, you do have to understand their differences to form an opinion about which one has the biggest use.

Before we look at the coins in detail, let's start with the potential ROI (100% = 2x Original Investment).

Bitcoin’s current market cap is $193,165,354,468 in order for you to make 100% this number would need to double to just under $400 Billion.

Ethereum’s current market cap is $44,715,990,083 , roughly 1/5th of Bitcoins. In order for you to make 100%, the price would need to increase to just under $90 Billion. - This is obviously more probable.

This will not serve as the only variable in making a decision, we now need to break down their uses and differences.

Bitcoin

What is Bitcoin?

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

Peer-to-Peer (P2P): is a technical way of saying computers (peers) that are connected together via the internet.

Timestamps: are a sequence of characters that identify exactly when a certain event occurred, giving the exact time and date.

Hashing: is the process of compacting large quantities of data into smaller fixed sizes.

Proof-of-work: is the verification that the individual peer created the said hash

Nodes: are computers that are connected to the blockchain

Bitcoin is a first generation cryptocurrency, that was created in 2009 with the intention to become the currency of the internet.

Its Applications

Safe Haven

Being that billions of people are under the control of a broke economy or volatile dictatorship, Bitcoin is beginning to become a medium in which people within underdeveloped countries feel as a more secure place to store their value.

Remittances

The current operation costs roughly $600B annually, all at the expense of separated families. Bitcoin can now serve as a tool that operates the exact same way and only costs 1/10th of the price.

A transaction on the Bitcoin network also processes faster therefore giving the people a strong reason to make the switch.

Currency

Bitcoin is recognized as an asset, but can also be identified as an efficient currency in which people can buy and exchange with. With this being an application of Bitcoin, as the market continues to decrease in volatility, the use for Bitcoin will increase within businesses and everyday people that transact on a daily basis.

These are just a few, but for the sake of answer length, let’s move onto some of the scalability issues with Bitcoin that hinder my decision of choosing Bitcoin over Ethereum.

Bothering Issues with Bitcoin

Energy

A study from Digiconomist found that each transaction on the Bitcoin blockchain uses 236 KWh worth of electricity, this amount is enough to power 8 U.S households for an entire day.

Scalability

Energy consumption will hinder the scalability issues of Bitcoin, however the other issue that arises with POW mining is that with the increase in cost associated with mining BTC it is less economical to mine Bitcoin. This would limit the distributed nodes (miners) globally and allow a larger percentage of control to the dominant mining pools / farms.

This would lead to a more centralized blockchain, where they can change the rules of BTC as they please.

The supply of Bitcoin is finite, capped at 21 million. Eventually (currently predicted for 2140) Bitcoin's supply will run out. Once this happens, miners will no longer receive rewards for completing blocks but instead will be given fees. The fees will be drastically high in relative terms, and people will stop using the blockchain.

Also, if miners decide that this is uneconomical for them to process the transactions and use their computing power elsewhere the speed of transactions for Bitcoin will drastically slow down, rendering one of the fundamental values of a Bitcoin (speed) useless.

Blue chip Companies

This is more so for all cryptocurrencies, but Bitcoin in particular. It’s not a matter of if but a matter of when a blue-chip company such as Facebook, Amazon or Google decides to implement their own cryptocurrency.

Another possibility is a potential ‘world coin’ which global governments will all agree on using, this may seem unrealistic but it is definitely not impossible and many benefits would arise from having such a currency.

Quantum Computing

Bitcoin is said to be Quantum resistant, on the whitepaper it mentions that:

‘To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases.’

This may seem quantum resistant but it is important to understand that the difficulty is changed every 10 minutes and this is more than enough time for QC to mine all of Bitcoin’s remaining coins.

Bitcoin Bubble

The last point of this section is to recognize that the Bitcoin bubble could pop loud enough to crash the market. Due to a whole lot of hype, and even more speculative and uneducated buyers, Bitcoin could face a peak in which a simple spark

Ethereum

What is Ethereum?

Ethereum is an open source platform with the mission to build and inspire next-generation decentralized applications. In other words, the applications being built on the Ethereum network would have no middle men. Users are able to interact safely with social and financial systems to transact peer to peer, therefore opening a new realm of opportunity within decentralized development on specifically the exchange of value.

Like the Bitcoin network exchanges Bitcoin, applications within the Ethereum network would exchange ETHER. Therefore, making the Ethereum network have its own digital currency or, cryptocurrency that these decentralized applications would run on.

On the Ethereum network, developers are able to build these decentralized applications simply, within this seemingly complicated new technology. Think of it as Shopify or Volusion, these are centralized networks in which users/developers can build e-commerce stores more efficiently and cost effectively.

Ethereum is similar in this aspect, the network was essentially created to assist and fuel the growth of decentralized blockchain applications within its network.

Smart Contracts

Now, what Ethereum is based on, is a thing called “Smart Contracts”

Developers are extremely excited about this tool, a smart contract is similar to how it sounds, it’s a digital contract that self-executes… Think of it as a virtual vending machine.

A smart contract is a digital contract between two people in which the technology or tool handles the management, performance, enforcement and payment of the agreement. The smart contract has its own digital bank account of ETHER and settles once the product is received or the service is completed therefore greatly improving the efficiency of data tracking, payment processing and user friendliness of each decentralized application.

Let’s dive into an example

Music

The first age of the internet brought quite a bit of disruption to the music industry… Idk if you knew, but if you we’re a songwriter 25 years ago and produced a hit song that got a million singles you would acquire royalties of up to $50,000. Now if you were to produce a hit song that gets a million streams you don’t get $50,000, you get $45… Enough to cover the first round at the bar.

In result, musicians are now finding other ways to produce revenue with their music. One being the utilization of a blockchain ecosystem like Ethereum. Music applications are now being built for musicians to reclaim their content, smart contracts are being implemented into the music itself, therefore the music protects the intellectual property rights of the artist.

You want to listen to the song? It’s free… or maybe a few micro pennies to download. You want to put the song in your video or movie? Make it your ringtone? These each cost a different price and presented at the point of purchase would be its underlying IP rights for the use of that piece of music.

Musicians are absolutely hyped about this because now, the song becomes a business. It’s out there on this platform marketing itself, protecting the rights of the author and because the song has a payment system; in the sense of a bank account, all of the money then flows back to the artist, and they control the industry rather than these powerful intermediaries.

This concept could apply not only to just songwriters but any creator of content, from art, to inventions, to scientific discoveries or the work from independent journalists. There are endless industries in which people do not gain fair compensation in which the underlying technology of Ethereum could benefit in a big way.

Other examples:

· A smart contract can be created to pay a worker for every hour they work, they log their hours on the blockchain and then after verification the funds are instantly transferred to them

· Buying goods internationally can be tracked and verified – reducing fraud.

· Property buying can be facilitated through the contract

· Every industry that has a contract in place will be able to use the blockchain of Ethereum

It is also worth noting that Ethereum is also a lot quicker than Bitcoin, average block time being 15 seconds for Ethereum opposed to 10 minutes for Bitcoin.

Personally, I am invested into both. If I HAD to choose, like I said it would be Ethereum simply because of where it is now in comparison to its potential as well as its very transparent, direct, opportunistic mission towards the hosting of decentralized blockchain applications.


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