Ethereum, Bitcoin and the Rise of CryptoCurrencies
Ethereum is hot. We are talking about the new cryptocurrency that could shade Bitcoin, and its evolution is meteoric so far.
The truth is that one of the reasons for the popularity of Ethereum is that it is more than a cryptocurrency; it is also a computer platform (for smart contracts) based on the blockchain technology.
Differences between Ethereum and Bitcoin
Apart from Ethereum’s ability to execute code in its blockchain, there are quite a few differences with Bitcoin.
The main and most important one is that there is no emission limit of ethers, the currency of Ethereum, while with Bitcoin there is a strict limit of 21 million. This implies that there will come a day when no more bitcoins will be created and will therefore become a deflationary currency.
Deflation in the economy is not good. However few use it as a currency, the cryptocurrencies are rather a commodity, an element in which to invest. And that a good is scarce is very positive for those who invest in it.
Apart from this difference there are other technical details that separate both technologies, too technical, I would say. Let’s go over two because it is important for the topic we are dealing with.
1.The first is that mining with Bitcoin is quite complicated and you have to go to specific hardware to perform them (ASICs). Instead, with Ethereum you can do it with a simple GPU from a PC.
2.The second is that the block time in Bitcoin is 10 minutes, and when a block is generated 12.5 bitcoins are created. Instead in Ethereum the block time is approximately 14 seconds and 5 ethers are created.
The PoW system
For a crypto-coin to work, the network nodes are continuously checking transactions, this is called Proof of Work (PoW). The security of this system depends on the number of nodes, and that there is not a single user with much capacity inside the network (as it could attempt a malicious attack).
The best incentive for the PoW to be powerful, and therefore the blockchain, is that the reward for being a network node is good. The higher the reward the better, the more users will decide to be nodes.
It is true that Ethereum is studying to move to another technology, Proof of Stake (PoS), which is, in theory, much more secure, but it remains to be seen since technologically it is not so clear that it is possible.
But … which one is safer?
The big question is which one is safer. At the moment it has been Bitcoin, with more network nodes showing that it is more profitable to be a miner there. But this is changing, little by little.
It is not easy to calculate how much money the miners get in each technology. The easiest count is the following: in Bitcoin you get 12.5 bitcoins every 10 minutes. At today’s prices this is roughly $27,060.
On the other hand, in Ethereum you get 5 ethers every 14 seconds, that is 214.28 ethers every 10 minutes. And this equals roughly $42,830. Therefore, to this day, Ethereum generates more money than Bitcoin! Whenever the value (in any other currency) of an ether is 0.05833 or more times that of a bitcoin, Ethereum wins. This is measured by Köppelmann’s constant in specialized forums.
Ethereum generates, to this day, more money for its miners than Bitcoin
But this value is not enough, since when there are transactions inside a cryptocurrency a “tip” is given to confirm the transaction (the transaction fee of the banks of a lifetime). And the more volume of transactions, the more money the miners will get to confirm it. It makes sense, since for example in Bitcoin, when 21 million coins are reached, Bitcoins will no longer be generated “out of the blue” and the miners will live exclusively on these “tips.”
Not only the miners live the cryptonnet
But does this have an impact on both currencies? Are there people who are giving up mining in Bitcoin to Ethereum? Is there more movement in Ethereum than in Bitcoin?
The truth is that being a miner in Bitcoin requires specific hardware that is not good for mining in Ethereum. Someone who has made the investment in this hardware is not likely to change.
We are close to seeing that Ethereum overcomes Bitcoin in every way, additionally (and importantly) because its blockchain is more secure.
As for market capitalization, which measures the amount of money that exists in both currencies, Bitcoin still has the lead, almost double. There are almost 40 billion dollars in bitcoins compared to 20,000 ethers. The capitalization will be equalized when the price of an ether is 0.176 that of a bitcoin. We are still far, clearly.
It is also important to see the volume of transactions, and for the moment Bitcoin is still winning, with 1,549,330,000 bitcoins moved compared to 719,505,000 ethers in the last 24 hours. There is still much more movement in Bitcoin, but clearly the numbers of Ethereum are spectacular.
All this data to see if Ethereum gains relevance against Bitcoin can be seen in real time, since there is a community following this data very closely, speculating about changing from Bitcoin to Ethereum. Of course, we’ll keep watching but so far, it looks like Ethereum could usurp Bitcoin as being the king of cryptocurrencies.