Why Ethereum is not a rival to Bitcoin

The first cryptocurrency in recent years has become a vehicle for transferring and storing value, while altcoin is actively used by developers as a platform for creating decentralized applications.

Bitcoin is often compared to Ethereum. Various predictions are made about the future of these assets. For example, in August, the head of the analytical company CryptoQuant, Ki Yong Joo, said that altcoin will outstrip the main cryptocurrency in terms of capitalization. He substantiated his prediction with the transition of Ethereum to protocol 2.0, which will increase the scalability, security, and decentralization of the blockchain.

Changes to Ethereum

Over the past two months, important changes have taken place on the Ethereum network. In early August, the London update was released. It launched the token burn mechanism. Thanks to this, on September 4th, for the first time in the history of Ethereum’s existence, the emission of the altcoin became negative. More digital coins were burned that day than new ones were issued.

Burning is the destruction of a certain number of tokens to reduce their number in circulation. This method is used to combat inflation and increase the value of cryptocurrencies. All coin-burning operations are recorded on the blockchain as a transaction. Anyone can verify that the coins have been destroyed.

At the same time, in the blockchain of the first cryptocurrency, the deflationary model was initially laid down, since the number of bitcoins is limited to 21 million (at the moment, almost 19 million have been mined). It is also worth considering that about 20% of the bitcoins already mined ($ 158 billion at the current exchange rate as of September 28) are on wallets that were irretrievably lost. This reduces the amount of Bitcoin in circulation.

In November of this year, the Taproot update will be released on the bitcoin network, which will add the ability to create smart contracts on the blockchain of the main cryptocurrency.

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How Bitcoin differs from Ethereum

Bitcoin was created as a peer-to-peer payment system. The performance of it depends entirely on its users. The creator of bitcoin Satoshi Nakamoto argued in the “white paper” that the main advantage of the cryptocurrency is its decentralization and the absence of privileged users who could somehow influence the network.

Ethereum also has the structure of a decentralized peer-to-peer payment system. However, altcoin developers have gone further and developed a virtual machine that allows the creation of smart contracts and decentralized applications (dApps). The technology has proved to be so successful that it is already being used by major companies such as Microsoft, IBM, Sberbank, Lufthansa, the international charity UNICEF, and others.

At the moment, many different projects are working on the Ethereum blockchain: from games (CryptoKitties, Axie Infinity) to NFT marketplaces (OpenSea) and decentralized crypto exchanges (Uniswap).

The first cryptocurrency is based on the Proof-of-Work (PoW) algorithm, which requires a lot of computing power from miners to keep the network operational and conduct transactions. The PoW algorithm was also used to create Ethereum, but at the moment the altcoin is in the active phase of switching to another algorithm – Proof-of-Stake (PoS), which completely excludes mining. In PoS, the network is ensured by the cryptocurrency holders and rewarded for this. This process is called staking.

Not competitors

Bitcoin and Ethereum were initially positioned as completely different projects, says Mikhail Karkhalev, financial analyst at crypto exchange. According to him, Ethereum is more of a technology for creating decentralized applications, while Bitcoin has become a vehicle for transferring and storing value.

“There is no point in treating them as competing products,” the analyst explained.

Ethereum has already confidently taken its place in the market, but other similar projects will appear that can compete with it, said Karkhalev. He also added that there are more and more other blockchains for creating decentralized applications since the creation of Vitalik Buterin is far from ideal.

Last week, buyers of TIME magazine’s non-fungible tokens spent four times as much on commissions as buying the NFTs themselves. One of the users paid a commission of more than $ 70K when buying 10 NFT tokens from TIME, the cost of which was 1 ETH ($ 3.1K at the time of purchase).

Rivals to Bitcoin

According to Karkhalev, at the moment there are no projects on the crypto market that could make real competition to bitcoin. A similar project is Litecoin, but if Bitcoin is “digital gold”, then LTC is “digital silver,” the analyst summed up.

Litecoin is a digital coin that was created on the basis of the bitcoin blockchain. It differs from the first cryptocurrency in its low commission and fast transactions.

Different statuses in the industry

Ethereum is the backbone of blockchain products and, in principle, the foundation of the modern blockchain industry. Bitcoin, however, is an exchange-traded investment asset with a limited supply and characterized by deflationary properties, said Viktor Pershikov, lead analyst at 8848 Invest.

These assets can be compared if we consider them as digital tokens, but from the point of view of their fundamental characteristics, these assets differ dramatically.

In the future, we should not expect any confrontations between Bitcoin and Ethereum, since the main cryptocurrency has taken its niche “whipping boy” from the standpoint of regulators and financial authorities, as it identifies the entire sphere of digital assets in its person

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Angela Keith

About Angela Keith Angela Keith received her Bachelor of Mass Media degree and has worked in PR and mass media for over 5 years. Besides journalism, she is advanced in blockchain and cryptocurrency technologies. Angela believes that these technologies can change people's lives for the better. She also deals with investments in the cryptocurrency market using her knowledge. Angela is currently the author of a number of cryptocurrency portals and online magazines. Her articles are published, for example, here.
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