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September 15, 2022

Ethereum vs. Bitcoin: The Long-Term Outlook 

Disruptive tech quite literally changes the world as we know it. When established paradigms crack, people tend to get defensive and view it as an invasion. But the defensiveness pervades within the disruptive tech's community, too, with each camp thinking their tech is the singular way forward.

Such is the case with Bitcoin and Ethereum, the two leaders in the crypto space. While Bitcoin and Ethereum supporters often butt heads, plenty of people are fans of both.

Both Bitcoin and Ethereum envision a world where decentralized technologies upend existing systems, freeing the world from the tyranny of centralized intermediaries. But they go about it differently, and that's where the tension lies.

The Long-Term Outlook on Ethereum

Ethereum promises the world by setting a standard for how blockchains should be built and by enabling the development of an entire ecosystem of smart contracts applications on its network. A smart contract allows users to exchange just about anything of value: shares, money, real estate and other types of assets. In addition to the 2,971 apps on Ethereum, there are 37,000 apps on Polygon, the Ethereum scaling platform. Compare this to the 100 or so applications on Bitcoin’s Lightning network. 

Given the successful upgrade on September 15th 2022, which is projected to reduce Ethereum power usage by 99.9%, Ethereum may dethrone Bitcoin as the most widely used cryptocurrency. Its smart contract functionality allows for a much more comprehensive range of potential applications. Its transition to a Proof-of-Stake consensus mechanism will make it a much more efficient network compared to Bitcoin’s Proof-of-Work consensus.

Ethereum occupies a significant place in cryptocurrency with a vast and prolific ecosystem, which dominates blockchain development moving forward. The world is watching, and Ethereum has the potential to change the way we interact with the internet forever.

The Long-Term Outlook on Bitcoin

From the moment of its inception, Bitcoin has operated without interference, without any downtime, and without any governance issues — characteristics that will likely continue for the foreseeable future. 

Bitcoin could be described as “boring,” but that's the point. It's the most decentralized, robust, and secure blockchain in the world, all essential characteristics needed to ensure a sound monetary system. Its finite supply of 21 million Bitcoin gives Bitcoin anti-inflationary properties, which was a response to the ever-inflationary monetary policy of central banks leading up to and after the Great Recession. 

Bitcoin is the best cryptocurrency for a sound monetary system, which is likely to be the case for many years. It's the gold standard for what cryptocurrencies should be, and we'll continue to see more and more adoption of Bitcoin as a medium of exchange as money continues to make its way onto the blockchain. 

Most notably, the Lightning Network is poised to bring Bitcoin to the masses, enabling near-instantaneous transactions and reducing fees by 99% or more. Its development continues to gain momentum, and there is no sign of slowing down.

What Is Ethereum?

Let’s look back to 2013, when a 19-year-old college dropout named Vitalik Buterin released a white paper that would change the world — again. A Bitcoin enthusiast and early contributor to Bitcoin Magazine, where he wrote hundreds of articles, Buterin eventually proposed a new platform that would build upon the concept of blockchain and extend its capabilities past peer-to-peer cash.

Buterin's vision was to create a blockchain platform that would be more programmable, allowing developers to build decentralized applications (dApps) and smart contracts — self-executing contracts that live on the Ethereum blockchain and carry out the terms of an agreement between two parties without the need for a third party.

Buterin and programmers like Gavin Wood and Joseph Lubin launched Ethereum in 2015 after crowdfunding $18 million through an Initial Coin Offering (ICO) — one of the first of its kind. Since then, Ethereum has become the second-largest cryptocurrency by market capitalization and has spawned an entire ecosystem of projects, protocols, and token standards built on top of its blockchain.

Ethereum dreams of becoming a "world computer," the beating heart of a new internet, an internet that is decentralized, secure, and censorship-resistant. 

Examples of Ethereum's potential use cases include:

  • Decentralized Finance (DeFi): A growing area of Ethereum that refers to the shift of traditional financial instruments — like lending, borrowing, and derivatives — onto the blockchain.

  • Non-Fungible Tokens (NFTs): A type of digital asset that represents a unique, immutable item. Famous examples are Bored Ape Yacht Club, CryptoPunks, and Meebits.

  • Enterprise Blockchain: Large companies are turning to Ethereum to build private blockchain solutions for various use cases, from supply chain management to digital identity.

  • Gaming: Ethereum's programmability and blockchain-based scaling solutions enable the next generation of online games, where players can own their in-game items, trade them on decentralized marketplaces, and earn real cryptocurrency rewards (called play-to-earn).

Properties of Ethereum

Ethereum upholds most of Bitcoin's key characteristics. It is decentralized, borderless, and censorship-resistant. 

However, there are a few key differences that set Ethereum apart from Bitcoin:

Supply: Bitcoin has a maximum supply of 21 million BTC, while Ethereum does not have a hard cap on its supply. Ethereum coders have implemented supply changes like burning tokens and changing transaction fee structures to control inflation. Still, its lack of maximum supply makes it fundamentally different from Bitcoin.

Consensus Mechanism: Consensus is how nodes in a blockchain network agree on the current state of the blockchain — or how the network validates transactions. Ethereum uses a Proof-of-Stake (PoS) consensus mechanism which was recently implemented in September 2022. PoS is a more efficient consensus mechanism that doesn't require nodes to compete in energy-intensive computations. 

Smart Contracts: The ability to execute smart contracts is Ethereum's defining feature. For example, imagine you wanted to send your child money when they turn 18 years old. You could create a smart contract that automatically releases the funds to them on their 18th birthday without needing a third party like a bank or lawyer. This is just one of the countless potential use cases for Ethereum smart contracts, with applications ranging from token standards to decentralized finance protocols.

What Is Bitcoin? 

In 2009, an individual — or to some theories, a group of individuals — named Satoshi Nakamoto released a whitepaper that would go on to change the world. In it, Nakamoto proposed a peer-to-peer electronic cash system that would allow anyone to send online payments from one party to another without the need for a third party — such as a bank — to act as an intermediary.

To do this, Nakamoto proposed a blockchain — a digital ledger that records all transactions securely and transparently. This would be the first time anyone proposed such a system, and it would lay the foundation for Bitcoin, the first decentralized cryptocurrency.

Satoshi released Bitcoin in the wake of the 2008 financial crisis, and Bitcoin, from its inception, has carried an odor of anti-establishmentarianism. Nakamoto's white paper espoused a libertarian lean, and cryptocurrency has only grown more popular with those who bristle against government intervention, centralized monetary policy, and traditional financial institutions.

Attacks from governments, tech leaders, and even those from the Bitcoin community have failed to kill Bitcoin. In fact, authoritative pushback has only made the cryptocurrency stronger, exemplifying a concept known as antifragility, or the ability to thrive and grow stronger despite (and often because of) adversity.

Bitcoin's core value proposition is that it's a censorship-resistant store of value and medium of exchange. It offers a unique blend of properties unmatched by any other monetary asset.

Properties of Bitcoin

Bitcoin's primary properties are:

Censorship-Resistance: No one can prevent you from sending or receiving bitcoin, no matter who they are, where they reside, and what level of power they wield.

Limited Supply: There will only ever be 21 million bitcoins ever created. This is hard-coded into the protocol, ensuring that no one can add more bitcoin to the existing supply. Bitcoin loyalists see this as a key selling point, as it gives the cryptocurrency similar characteristics to gold — which is also limited in supply. Bitcoin is inflation-resistant, and in the face of modern monetary theory, which prints money out of thin air to service debt, that's a valuable proposition.

Immutability: Once the Bitcoin blockchain confirms a transaction, it is set in stone. No one can alter or reverse a Bitcoin transaction, giving the cryptocurrency a level of security that no other asset can match.

Borderless: Bitcoin transcends borders, physical constraints, and jurisdictional boundaries. Anyone, anywhere in the world, can send or receive bitcoin without asking permission from anyone else. Like the internet, Bitcoin is global.

Bottom Line

The long-term outlooks for Bitcoin and Ethereum are positive, with no signs of slowing down. In this new world of cryptocurrency, it's not a winner-takes-all game. Bitcoin and Ethereum will continue to play an integral role for the foreseeable future as we shift more of our traditional financial infrastructure onto the blockchain.

With this, it’s generally worth it for investors to diversify their portfolios to maximize exposure to this new technological boom. It’s hard to go wrong with Bitcoin and Ethereum in a portfolio, which is why Ember's "The Originals" portfolio is the perfect choice for investors to diversify their holdings into the two biggest cryptocurrencies by market cap.

Ready to get started? Download the Ember Fund App here.

Sources:

Proof-of-stake (PoS) | Ethereum

Lightning Network

Bitcoin: A Peer-to-Peer Electronic Cash System | Bitcoin

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