What is Ethereum and Is It a Better Investment Than Bitcoin?
Cryptocurrency has been making waves in the news lately, particularly after all of the commotion with GameStop and Robinhood. You’ve likely heard of the most popular form of cryptocurrency, Bitcoin (BTC), and may be wondering if there are any other types of decentralized digital currency worth exploring. One notable competitor you should know about — Ethereum — is considered a popular competitor to Bitcoin.
What is Ethereum, should you buy it, and how does it work? I’ll walk you through the ins and outs of cryptocurrency and explain the role Ethereum plays in this guide.
- Cryptocurrency basics
- What is Bitcoin?
- What is Ethereum?
- How Ethereum differs from Bitcoin
- Should you invest in Ethereum?
- How to invest in Ethereum
- The bottom line
Before I can dive into breaking down Ethereum, you’ll need to know some general points about cryptocurrency. Cryptocurrency is a digital currency that is decentralized and secured online by cryptography. This virtual currency is also referred to as “cryptos” which can be exchanged online for services or goods. Transactions are tracked through online ledgers like blockchain, which is commonly used for most Bitcoin activity. New transactions create new blocks, which offer transparency to all users across the blockchain platform.
One of the main appeals of cryptocurrency is its enhanced security. In addition, cryptocurrency generally exists outside the parameters of government controls, which can be especially appealing to some investors.
In addition to using cryptocurrency in exchange for goods or growing your digital wallet, users can also participate in crowdsales (similar to crowdfunding), which allows you to fund and support projects through cryptocurrency tokens.
What is Bitcoin?
Next, let’s look at Bitcoin, the main Ethereum rival and largest form of cryptocurrency currently on the market. Bitcoin was established in 2009 as an alternative form of currency, existing without a central authority.
There are no physical Bitcoins available — instead balances of this currency are available on public ledgers (created by Bitcoin blockchain technology), that anyone can access at any time. Bitcoin can be purchased, sold, or exchanged virtually. The abbreviation for Bitcoin is BTC.
There are many alternative cryptocurrencies that have evolved since Bitcoin first hit the scene, but this leading cryptocurrency is still the most popular virtual option.
What is Ethereum?
Ethereum is a bit different than Bitcoin and other altcoins (alternative cryptocurrency) options. Ethereum is actually another decentralization software platform, similar to blockchain, as well as a new programming language. Ethereum was originally launched in 2015 by co-founders Vitalik Buterin and Gavin Wood as an enhanced platform for managing cryptocurrencies, addressing some common flaws found in the Bitcoin platform. It is also built and managed with Ethereum blockchain technology.
The Ethereum algorithm is based on the proof of work (POW) model. The abbreviation for the cryptocurrency of the Ethereum network is ETH.
How Ethereum differs from Bitcoin
Unlike Bitcoin, Ethereum actually utilizes Turing complete blockchain to allow users and companies to create their own applications (decentralized apps known as dApps) and smart contracts which are secured from tampering and intervention.
While Ethereum isn’t technically a cryptocurrency, it does have its own virtual currency option — ether. However, unlike Bitcoin, when individuals invest in Ethereum, they’re typically investing in the technology, which is currently considered the gold standard in blockchain technology. Others might be interested in simply purchasing Ether, but the technology investment is what has helped this cryptocurrency become much more popular in recent years.
Ethereum is also less expensive to purchase and invest in than Bitcoin, which makes it a more appealing buy to some. Currently Ethereum is $1,817.83 (USD) for tokens and Bitcoin is $48,695.99 (USD) for tokens.
Should you invest in Ethereum?
When investing in any cryptocurrency, it’s important to first examine your own financial goals. Investing in Bitcoin may allow you to grow your digital money portfolio and cash out if prices continue to soar (as anticipated). However, many experts believe that investing in Ethereum might lead to even higher earnings, as the technology behind Ethereum is exciting and able to produce financial wins for many developers and companies.
Key reasons why many investors choose to purchase Ether
Ethereum has more applications than other cryptocurrencies
Bitcoin may be the big name in cryptocurrencies, but Ethereum’s cutting edge technology makes it a better bet for some investors. The blockchain technology that Ethereum utilizes is far beyond the capabilities of Bitcoin’s blockchain platform. It’s also faster, more secure, and currently has no competition.
If you love investing in new technology and understand how important blockchain may be to the future of finance, investing in Ethereum might make sense for your cryptocurrency portfolio.
Many financial companies are adopting Ethereum technology
Typically financial institutions like banks may be threatened by digital currency. However, Ethereum is seen by many financial institutions as a way into the virtual currency world, by offering their customers more secure transactions.
Bank of America built their own Ethereum-based platform and many other large banks are following suit or at least open to developing applications using Ethereum technology. Unlike Bitcoin which is posed as a rival to big banks, Ethereum allows financial institutions access to this cutting edge, secure technology.
Many Fortune 500 companies support Ethereum
Another reason why investors are opting for Ethereum over Bitcoin is that it has massive support from several top 500 companies. With financial backing from JP Morgan, Microsoft, Intel, BP, and Thomson Reuters, the Ethereum community has established itself as a top cryptocurrency platform for investors. It even has its own alliance backed by large industries, the EEA (Enterprise Ethereum Alliance).
Drawbacks to investing in Ethereum
Of course, there are a few disadvantages to consider before investing in Ethereum. Here are some of the most common drawbacks.
Ethereum is more complex than other cryptocurrencies
Since Ethereum is essentially digital assets technology, there are more complexities involved when you invest in this digital currency. Because Ethereum is an advanced ledger and platform for developing apps, there’s more chance of the technology incurring breakdowns and bugs. This has made the technology a bit slower to scale up than competitors like Bitcoin.
Ethereum’s programming language can be challenging to learn
One of the primary reasons investors like Etherum is the software’s open-source platform that allows programmers to build on. However, since Ethereum is a new programming language, developers first need to master this coding technology. Ethereum’s language Solidify is similar to C++, Python, and Java, but it can be challenging for new developers to master. This could also slow down Ethereum’s growth and prevent more individuals and companies from investing in this technology.
Ethereum has the same risks as all investments
Although the technology behind Ethereum is unrivaled and exciting, the Ethereum virtual machine still isn’t a risk-free investment. Cryptocurrencies are especially volatile, which means they might experience extreme profits, as well as losses. Investors are still learning about cryptocurrencies and how they work, and past patterns make understanding Ethereum’s possible growth rather difficult. For this reason, many investors might skip cryptocurrency altogether and invest in stocks, ETFs, or mutual bonds with more predictability.
How to invest in Ethereum
Now that you understand a little bit more about Ethereum and how it’s distinct from the best-known cryptocurrency, Bitcoin, let’s look at how you could actually start investing in this technology.
There are many different cryptocurrency platforms and I’ll walk you through a few pros and cons to each. In order to explain how to purchase Ethereum, I’m going to be using the Coinbase exchange platform as an example.
To get started, you’ll need to create a Coinbase account, where you’ll set up your digital currency wallet. You’ll need to set up a payment method in order to get started, otherwise you won’t be able to purchase any cryptocurrencies. Once this is set up, you’re ready to get started.
To invest in Ethereum, simply navigate to the Ethereum page, where you can begin buying Ether tokens. You can view your account to track Ethereum’s progress and your balance at any given time.
Best cryptocurrency investing platforms for Ethereum
Coinbase - Best overall
This is one of the most popular crypto trading platforms and the website typically runs promotions offering free Bitcoin or other cryptocurrency tokens when you create a new account. You can purchase Ethereum directly on Coinbase and should expect a 4% fee per transaction. In addition, its trading partner GDAX charges 0.50% per sale. Best of all, Coinbase has no minimum account balance requirements.
Gemini - Best for advanced crypto investors
You must live in the U.S. to purchase cryptocurrencies through this trading platform. Gemini has access to over 26 types of cryptocurrency, including Ethereum. You’ll choose your account level based on your investing knowledge, and your user experience will be tailored to your familiarity with crypto trading. This platform charges up to 0.25% in commissions and requires a minimum account balance of 0.00001 BTC.
eToro - Best for beginner crypto investors
Another popular cryptocurrency trading platform is eToro. This crypto broker has a quick signup process that will get you an account in under ten minutes. This app’s features are intuitive and simple to use and take the guesswork out of investing entirely. eToro is also well known for its social media network that can inform you about current crypto trends and tips. Their website also offers education on cryptocurrency to help get you up to speed on the latest news and innovations in the field. U.S. investors will be required to maintain a $50 account balance.
Robinhood - Best for low-touch investors
If you already invest in stocks via the Robinhood app, you’ll be able to invest in Ethereum from your existing account. Right now Robinhood offers access to Ethereum and Bitcoin only, but will likely expand offerings in the future. I recommend this app if you’re already investing with Robinhood, since you’ll be able to save yourself from creating a new account. Robinhood also has a $0 commission on cryptocurrency and no minimum balance requirements.
FAQs about Ethereum
Will Ethereum overtake Bitcoin in the marketplace?
It’s impossible to know if Ethereum will eventually surpass Bitcoin, especially since Bitcoin is currently experiencing all-time highs in the marketplace. However, some experts believe that since Ethereum is based on smarter technology with more potential for business and financial growth, this cryptocurrency ledger will overtake Bitcoin’s success. Right now, Ethereum’s progress and growth are similar to Bitcoin’s progression in the early days, but there’s just no guaranteed way to know which one is the best bet.
The good news is, you can invest in both if you think both cryptocurrencies will continue to gain momentum and remain profitable.
Which companies currently use Ethereum?
Many leading industries have adopted Ethereum’s platform to develop more secure applications. Dutch bank ING, JP Morgan, Amazon Web Services, Bank of America, Microsoft, and other major corporations have begun building Ethereum fueled applications using ConsenSys, independent developers, or other blockchain software.
How much does it cost to buy and sell Ether?
As of this writing, Ether costs approximately $1,814.69 to buy. Depending on the platform you use to invest, you’ll likely be charged transaction fees or percentage per purchase or purchase amount.
Can I buy products online with Ethereum?
You can’t buy products or goods digitally with Ethereum, since this is a digital ledger and platform, but you can purchase items with Etheruem’s cryptocurrency, Ether. Some online stores will allow you to use cryptocurrency, but it’s best to research any items you’re hoping to buy before purchasing this digital currency.
How much will Ethereum be worth in the future?
While it’s impossible to know exactly how Ethereum will progress in the future, many experts predict this cryptocurrency technology will continue to grow and profit. Many financial and cryptocurrency experts predict that Ethereum will be worth nearly $16,000 by 2025.
What is Ethereum 2.0?
Ethereum 2.0 is an improvement on the existing Ethereum technology. This programming language and development, also nicknamed Serenity or Eth2, launched the first phase of its upgrade in December of 2020. This enhancement to the existing platform aims to improve speed, scalability, security, and functionality for the software. While Ethereum currently uses a POW (proof of work) model, Ethereum will use a POS (proof of stake) model.
What is the DAO?
The Dao (Decentralized Autonomous Organization) was created as a set of contracts to automate cryptocurrency decisions and facilitate transactions. It started in 2016 and was delisted later that year after being hacked.
The bottom line
Ethereum is a newer cryptocurrency option than Bitcoin, and is actually the technology that hosts its own digital currency called Ether. This technology offers companies and developers a more secure and advanced environment to build applications and smart contracts.
Many anticipate strong growth for Ethereum in the future, though investing in a cryptocurrency also comes with risks. If you’re interested in investing in this cryptocurrency technology, you can get started with a cryptocurrency stockbroker or robo advisor like Robinhood.