Bitcoin vs Ethereum: two poles of the crypto economy

Jul 5, 2018

Now there are two most popular cryptocurrencies in the world — Bitcoin and Ethereum. While the Ethereum blockchain is considered more technological, offering big opportunities for app developers, Bitcoin remains the most hyped currency, probably, since the time of gold fever.

Now many experts predict the death of Bitcoin, claiming that the future belongs to Ethereum. In my opinion, both cryptocurrencies reflect two different tendencies in the crypto economy*.

  • *Without going deep into terminology, I say that by this word I mean the sphere of circulation of cryptocurrencies.

Bitcoin

Let’s look at Bitcoin, for example. The Bitcoin blockchain was created by an anonymous developer (or a team) called Satoshi Nakamoto in 2008. For a long time it cost nothing, and those enthusiasts who invested a couple of hundred dollars in Bitcoin just for fun have become millionaires by now.

According to the legend about Satoshi, the idea of Bitcoin consisted in creating a currency independent from any centralised state or financial institutions. It was supposed to be an absolutely anonymous and transparent system for data storage and exchange.

After a couple of years, Bitcoin suddenly became immensely popular, its price reached a historical maximum at the end of 2017 and then collapsed twice in the exact same manner.

There is an opinion that Bitcoin was specially “pumped” at the expense of the Tether cryptocurrency. Last year, the investigation concerning the connection of the USDT cryptocurrency to the largest cryptocurrency exchange “Bitfinex” was published. Ostensibly, the stock exchange made an unchecked issuance of the USDT tokens, which were later traded for bitcoins. Experts point out that there is a noticeable correlation between the stock indexes of BTC and USDT, plus the generation of tokens suspiciously coincides with Bitcoin price growth.

I not dare to judge the reliability of this assumption, but I think nobody will deny that Bitcoin price is determined by hype. You can find more than a few researches on the Internet about how good and bad news, which, as a rule, is interchangeably published in mass media, influences a cryptocurrency’s price.

Ethereum

Ethereum is another matter. Unlike the Bitcoin blockchain, the Ethereum system offers a possibility not only to generate new blocks, but also to make any transactions without the participation of centralised regulators or third parties — the so-called smart contracts. Thanks to Ethereum, the use of the blockchain technology in many spheres of the society, for example in gambling, has become possible (at least, in theory).

Such phenomenon as the ICO became the first creation of Ethereum and Bitcoin. The majority of ICO projects are created on the Ethereum blockchain. Unlike the traditional investment market, ICO projects, as a rule, do not sell a share of the company to investors, instead they issue tokens which have a potential for growth in value due to their use on platforms.

All this ICO system, with its sale of tokens to investors and their subsequent listing on cryptocurrency exchanges has much more in common with Bitcoin. Tokens are “pumped and dumped” following the same scheme that was successfully tested on Bitcoin.

What am I driving at?

As a matter of fact, we are dealing with two differently directed tendencies in the crypto economy which are represented by the Bitcoin and Ethereum blockchains. If Ethereum introduces an element of manufacturability and utility, the Bitcoin element has a purely speculative basis.

We can argue forever about what awaits the crypto economy — will it, together with Bitcoin, burst like a bubble, or only the blockchain technology will be left of it? Maybe, soon all the distinctions between the economy and the crypto economy will disappear at all and it will work under the same laws as the traditional currency markets?

Any of these scenarios is probable in its own way. But now both poles are inseparable from each other, the speculative element of the crypto economy is combined with the manufacturability and the prospects that blockchain, as a technology, brings. Probably, this is the very thing that defines the nature of cryptocurrencies and prevents the experts from applying the standards of any existing economic paradigm to the crypto economy.

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