Part 3: What is Bitcoin, Blockchain, and Crypto?
First published on Coinpass.com - Markets blog
If Bitcoin and the Blockchain it uses are like vanilla ice-cream, then Ethereum and the Smart Contract Blockchain are like the chocolate swirl of the crypto world. Bitcoin might be currently the most well-known and valuable cryptocurrency in the world, but Ethereum is trying to close that gap and take over the top spot. And there are some analysts who believe it eventually will.
The Basics of Ethereum
Ethereum takes the Blockchain tech to another level, with many in the FinTech industry regarding it as ‘Blockchain 2.0’. It is underpinned by smart contracts - basic code added to the Blockchain with instructions to execute an action if, and when, specific criteria are met. For example, a Smart Contract could be written to transfer funds from one user’s wallet to another if Liverpool FC win the Premier League this season. The benefit of this is greater autonomy to fulfil agreements without the need of a third party to oversee it.
The idea was initially proposed by Vitalik Buterin in 2013. By 2014, £14 million in funds had been raised, and by 2015 Ethereum was launched. Since then, the value for 1 Ether (ETH) has increased from £0.24 to over £2000.00 today.
Similarities between Bitcoin and Ethereum
Both utilise Blockchains at their core, negating the need for a central authority or figure to facilitate transactions. They both currently use cryptography and Proof of Work protocols to validate and verify new additions to their blockchain (although Ethereum is in the process of changing to Proof of Stake). Bitcoin miners are rewarded with BTC for validating new blocks and fees for each individual transaction, whilst Ethereum miners are rewarded with ETH. They’re also both used as a digital currency and a store of value, but that is about as far as the similarities extend.
Differences between Bitcoin and Ethereum
Whereas Bitcoin is solely an alternative source of money and currency, Ethereum was intended to be used for a wider variety of applications, most notably as a method of executing decentralised contracts and a platform for software design. Ethereum is an open-ended platform and uses its own programming language, thus allowing anyone to create a new app to run off the blockchain. The apps and software design are powered by Ether, Ethereum’s digital coin and asset. Ethereum rapidly rose in popularity with the development of DeFI games, DAOs, dAPPs, and NFT’s.
Another key difference is the transaction time - Ethereum’s can be as quick as a few seconds compared to Bitcoin's average of several minutes. Bitcoin has a finite supply of coins in circulation capped at 21 million. However, Ethereum’s supply of Ether is unlimited. As previously mentioned, Ethereum will soon be moving to Proof of Stake (PoS) consensus. The transition is expected to be completed later this year and would greatly reduce the amount of energy consumption needed to mine new coins, making Ethereum more environmentally sustainable than Bitcoin.
Stablecoins and Altcoins
Although Bitcoin and Ethereum are the top two cryptocurrencies by market cap, by far the most widely traded crypto in the world is Tether (USDT). In the last 30 days (at the time of writing this article), £1.1 quadrillion worth of USDT was traded. A mind-boggling figure, but to put it in perspective, the second most traded coin during that same period was Bitcoin at £800 billion, a factor of almost 1400.
Tether is a type of stablecoin, which is a cryptocurrency that uses assets like fiat currency, gold or other crypto to peg its market value. Tether is backed by the US dollar. The benefits of this type of crypto is to offer an opportunity for people to participate in the crypto world without the risk of market volatility often seen with other cryptocurrencies. This in turn provides more confidence to spend your crypto rather than to store it as an asset.
Altcoins are essentially every other cryptocurrency that exists which isn’t Bitcoin, and there’s a lot of them. Different coins or tokens serve different purposes. Solana, and its token SOL, was launched in March 2020, but is already widely tipped to rival Ethereum with its incredibly fast processing times and scalability. Others like ApeCoin, was launched on the Ethereum Blockchain, and was intended to be used in the Ape Ecosystem. Its token holders would also have a casting vote on how the ApeCoin DAO fund should be used.
Final Thoughts
We’ve only scratched the surface in this mini-series when it comes to the crypto world. It is as much fascinating as it is perplexing. The technology driving it is developing rapidly each day, expanding the potential for so many use-cases which haven’t even been imagined yet. There are still issues surrounding security and regulation that need to be ironed out, as was the case when the Internet was first launched. Cryptocurrency and Blockchain technology are here to stay, and it’s only a matter of time before they are widely accepted and adopted throughout the world.
The views and opinions expressed therein are the authors, and are not intended to be used as advice to trade on the crypto markets.