Why Many Investors Prefer Ethereum To Bitcoin

  • 2024-07-10

Bitcoin is the world’s largest cryptocurrency with a market capitalization of $1.2 trillion. It accounts for more than half of the total cryptocurrency market, even dwarfing the second-largest cryptocurrency, Ethereum’s $400 billion.

This market lead, and the fact that Bitcoin was the first of its kind, has earned it the title of the world’s largest cryptocurrency. Ethereum, Litecoin, and other cryptocurrencies are often referred to as altcoins, meaning alternative coins. But, despite Bitcoin’s dominance in the market, many serious investors prefer Ethereum to Bitcoin.

Ethereum And Ether

Ethereum is the name of the blockchain network itself. The network is used to execute and verify code. These verifications are called smart contracts, and users of the network pay for the verification and use of the Ethereum network using Ether, and the decentralized users that verify the payments are paid in gas, which transfers to Ether, furthering its supply.

Ethereum can be traded, which has also seen it become a popular alternative to fiat currency. It can be used to pay for goods from certain suppliers and manufacturers, sent to other wallet holders, and it can be used to pay for things like gaming and online gambling.

For gambling, especially, it is preferred to fiat currencies because it is anonymous and secure, and there is a growing number of Ethereum casinos, like those listed here. InsideBitcoin’s crypto editor Kane Pepi points out that there has even been an increase in sports betting sites that accept Ether as an alternative currency. Crypto’s anonymity can also help prevent identity theft when online shopping and speed up cross-border payments that are becoming increasingly common in business and freelancing. With further expansion, that anonymity could be afforded to all banking and financial activities. 

Utility Underpins Ether’s Value

One of Bitcoin’s biggest criticisms is that it has no real utility to underpin its value. If nobody wanted to trade Bitcoin, it would effectively lose all of its value. Ether, although also used as a means of payment, does have utility. It is used to pay for the use of the Ethereum network.

If people stopped trading Ether, it would still have some utility and value. Therefore, this utility underpins the value of the Ether altcoin, at least to some extent, and it means that Ether could outlive even Bitcoin.

Infinite Supply

Bitcoin has a finite supply of around 21 million Bitcoins. Nearly 20 million of these have already been produced and are in circulation, leaving just over 1 million Bitcoins still available before new supply runs out.

Roughly every four years, Bitcoin has a halving event, which means that the reward for mining, or verifying transactions, is halved. As such, the remaining million coins are not expected to run out until the middle of the 22nd Century, but if interest in the currency increases this could occur sooner. And, regardless of when it will run out, there is a finite supply.

Ethereum, on the other hand, has an unlimited supply. There are currently more than 120 million coins in supply and new Ether is mined whenever transactions demand it. As such, there is no expected date for the supply to run out.

Transaction Times

There are always transaction fees associated with sending cryptocurrency from one wallet to another. These fees can vary from less than one percent with some altcoins, to around 5% to 6% with the likes of Bitcoin and Ether.

Fees with these coins vary according to how busy the network is and how quickly the user wants the transaction to be processed. While there are times when it costs more to send Bitcoin than Ether, Bitcoin is usually actually cheaper, so why do traders use Ether?

While transaction costs can be higher for Ethereum, transaction times are generally much shorter. In 2022, Ethereum changed from a Proof of Work verification model to a Proof of Stake model, which further improved Ethereum transaction times. Bitcoin transactions take anywhere from 8 or 9 minutes to an hour. Ethereum transactions, even those without priority and therefore with lower transaction prices, take a few minutes to complete. Whether you’re an investor looking to take profits, or a gambler wanting to withdraw crypto gambling winnings, shorter transaction times are beneficial. 

Greater Profit Potential

Another reason some investors might prefer Ether to Bitcoin is volatility. The cryptocurrency market is generally recognized as being highly volatile. Swings of 10% in a day aren’t unusual. While this means there is a lot of risk involved in investing in cryptocurrency, it is this volatility that has seen investors make massive profits.

Bitcoin and Ethereum have less volatility than other altcoins, but volatility is still high. Generally, Ethereum is more prone to volatility than Bitcoin, which means it has greater profit potential, whether investors are buying or shorting the coin.

Energy Consumption

Bitcoin is more energy-intensive than Ethereum, especially since the latter’s change to a Proof of Stake system. Proof of Work needs considerable processor power from the computers that verify transactions, whereas Proof of Stake has much lower demands. With lower processor demands comes lower energy usage.

It is estimated that Ethereum slashed its energy consumption by 99.99% by swapping its verification model. Because Bitcoin is so decentralized and has no central body governing how it works or how transactions are verified, it is unlikely that Bitcoin will ever make this change, so its energy consumption will continue to be high.

Some Degree Of Governance

Although Ethereum is decentralized, in that there is no central body that controls payments or transactions, the Ethereum network does have a body that controls and manages its progression.

It is this body that changed the verification method and that, ultimately, answers to governments. It may also be one of the reasons that some investors prefer it over Bitcoin: for its accountability.

ERC-20 Tokens

As we discussed above, the Ethereum network is used by other entities, and one way that the network has seen considerable expansion over the last couple of years has been in the creation of meme coins. Meme coins have no utility and are based on common memes or jokes. Their value comes from the community that backs them. With considerable interest and backing, they can see their value increase exponentially in a matter of days, before dropping back just as quickly.

These rapid increases have seen a lot of interest in meme coins. While many are set up as BRC-20 tokens, which use the Bitcoin network, ERC-20 tokens use the Ethereum network. Sending and exchanging ERC-20 tokens requires Ether to use the Ethereum network, so some investors hold Ether for this purpose.