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There are now so many digital assets on the cryptocurrency market that it is quite difficult to choose among them successful investment options. It is necessary to carry out a thorough analysis of projects, collect important data (including about market capitalization), and also study graphs for certain periods. In addition, it is necessary to check whether the assets are not scams. All this takes a lot of time and requires deep knowledge.
However, you can choose a slightly simpler way and consider relatively reliable assets for investment. Bright examples are Bitcoin and Ethereum. These coins are among the most popular types of crypt, and there are several reasons for this. If we consider Bitcoin, then it is the first cryptocurrency in the world and is constantly growing in price, and Ethereum is a strong technological project that provides quite wide opportunities. If you are considering these types of digital currencies, then you should familiarize yourself with the prepared material.
Concept and purpose
For many beginners, the knowledge of Bitcoin and Ethereum is limited to the fact that they are electronic assets. This is true, but at the same time, both cryptocurrencies have a deeper meaning. To understand it, you need to delve into their concept.
Bitcoin
This is the world’s first digital coin, which has been on the market for more than 12 years, and during this period its position has been well established. The history of this cryptocurrency began with the fact that an unknown creator under the pseudonym Satoshi Nakamoto launched a special project on the network. Its main goal was to eliminate the shortcomings of ordinary currency. In particular, the ability to obtain data on transactions by third parties (including government agencies), inflation and a high level of centralization.
All these features, in the opinion of the author, are problems that significantly complicate the financial situation. Money, according to his beliefs, should be in free circulation without the establishment of any external control. That is, it is easy to transfer from the owner to another person who receives the transfer and becomes the new full owner. In addition, an important principle related to emission is embedded in the concept of Bitcoin.
In the case of BTC (Bitcoin), it is not entrusted to centralized authorities, but is carried out in another way, which is called “mining” or “extraction”. Both concepts mean the same process. To understand what it is, you should first learn what blockchain is. This is the name of a special distributed database (decentralized digital register) in which transaction data is reliably stored.
Such information is contained in blocks, and they, in turn, are connected to each other in turn. A real chain is formed in which information is recorded in chronological order. So, the process of creating these components (blocks) is called Bitcoin mining. After their addition, the Bitcoin cryptocurrency is issued in the network. It is also worth noting another characteristic that distinguishes Bitcoin – limited emission. In the genesis of the asset, it is indicated that mining will stop when the number of coins reaches 21 million units.
Ethereum
This cryptocurrency is as popular as Bitcoin, but it has a number of significant differences. The main one is the concept itself. Ethereum is called a single decentralized virtual system in which various tokens also operate. That is, it is not only a digital coin (it is denoted by “ETH”), but also a functional and reliable platform. It also works on the basis of blockchain, but unlike Bitcoin, special online services can be created here.
These are so-called DApps – decentralized software solutions. Smart contracts are used for their functioning. This technology is the development of the creator of Ethereum – Vitalik Buterin. An experienced programmer was the first to introduce this software code to the market and created a real breakthrough in the field of decentralized systems.
The innovation of this solution is that it performs the operation in automatic mode, provided that the parties comply with certain conditions and sign with their key. In this way, transactions on the Ethereum network are performed quickly enough, without the intervention of third parties and without the risk of fraud.
How does Ethereum work?
To find the answer to this question, you need to understand the algorithm of operation of the Ethereum cryptocurrency. After the launch of the project, Ethereum, like Bitcoin, worked on the basis of PoW (Proof-of-Work). This is a type of algorithm that involves processing a transaction using special computer hardware and creating a new block in the blockchain. Such a technology requires sufficiently large computing power and electricity consumption.
However, in 2022 the situation changed. Ethereum developers have switched to the new Proof-of-Stake (PoS) technology. This is a more environmentally friendly way of mining cryptocurrency that does not require powerful computing equipment. In this case, validators (special nodes) are used. They are chosen based on the amount of Ethereum deposited into the system account (something similar to a deposit). In this way, no calculations are required to confirm the transaction.
How does Bitcoin work?
Bitcoin currently operates on the algorithm that was used when it was launched – PoW. It is interesting that in it the developer determined in advance the number of coins, as well as the time of their creation. The next new block using this technology is added every 10 minutes. The reward for it is clearly defined in the cryptocurrency protocol, and it decreases over time.
Occurs approximately every 4 years (when the next 210,000 blocks are mined). Another feature of the asset is the complete termination of the emission process in case of creation of 21,000,000 units. In this way, the creator decided to protect it from inflation. Due to this approach, Bitcoin is called “digital gold”. This type of crypt, like a natural resource, is limited. This characteristic can be called one of the reasons why this currency is in high demand.
What is the key difference between ETH and BTC?
These are the two most popular types of cryptocurrency, which have confidently maintained their leading positions in the market for many years. Although there is a lot of information about them in the public domain, it is still difficult for some people to understand the differences between them. If we consider the key aspects, here are a few of them:
- work algorithm;
- concept;
- emission features.
We considered the first characteristic in the previous subsection. Let us remind you that the Bitcoin cryptocurrency works on the basis of Proof-of-Work – an algorithm that involves the mining of blocks with the help of computing equipment with high performance indicators. In this case, the amount of cryptocurrency specified by the developer in the protocol appears.
The ETH (Ethereum) mining process is currently based on another technology – Proof-of-Stake (PoS). In this case, transactions are processed by special validators without performing calculations. Beyond that, the difference between digital currencies lies in the concept. Bitcoin was created as an alternative to fiat funds, as well as to eliminate the problems of a centralized financial system. ETH (Ethereum) is not just a crypto, but also a blockchain platform on the basis of which decentralized software products can be created.
Bitcoin exchange rate dynamics
Having considered the features of this type of coins, you can proceed to familiarization with the dynamics of the exchange rate. This is one of the most important indicators that allow you to see the potential and profitable entry points for deals. If we look at the general trend of Bitcoin, it shows a confident growth, but with setbacks in certain periods.
This is due to the fact that the issue of Bitcoins is limited, so the value increases every 4 years. At the same time, various changes in the market provoke a decrease in the exchange rate. Such changes can be seen on the graph. Between August 2023 and April 2024, Bitcoin roughly doubled in value.
Ethereum exchange rate dynamics
During its existence on the market, the Ethereum coin went through various phases that affected its value. In particular, Beacon Chain (zero phase of platform development), Merger (1 phase of platform development) and Sharding (year 2023-2024). If you look at Ethereum’s chart over the past few months, you can see a noticeable rise.
Still, which cryptocurrency is better to invest in today?
When choosing between Bitcoin and Ethereum, it is worth using a comprehensive approach. This means. that it is necessary to carefully study the issue process, the features of blockchain functioning, the concept, the dynamics of the exchange rate for a certain period, as well as the actions of whales (market participants with large capital).
Based on this data, you can find strong arguments in favor of a particular cryptocurrency. For example, the Bitcoin coin has a limited emission, so its value will only increase over the years. In any case, you should not choose an offer on the market at high prices (the highest price) and look for optimal entry points.
