Since its inception in 2009, Bitcoin has dominated alternative investment circles, achieving phenomenal success and cementing itself as the leader in the Cryptocurrency market.
In May 2017 alone, Bitcoin prices surged to a record high of $1, 900, boosting investor sentiment and placing its market capitalization at $31,89 billion.
Bitcoin’s irrefutable success is likely attributed to the security of Cryptocurrency in an otherwise unstable market, seen as an investment devoid of the losses attributed to political instability and the performance of other asset classes.
With all this taken into consideration, investing in another Cryptocurrency could be deemed too risky. After all, Bitcoin is not only the patriarchal Cryptocurrency boasting thriving share prices; it also holds the advantage of being better understood than its rivals. It is through this understanding of Bitcoin’s use of Blockchain technology that has seen its leading competitor, Ethereum, tempting investors as a potentially more lucrative Cryptocurrency investment.
The onus on making an educated investment decision lies in the understanding of Blockchain technology and how it is utilized in Cryptocurrencies.
How Does Blockchain Technology Work?
• Using highly-developed cryptography, Blockchain provides a decentralized digital database that logs every transaction. Each transaction is then duplicated throughout a highly secure network. This network is known as the ‘chain.’
• This network of computers sharing the continually reconciled database, removes the risk associated with a database being stored in a single location, making the records public and easily verifiable.
• The network of computers receives each transaction individually as a ‘block.’ Each party in the network then needs to approve the exchange.
• This ‘block’ is then added to the chain database, ensuring no duplication or breach in security.
• The successful block then triggers its transaction value to be moved to its intended recipient.
To ensure security, important authentication and record keeping, transactions involving money or items of value have always required mediation by banks or government institutions. Although the digital space made money, stocks and intellectual property transactions seemingly easier and more efficient, intermediaries were more important than ever to ensure security in high-risk digital environments.
In essence, Blockchain technology has cut out this digital ‘middle-man,’ while nurturing an even higher level of security and anonymity; anonymity being key in protecting sensitive information that could be prone to hackers in the online transactional space.
How Has Blockchain Technology Contributed to the Rise In Ethereum?
In contrast to Bitcoin, Ethereum does not operate solely as its digital currency Ether. Through advancements in Blockchain technology, Ethereum offers additional features and applications that have revolutionized contract negotiation and facilitation. These ‘smart contracts’ work in the same manner as Cryptocurrencies such as Bitcoin, but don’t only hold monetary value.
Ethereum’s Smart Contract application utilizes Blockchain’s public, decentralized technology to provide a means of verifying and enforcing contracts and preventing censorship. Similar in nature to the exchanges of Cryptocurrencies such as Bitcoin, Ethereum’s Smart Contracts create digital ‘tokens’ that represent virtual shares, assets and other contractual effects, rather than currency alone.
To maximize on the security and convenience of Blockchain technology, Ethereum’s Smart Contracts are transacted through Ether – all while reducing the associated costs of traditional contractual agreements.
Things to Consider When Investing in Bitcoin or Ethereum
With all the hype around Cryptocurrencies, and the complex nature of Blockchain technology, the decision to invest in Bitcoin or Ethereum can be a tough one. As it stands, Bitcoin enjoys name recognition, security and holds a higher share price; while Ethereum may take a few years to compete with its market dominance.
However, it is important to remember that Bitcoin has risen in share price exponentially in relation to the appreciation and understanding of Blockchain technology. Ethereum has now presented itself in the market as maximizing and improving upon Blockchain technology in order to provide additional features, making it a formidable competitor to Bitcoin and other Cryptocurrencies.