Digital currencies have proved to be lucrative for tech-wise traders, but where should you put your money in 2017: Ethereum or Bitcoin?
Both the Ethereum value and the Bitcoin value have skyrocketed in recent years. In order to figure out which of them is headed for a repeat performance, we need to take a closer look at what each cryptocurrency brings to the table.
Bitcoin is obviously the biggest player in town. It has become the public face of digital money, which gives it a leg up over Ethereum. The increased exposure resulted in Bitcoin’s massive market cap, its ascendancy to safe-haven status, and its vast library of third-party apps.
This puts Ethereum at a serious disadvantage. It doesn’t matter if it is the No. 2 player in a fast-growing market; only a knockout feature can help it overcome Bitcoin’s head start. Luckily, there are some aspects of Ethereum which are truly unique.
The first thing to do is break down the terms we’re going to be using. It becomes easy—when you spend a lot of time thinking about these subjects—to forget that not everyone has a clear understanding of blockchain, Bitcoin, and Ethereum.
The words may sound familiar, but most people couldn’t pin a definition on them. So let’s run through the basics.
1. Blockchain is a type, not a thing. Don’t be confused by people saying things like, “Bitcoin payments are made over the blockchain.” Such statements are casual references to the double-ledger system that was pioneered with Bitcoin. There are dozens of different blockchain networks right now, but they all model themselves after the blockchain system that began with Bitcon.
“Double-ledger” refers to the fact that every transaction is recorded simultaneously on the thousands of computers that power the blockchain, making it open and transparent.
2. Bitcoin was the first blockchain-based digital currency. It was groundbreaking for that reason, but also for envisioning a new financial order. The code was designed to unlock a finite amount of Bitcoin units at a predictable rate.
In other words, Bitcoin promised to preserve the purchasing power of its digital currency by constraining supply.
3. Ethereum is the most serious threat to Bitcoin. Not only has this currency jumped 688.89% during the last two years; it has expanded the capability of blockchain tech. It has introduced new ideas like smart contracts and the “Decentralized Autonomous Organization” (DAO) But more on that later.
First, we need to review both the history and potential of Bitcoin. It has a long and volatile record that needs to be sorted before we can settle on a Bitcoin price forecast. I’ve laid out a quick summary below. If cryptocurrencies are old hat, then skip ahead to the price targets.
Bitcoin History and Bitcoin Prediction 2017
Late in 2008, a mysterious paper was posted online under the name Satoshi Nakamoto. No one quite knew who this person was, where he lived, or what his credentials were. But he laid out a blueprint for what would become the Bitcoin platform we know and use today. (Source: “The Rise and Fall of Bitcoin,” Wired, November 23, 2011.)
The paper was titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Two months after the paper was first published, Nakamoto released the first version of the Bitcoin platform that allowed for users to mine a total of 21 million bitcoins by the year 2040. The first block of Bitcoin, known as the “Genesis Block,” was mined. Then the first transaction took place. The wheels were turning.
What happened over the next few years was remarkable. Ambitious entrepreneurs joined the Bitcoin community and started mining, launching Bitcoin exchanges, and adding vendors to the platform. They had two goals in mind:
- Turn Bitcoin into the premiere digital payments service on the planet.
- Make Bitcoin the first universal currency.
As ambitions go, these were (and are) extraordinary. You certainly can’t fault them for lack of vision, but the part that should matter to investors is how quickly the Bitcoin price skyrocketed.
Back in July 2010, the price (relative to U.S. dollars) was $0.06. Now it’s $972.49, meaning that the ascendancy of Bitcoin prices is the stuff of legends. It is without a doubt one of the greatest investment stories of all time. However, I don’t want to leave you with a false impression of what that trajectory looked like. It’s been one hell of a roller coaster ride.
Between November 2013 and today, Bitcoin prices have reached peaks of $1,138.00 and valleys of $230.00. One of the biggest exchanges for U.S.-denominated Bitcoin suffered a massive cyberattack, and there were moves to reclassify it under various regulatory schemes.
Despite these headwinds, the Bitcoin price experienced a massive rebound in 2016. Trading volume in China surged as the government imposed restrictions on capital outflows; India poured fuel on the fire when its newly elected prime minister started a program of “demonetisation.” These two incidents, combined with another halving event, drove the Bitcoin price up 163.9%.
Since these trends are likely to persist through 2017, Bitcoin prices could reach $2,500.00 before the end of the year.
Ethereum Features and Ethereum Forecast 2017
The “Ethereum Project” came into existence much after Bitcoin. At first, a lot of people wrote it off as “just another Bitcoin imitator,” but then they realized this cryptocurrency has some truly unique features. These features—smart contracts and the Decentralized Autonomous Organization—could help Ethereum attract more users and developers, thus causing its price to explode.
But before we slap a price target on Ethereum, you should probably understand what makes these features so special.
In the waning months of 2013, a young programmer named Vitalik Buterin wrote a white paper on blockchain technology. He believed that the technology could be used for more than just payments; in fact, he argued that Bitcoin’s core technology has countless applications in other fields. It shouldn’t be just a payments platform.
This crucial insight is what separates Ethereum from Bitcoin et al. Ethereum aims to be so much more than just a currency, an ambition that explains the two different names you may come across: Ether and Ethereum. Ether is digital currency. Ethereum is the platform.
The entire structure of this platform was meant to facilitate applications that can be used in government, business, and management. Sure, they’ll have to use the Ether tokens as a means of transacting on the platform, but it isn’t the primary selling feature. (Source: “Ethereum, a Virtual Currency, Enables Transactions That Rival Bitcoin’s,” The New York Times, March 27, 2016.)
That’s where smart contracts come into play. This feature is so new, so radical, that even experts have a difficult time explaining how they operate. My favorite explanation goes a little something like this:
When you pay your electricity bill, you don’t walk over to the electric company’s office and hand them a bag of cash. Whether the payment goes through a debit card, credit card, wire transfer, or e-transfer, there are banks involved in the transaction. The money goes from your bank account to the electric company’s bank account, and the bank slices off a tiny portion for itself.
But what if there was no bank? What if the electric company offered a “smart contract” with no middleman? Here’s how that would work: You use their service, you pay automatically using Ether tokens—no banks in the middle. Not only does this save you the service fee, it saves time (because blockchain transactions are instantaneous).
If this difference seems mundane, believe me, it’s not. The smart contracts cut out middlemen that were extracting a fee for doing … well, nothing. Banks are just one example. Lawyers are another. The entire point of blockchain is to connect people directly. People are going to be drawn to this model once they fully understand it.
The Ethereum price will continue to climb as more companies and governments write smart contracts. But there’s another tailwind: it’s known as the Decentralized Autonomous Organization.
Like the concept of smart contracts, the DAO is a little tough to understand, but it is incredibly important to the long-term Ethereum value. (Source: “The Tao of ‘The DAO’ or: How the autonomous corporation is already here,” TechCrunch, May 16, 2016.)
Think of it like an investment fund. Users are granted voting rights in exchange for monetary contributions. They get to vote on which startups get that money; the profits get paid directly to their Ethereum accounts. It is pure capitalism. Many people think the DAO will be the future of finance, erasing old mechanisms like the stock market or venture funds.
If they are right, the Ethereum price could conceivably hit $100.00 or more. Just look at its growth between 2015 and 2016.
The radical nature of the DAO, plus a security breach in the DAO, caused the cryptocurrency to falter last year. But those issues are in the past. Looking forward, we believe there is scope for the Ethereum value to balloon alongside an uptick in engagement. The advent of smart contracts, in particular, could send this digital currency through the roof.
Is Ethereum Better than Bitcoin?
Now for the big question. Rather than dance around the issue, I’ll lay out my thinking for you, dear reader. I think Ethereum has more room to the upside. But, and this is important to keep in mind, that doesn’t mean Ethereum is more important than Bitcoin on the world stage.
If you live in India or China, capital controls are still going to cause a spike in the volume of Bitcoin trading. Why? Because people are drawn to the familiar, and Bitcoin is familiar. It was the first cryptocurrency many of them ever discovered, so it is likely the one to which they’ll return.
Nine out of 10 times, the better known brand name wins. That is a rule of thumb in business, which is good news for the Bitcoin price. But if we’re talking about scale, about how many percentage points the currency can grow, I have to side with Ethereum.
It is still young. The price may have grown spectacularly, but it is miniscule compared to Bitcoin. That leaves a lot of unexplored potential, from an investing perspective at least. More to the point, Ethereum can sustain enormous growth even without becoming a household name.
So long as investors, entrepreneurs, and corporations start using the platform, we can expect triple-digit or quadruple-digit growth in the Ethereum price.