Cryptocurrencies have been around for 15 years now. However, it was not until the start of 2018 that they really shot up in international headlines, a momentum that surged in the wake of the COVID-19 pandemic as trust in conventional currencies waned. While the euphoric peaks inevitably taper off, the steady growth in cryptocurrency conversation and use is undeniable. Today, the digital currency landscape in Australia is vast with dozens of cryptocurrencies to choose from. As one would expect, these currencies are not created equal.
Bitcoin and Ethereum have emerged as runaway leaders. They have built a reputation for reliability, stability and widespread acceptability. As the two most prominent digital currencies, Bitcoin and Ethereum should be at the top of any shortlist of cryptocurrencies you are contemplating investing in. Nevertheless, digital currencies remain a complex mystery to most people. This remains the main impediment to participating in the opportunities the industry presents.
In this article, we take a closer look at Bitcoin and Ethereum including their origins, features, applications, differences and investment potential. Whether you are a first timer in the cryptocurrency space or are a veteran keen on diversifying your investment options, this article can provide the core knowledge you need to make an informed decision. At the end of it you should have a good idea why, where and how to buy BTC or buy ETH.
Understanding Bitcoin
Bitcoin (BTC) is widely considered the pioneering cryptocurrency. It was launched in January 2009 by Satoshi Nakamoto, an individual (or group) whose true identity remains unknown to date. The mystery has spawned numerous myths and investigative documentaries.
Some have argued that the inability to track down Bitcoin’s creator became a major selling point for the growth and adoption of cryptocurrency as a tool for secure, confidential and untraceable transactions. Bitcoin’s popularity was the catalyst for the growth of the cryptocurrency industry and inspired the development of the digital currencies that followed.
Powered by a decentralised blockchain, Bitcoin was originally created to be a means of secure yet transparent peer-to-peer financial transactions that did not require an intermediary. The first transaction involving Bitcoin took place in May 2010.
With a finite supply of 21 million coins and running on a proof-of-work consensus model, Bitcoin quickly became the digital version of a rare precious metal. Today, it is used as a medium of exchange, store of value and a hedge against inflation. Further, its cross-border payment fees were considerably lower than traditional money transfer methods.
For the average person, Bitcoin has become the term used to describe cryptocurrencies in general in everyday conversation – in much the same way ‘Googling’ became synonymous with an internet search. Brick-and-mortar outlets will often indicate ‘Bitcoin Accepted Here’ when they actually imply multiple cryptocurrencies are accepted.
Understanding Ethereum
The Ethereum blockchain was started by Vitalik Buterin in 2015. Buterin is a Russian-Canadian programmer who had earlier founded the Bitcoin magazine in 2011. While Ethereum shared the same decentralised cryptocurrency features that Bitcoin had, it introduced something else – decentralised applications, smart contracts and scalability. It was the first to explore the value of blockchain beyond digital currency.
Smart contracts facilitated self-executing agreements that would in turn allow the automation of processes across multiple industries. Ether (ETH) is Ethereum’s native token and serves as its cryptocurrency as well as fuel for smart contract execution. Whereas Bitcoin rides on a capped supply to increase its value, Ether follows an inflationary approach as a means of incentivising participation.
Ethereum’s extra capabilities have made it the preferred platform for blockchain-based projects looking for more than just facilitating peer-to-peer transactions. These projects include non-fungible tokens (NFTs), decentralised finance (DeFi), decentralised autonomous organisations (DAOs) and other decentralised applications (dApps).
In 2016, Ethereum experienced a split (or a hard fork in crypto-speak) that created Ethereum and Ethereum Classic. It occurred when a section of network participants gained control of the blockchain and stole over $50 million in Ether.
The majority of the Ethereum community decided to reverse the transaction by invalidating the current blockchain and approving one with a revised history. This revised version continued to be referred to as Ethereum while the one that retained the fraudulent transaction became Ethereum Classic (its cryptocurrency is denoted as ETC).
Key Differences Between Bitcoin and Ethereum
As blockchain platforms, Bitcoin and Ethereum share a lot in common. But they also have some defining differences. These include the following.
Philosophy
Bitcoin emphasises decentralisation and security while Ethereum’s primary goals are programmability and flexibility.
Model
Bitcoin runs on a proof-of-work consensus algorithm. While this is great for security and authenticity, the cryptocurrency mining comes at the cost of considerable computational power and slower processing turnaround times. Ethereum has moved to a proof-of-stake model that has lower energy use and quicker processing speeds.
Use case
Bitcoin’s central use case is as a cryptocurrency, digital payment system and a store of value. It is an accepted means of payment at numerous retailers, merchants and stores. Ethereum’s role is more multifaceted – it is a programmable blockchain platform that finds diverse decentralised applications such as NFT, DeFI and DAOs.
Transaction fees
Bitcoin transactions attract higher fees than Ether. Nevertheless, the two networks treat transaction processing fees differently. On Bitcoin, the fees are absorbed by the wider network. On Ether, fees are paid by participants in the transaction.
Market posture
As the first and most popular cryptocurrency, Bitcoin is always perceived as the most stable, recognisable and accepted digital currency. It is often the first option for the risk-averse cryptocurrency investor or anyone dabbling in digital currencies for the first time. Ethereum is seen as the best alternative for anyone looking for a relatively stable blockchain but one that is also dynamic and gives room for experimental application.
Market capitalisation
Bitcoin is the most valuable digital currency in the world by market capitalisation. While its price does fluctuate, it does not do so with as great a volatility as smaller cryptocurrencies. Even in instances where the price has plummeted, it has often been in line with wider global economic turmoil such as soaring inflation, rising interest rates and geopolitical crises. Ether is the second most valuable digital currency but does experience significantly more price volatility.
Energy consumption
New Bitcoins are brought into existence through a computing process known as mining. In the early months of the cryptocurrency, it was easy for one to quickly mine a Bitcoin using a standard computer. As the network has grown, so has mining difficulty. Today, mining is the preserve of large computer networks and high-end computing equipment.
This has made Bitcoin by far the most energy-hungry cryptocurrency. As of 2021, Bitcoin mining was estimated to use more than 140 terawatt hours annually. For context, this is about half the electricity consumed in the United Kingdom per year. This implies Bitcoin is less than ideal as a store of value for individuals and organisations that prioritise sustainable, environment-friendly and socially-conscious investment. That said, there has been considerable effort at building Bitcoin mining infrastructure that’s exclusively powered by green energy.
As a digital currency, Ethereum has a much smaller electricity and carbon footprint.
Investment Perspective: Bitcoin vs Ethereum
From an investment viewpoint, both Bitcoin and Ethereum have pros and cons. Your decision on which digital currency to go for largely depends on your investment goals, risk tolerance and interest in specific blockchain applications.
As the most recognisable cryptocurrency by a wide margin, Bitcoin is your best bet for a digital currency that offers long-term storage and retention of value. Its limited supply is a strong selling point especially to risk-averse and rookie investors.
Bitcoin is not immune to the price fluctuations of global digital currency markets but the swings are typically not as extreme as those of smaller industry players. Nevertheless, Bitcoin has higher transaction fees and slower processing speeds.
Whereas Ethereum has a smaller market cap than Bitcoin, its raft of innovative features holds somewhat greater potential for expansive adoption. Investing in Ethereum therefore allows you to tap into a much broader set of opportunities.
NFTs, DeFi, DAOs and other decentralised apps that are or can be built on its blockchain make a compelling case for its current and future use. It also has faster processing speeds. Still, Ethereum has a higher degree of price volatility, something that could dampen its appeal to short- and medium-term investors.
Best Place to Buy Bitcoin and Ethereum in Australia
So, you made up your mind on which digital currency to buy. But the question you now have is where to buy Bitcoin or where to buy ETH? Since cryptocurrency soared to fame in early 2018, numerous exchanges have emerged, allowing Australians to buy and sell various cryptocurrencies. These exchanges have stark differences in reputation, security and overall quality of service. If you are going to be putting your money in Bitcoin or Ethereum, you need to know that the platform you are using is credible. For Australian investors, the #1 choice is CoinSpot.
Founded in 2013, CoinSpot is a leading cryptocurrency exchange. It’s one of the oldest in Australia, testament to its ability to weather the initial scepticism of digital currencies, market fluctuations, regulatory oversight and other challenges that the industry has navigated over the years. It has chalked up an excellent reputation within Australia’s blockchain community.
CoinSpot has an intuitive interface that caters to both the experienced trader and the experimenting newbie. This starts off with access to a wide range of cryptocurrencies – more than 530 at the time of writing, and that includes all of the most popular currencies such as Bitcoin and Ethereum.
The diversity in cryptocurrencies has drawn a large user base of more than 2.5 million users. This has resulted in a healthy liquidity, a factor that has significantly enhanced the trading experience. You can deposit funds into your CoinSpot account in multiple ways such as credit card, debit card, BPay, PayID, Cash Deposit or Direct Deposit.
As a demonstration of CoinSpot’s commitment to privacy and data security, the exchange has adopted two-factor authentication in addition to providing cryptocurrency cold wallet storage. CoinSpot has gone to great lengths to create a seamless user experience, and offers knowledgeable and responsive customer support to address any user queries and complaints quickly.
How to Safely Store Bitcoin and Ethereum
Digital currencies are a departure from fiat money, but they do share certain attributes. Security considerations are why you would usually prefer to keep your money in a bank or long-term savings instrument as opposed to retaining it in physical cash. In the same way, you need to store your Bitcoin and Ethereum holdings in a safe and secure environment.
The safe and secure storage of your cryptocurrency is solely your responsibility. If you ever lose access to it, it could be gone forever. It’s estimated that about 3.7 million Bitcoin (over 15% of all possible Bitcoins) have been lost for good.
Digital currency wallets allow you to access your crypto stored in the blockchain. The wallet has an address that plays a similar role as an email address. It is what a sender would indicate as the destination when remitting crypto money. Note that the wallet does not store the cryptocurrency. Instead, it holds the private keys you use as a password to initiate transactions.
Cryptocurrency wallets come in three main forms:
Custodial wallets (also called hosted wallets)
The default option for crypto storage, an exchange such as CoinSpot holds the cryptocurrency on your behalf either offline, online or a combination. This is the easiest and most convenient type of wallet. Your digital money enjoys the world class security protection of a company that has honed its skills at managing and protecting crypto and custodial wallets are often free. The downside is that it remains in the exchange’s control. If the company is hacked or goes bust, there is the possibility you might not see your assets again.
Hot wallets (also called non-custodial or self-custody software wallets)
Available in mobile, desktop and web-based versions, they are online wallets that are accessible from anywhere as long as you have an Internet connection. While this accessibility provides convenience, it also makes hot wallets more susceptible to hacking and theft. A hot wallet must therefore be underpinned by more robust security measures than cold wallets. Online wallets are also usually free.
Cold wallets (also called non-custodial or self-custody hardware wallets)
Cold wallets provide offline storage which could be in the form of a flash drive or other hardware storage device. Since they are not readily accessible on the public internet, they have greater security than hot wallets. On the other hand, it takes longer to access your money. Also, you need to buy a cold wallet which can cost you anywhere from $50 to $1,000.
Whereas cryptocurrency exchanges typically provide wallets for users, it’s prudent to use a third-party wallet for added security. Either way, opt for a company, application or hardware that has a reputation for security, usability and excellent customer service.
In the case of non-custodial wallets, check the recovery options available to you if you ever lose your private key. Typically, a good wallet requires that you create a seed phrase that would trigger the restoration of your assets.
Irrespective of the provider you choose for your wallet, make the most of any available security tools including two-factor authentication. Assume you are working with the best provider out there but also prepare for the worst in the event someone successfully breaches their defences.
Conclusion
As cryptocurrency gradually grows in acceptance, choosing the right one is vital to successful investment. Bitcoin and Ethereum are the two most solid cryptocurrencies in the world today. While you might earn an astronomical return on some meme coin, the volatility and unpredictability is probably not worth risking your money on. Bitcoin and Ethereum represent the most stable investment you can get in the crypto world.
Still, it’s important to understand their differences in order to identify the one that’s best aligned with your investment goals when contemplating how to buy Bitcoin Australia or how to buy ETH Australia. Bitcoin is the quintessential cryptocurrency whose finite number of coins make it a valuable store of value. Ethereum is versatile and has a broader range of applications. You may even want to invest in both. If you are going to buy Bitcoin or Ethereum in Australia, CoinSpot is the best exchange to do so.