Hashing it out – A head-to-head comparison of Bitcoin and Ethereum

Why one cryptocurrency is the clear winner in this BTC vs ETH heavyweight matchup

First and foremost, I want to say Happy Mother’s Day to my wonderful mother and all the amazing mothers that are reading this. Thank you for everything that you do!

If you watched Saturday Night Live last night, you might be wondering what the heck is Dogecoin? And what does Elon Musk and Miley Cyrus have to do with it? You may also still be looking for someone to explain cryptocurrency, blockchains and maybe even doge memes. I’m not going to go there—but I am going to open the curtain on cryptocurrencies and their effect on your finances and the planet.

This post is going to be very unlike this newsletter, but bear with me, there’s a point to it all.

Ten years ago today, one bitcoin (BTC) was worth US$3.87, instead of the US$58,940 it’s worth today. If you had invested just $100 into BTC ten years ago, you would have $1.5M today. Furthermore, if you had bought $100 worth of BTC at its all-time low ($0.00061) at the end of 2009 it would be worth $10 Billion today. Don’t worry, nobody really invested then and held it for that long without selling any, so you didn’t actually miss out on $10B. I just want to illustrate how far bitcoin has come.

All the bitcoin in the world is worth over a Trillion dollars and if you add up all the cryptocurrencies, they are worth a total of $2.43T. This is more than any single company on the planet, even Apple. My only point here is that cryptocurrency is too big to ignore, and if you haven’t already, get your head out of the sand!

To be very clear, I am not recommending that anyone invest their lifesavings in cryptocurrency! Cryptocurrencies are incredibly risky and periodically lose 70-90% of their value. I am merely trying to lift the veil so that people can do their own research and decide what’s right for them. 

With that disclaimer out of the way, let’s address the big question that’s on everyone’s mind. Which cryptocurrency is the best? Let’s look at the two major players and compare them head-to-head.


BTC vs ETH

Bitcoin was created twelve years ago by an individual known as Satoshi Nakamoto. Nobody knows the true identity of this person with nearly 1.1M BTC or $65 Billion. Since they have never spent any of this BTC, it’s completely possible that the password has been lost and the spoils with it. 

While bitcoin soaks up most of the hype around cryptocurrency, there is another player of formidable size. The second largest cryptocurrency by total value is one called Ether (ETH), which runs on the Ethereum blockchain. It happens to be my long-time personal favourite and I’m going to show you why. Conversely to Bitcoin, the creator of Ethereum is a well-known 27-year-old crypto-billionaire named Vitalik Buterin and he created it a short six years ago.

While Bitcoin grabs most of the headlines with its almost US$60k price tag, Ethereum is quickly catching up. Growing 80-fold in the last five years and almost 20-fold in the last year alone, the total value of all ETH is almost half that of all BTC. Why is ETH growing so much more quickly than BTC? Personally, I believe it’s because of three things: its utility, its environmental impact, and its long-term potential.


Utility

Bitcoin is only useful as a store of value, think gold or silver, and for processing large transactions. Since the transaction fees are currently sitting at about $18 for Bitcoin, it does not currently make sense to pay for lunch with BTC or even for most e-commerce transactions. However, it does make sense if you want to buy an off-the-books Tesla with your massive BTC gains, which is now possible.

While Ethereum also has high transaction fees, it more importantly has a tremendous developer community building thousands of decentralized apps (DApps), from auctioning off digital art as non-fungible tokens (NFTs) to managing supply chains and executing on smart contracts. The more DApps that are built on the Ethereum blockchain with real use cases, the bigger and more relevant the network becomes. As an example, more than $30B of value is settled on the Ethereum blockchain every single day, more than double the amount of BTC and twelve times more than PayPal.


Environmental Impact

If Bitcoin were a country, it would rank 29th in the world for its use of electricity, slightly edging out Norway and Argentina. Unlike most countries that are making efforts to reduce their carbon footprint, Bitcoin’s electricity consumption is growing rapidly. Furthermore, the vast majority of bitcoin mining is currently done in China, where coal is still a major input for generating electricity. Some argue that the ruthlessly competitive industry of bitcoin mining will help to sooner realize a low-cost renewable energy future, but the jury is still out. 

Lead by the founder Vitalik, Ethereum is well on its way to making a fundamental change that would almost entirely eliminate the environmental impact of the Ethereum network. For Bitcoin, massive amounts of computational resources are needed to validate each transaction in the network—a process called Proof-of-Work. The future of Ethereum relies on a different protocol known as Proof-of-Stake, where members of the network can pledge their ETH to ensure integrity of the system. If anyone is caught cheating, they lose their stake. 

With enough buy-in from the Ethereum network, which they have, the switch to Proof-of-Stake will remove the need for computationally and electrically expensive processes, using more than 99% less energy. It’s important to note that switching to Proof-of-Stake will also drastically reduce Ethereum’s transaction fees, further separating it from Bitcoin.

If you’ve learned anything from reading this newsletter over the years, I hope it’s the idea that sustainable choices always lead to better financial choices. With the Ethereum network making sustainable decisions, I believe this will lead to a much more prosperous future.


Potential

In this section I want to let our minds run wild and look at the most optimistic outcome for these two major cryptocurrencies. Bitcoin’s price is often projected based on a concept used to project the price of mined metals like gold, called Stock-To-Flow. This model assumes that the price of any mined mineral has a direct relationship with the ratio of total mineral to the amount of new mineral being mined. Since bitcoin has a fixed amount that can ever exist, this ratio becomes very large, some say the value of BTC goes towards infinity. But realistically, if bitcoin were to completely replace all gold, silver, palladium and platinum as the world’s primary store of value, we’re looking at a total value of $10T.

If the future of digital commerce ends up leveraging the Ethereum blockchain, the upper limit is staggering. The amount of cash that people, companies, and governments have on hand for transactions is approximately $80T. With ETH being a much more useful implementation of cryptocurrency that BTC, the total opportunity is much greater, and the network has much further to run to realize that opportunity.

Bitcoin (BTC)

Creator: Satoshi Nakamoto

Tenure: 12 years

Market Cap: $1.07 Trillion

Price: $57,256

5-Yr Growth Rate: 4,758%

2-Yr Growth Rate: 399%

1-Yr Growth Rate: 488%                                                  

Utility: Store of value

Environmental Impact: Tremendous

Potential: $10T


Ethereum (ETH)

Creator: Vitalik Buterin

Tenure: 6 years

Market Cap: $452 Billion

Price: $3,894

5-Yr Growth Rate: 8,239%

2-Yr Growth Rate: 1,095%

1-Yr Growth Rate: 1,959%

Utility: Back-bone of digital finance

Environmental Impact: Negligible

Potential: $80T


I want to reiterate that while I think ETH has more potential than BTC, and is a better choice for the planet, I am not recommending that you necessarily buy any at today’s prices. These assets are tremendously volatile, might never go higher from here, and you could easily lose 90% or even all of your money if you bought some today. If you are interested in dipping your toes into cryptocurrencies, I have outlined a responsible plan below that I’ve shared with other friends over the years.


Your Crypto Plan

  • Allocate approximately 1-2% of your total savings towards cryptocurrencies. An amount that you’re totally comfortable losing, but definitely not more than 5%.

  • Divide this number by at least 24—the number of months that you will slowly invest it.

  • Invest 1/24 every month into either a mix of BTC and ETH, or into cryptocurrency ETF’s like BTCC and ETHH.

  • Doing this over at least two years will allow you to average out the cost of the wildly volatile assets and ensure that you do not put all of your money in at the very top.

  • Stick to the plan! Do not try to trade in and out of these assets to make a quick buck, you won’t succeed.

  • Following this plan will ensure that you do not miss out on the parade if cryptocurrencies truly are the future, will allow you to dollar-cost average the price at which you buy in, and will cap your potential loses to something that will not meaningfully affect your financial future.

Dogecoin

I’m fully aware that I haven’t said anything about Dogecoin in this article. To get ahead of the inevitable questions, I’ll just say that I have yet to see it used for anything other than speculation and for that reason I don’t recommend getting involved just yet. That being said, Elon Musk is getting behind it and there’s nobody on the planet more likely to make something out of nothing…


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Till next month,

Jacob

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