Ether vs. Bitcoin. Why I chose Ether.
A few years ago when the first wave of hype was happening around bitcoin and other coins, I made a choice to buy ether instead of bitcoin. By the numbers, that was a poor choice. While both are up, bitcoin has grown at a much faster rate.
However, I still feel like the decision to buy ether instead of bitcoin was a good one (at least principally). The part that interested me about ethereum was that it had bigger goals than just being a decentralized currency like bitcoin.
Ether is not only a decentralized currency, but the ethereum network allows pieces of code called smart contracts to run on the blockchain. A blockchain is just a database that tracks transactions by linking “blocks” together which represent individual transactions. Each transaction is a separate block, and are shown in chronological order. Since blockchains used by bitcoin and ethereum are decentralized, they are owned and viewable by everyone, and the records are permanent. This is a great way to have an audit history of transactions that are taking place.
While bitcoins blockchain network is used to validate owners of digital currency (bitcoin), the ethereum network is used to validate changes in its decentralized database which is how the functionality of smart contracts are able to work.
A smart contract is a string of code that sets out conditions (as you would in a traditional contract) that triggers some event automatically when the conditions are met.
To create a smart contract on the blockchain, it needs to be validated by the community before it can be added to the blockchain. So a smart contract transaction is requested, and a block is created representing the contract. That block is then distributed across nodes in the ethereum blockchain network. Then, nodes will validate the transaction and as a reward for their work, will be paid a small amount of ethereum. (This is similar to how bitcoin is generated, however bitcoin miners simply provide the electricity/computation power to solve the mathematical equation needed to earn bitcoin). Once the transaction has been validated, it is added to the blockchain.
The process above makes smart contracts very secure because they sit on public ledgers which are extremely difficult if not impossible to manipulate. Unlike hosting contracts with a centralized platform where there is risk of losing data if a server goes down, the decentralized nature of ethereum means you can never lose your data. Since payments are settled through the ethereum network, you do not need to integrate payment gateways such as Stripe or PayPal, which typically take a percentage of the transaction as fees.
So with ethereum, we aren’t just talking about an alternative currency, or a digital gold. It comes with functionality that could become the standard in managing contracts.
I hear typical use cases for smart contracts like crowdfunding, financial services, hosting legal documents, buying direct from creators (buying an image from the photographer instead of using Getty for example), data storage, gambling, and I’m sure there is a market for illicit activity as well.
Imagine accounting software built on top of the blockchain. Revenue recognition contracts could be built for customers that automatically recognize revenue, receive funds, send payment etc. There could be code built in that specifically pulls the revenue recognition standards for the accounting framework relevant to your country (US GAAP, IFRS, ASPE) and monitors the contract for when the specific frameworks conditions are met and then records the corresponding revenue into your ledger. (Or maybe your ledger is stored in the blockchain, and the accounting software is just a well designed user interface)
Those are the reasons I chose to invest in ethereum instead of bitcoin. All of the text above may just be desperate rationalizations as I try to console myself for the money I could have earned had I chose bitcoin. But I am happy that I have at least done the research and can support my decision as opposed to jumping aboard the hype train and hoping for the best.
*Disclaimer – this is not a definitive statement saying I will not buy bitcoin in the future 🙂