Ethereum vs Altcoins: performance contest
When Bitcoin can be named the King of cryptocurrencies, Ethereum currently holds the title of prince. Ethereum was one of the first alternatives to Bitcoin. It’s a decentralised software platform that is built on smart contracts and decentralised applications.
However, Ethereum is more than just a currency to trade or exchange. Unlike Bitcoin, the main goal of Ethereum is to create a decentralised suite of financial products that anyone in the world can access.
This feature makes Ethereum a more reliable choice than using banks in some countries. There are over 3 thousand decentralised apps currently running on Ethereum. So, in other words, Ethereum is actually the father of many altcoins.
The prince of the market
Ether is a platform-specific cryptocurrency token. It was launched in 2015 and is currently the second-largest digital currency in the world. By the end of January 2021, Ether’s market cap was roughly 19% of Bitcoin’s size.
Smart contracts are the cornerstone of the Ethereum network. According to Investopedia, ‘a smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code’.
In other words, it’s a digital version of any paper contract but with one good part. It is self-executed, meaning there is no third party who takes part in the profit for its services. And, of course, a smart contract is a secure method of carrying out transactions that will not come into force without fulfillment of a deal’s conditions from both sides.
Another great feature that helped Ethereum to become popular is the initial coin offering or simply ICO. It’s the process of pre-selling coins before launch. A lot of other cryptocurrencies started to use ICOs right after Ethereum.
In 2016, the DAO, an autonomous organisation instantiated on the Ethereum blockchain, became a victim of a hacker attack that led to the loss of three point six million Ether. It’s around the third of all ETH granted to the DAO. As a result, the Ethereum network was split into Ethereum ETH and Ethereum Classic ETC. By January 2021, Ethereum had a market cap of $138 billion.
But the price of Ether in January was just around twelve hundred dollars per token. In March, it was closer to eighteen hundred dollars which makes up a market cap of more than two hundred billion dollars. More than 50% growth in just two months!
Not purely transactional
If we compare Ethereum to other altcoins, like Litecoin or Dogecoin, we will see that Ethereum is not simply a transactional cryptocurrency. Meaning that people can use it strictly to conduct transactions.
Apart from mining and transactional capabilities, Ethereum provides a network for creating smart contracts. In addition, it may act as a tool for crowdsourcing funds for new projects.
A smart contract is essentially a computer program that runs the entire organisation. A funding period can be set to reach a certain goal of funding for a new organisation. Once the goal is met, people can create a proposal for the next step.
So you can use Ethereum like any other cryptocurrency coin, just for exchanges, but you can also run an entire organisation with Ethereum smart contracts. That’s what makes Ethereum bigger than other cryptocurrencies.
Proof-of-Work and Proof-of-Stake
Another thing that you might want to mention and look at when talking about Ethereum is its Proof-of-Work algorithm. A lot of cryptocurrencies, like Litecoin, Bitcoin Cash, Monero use a script algorithm that favors high-speed random access memory.
Ethereum, on the other hand, uses the PoW algorithm called ‘ethash’ designed specifically for the Ethereum network. The main idea of ethash is to avoid the risk of ‘mining centralisation’ that happens when a small group of miners have a large amount of power and, in essence, control the whole mining process.
Centralising mining efforts are highly profitable for obvious reasons but that makes people with ASICs, specialised machines that outperform regular computer hardware in mining, more influential and successful in mining pools.
The ASIC-resistant proof of work algorithm of Ethereum makes individual traders important during the mining processes.
However, in 2021, Ethereum developers shocked everyone with plans to change the consensus mechanism from Proof-of-Work to Proof-of-Stake. There are two reasons to do this.
The first one is energy cost. PoW takes a lot of energy to undertake a simple transaction. Apart from the bills from electricity, PoW has started to contribute to climate change due to all the heat produced by mining.
The second reason is the improvements in transaction speed. Ethereum is just slightly faster than Bitcoin and performs 20 transactions per second, while Bitcoin only performs between 5 to 7. However, it’s no way faster than other cryptocurrencies, for example:
- Dash — 48 tx/s
- Litecoin — 56 tx/s
- Bitcoin Cash — 60 tx/s
- Ripple — 1,500 tx/s
Overall, Ethereum developers believe that their version of PoS will be far more secure than other cryptocurrencies and it will allow improved speed and lower cost of transactions.
Transaction cost
The cost of transactions in many altcoins is consistent. Meaning that it will not change no matter how hard or how big the transaction is.
Ethereum takes a totally different approach when it comes to transactions. Ethereum uses ‘gas’ to determine the complexity of transactions based on:
- Overall computational complexity
- Bandwidth use
- Storage needs
That’s why the mining process in Ethereum is more reliable and fair compared to other cryptocurrencies.
Decentralized applications
Ethereum is a project with open code that allows everyone to use it. dApps take a decentralised approach to data management and put control back into the hands of users. Many of the top Ethereum projects are focused on decentralised finance or DeFi.
Ethereum’s dApps helped to create various other platforms, like MakerDAO, Uniswap, Chainlink and Aave. All these projects are, in essence, children of Ethereum. dApps is the trump card of Ethereum that no altcoin can beat.
Ethereum 2.0
The crypto community expects Ethereum to move to version 2.0. One of the network issues that Ethereum 2.0 must address is scalability. At the moment the blockchain is capable of conducting up to 15 transactions per second. But thanks to the development of the Optimistic Rollup system, which is so deeply loved by the creator of Ethereum, Vitalik Buterin, the network bandwidth should increase to a thousand transactions per second. Another solution that the creators of Ethereum want to implement is the transition from the Proof of Work algorithm to the Proof of Stake.
Another problem that Ethereum 2.0 will solve is network centralization. Ethereum, like Bitcoin, can become a victim to a fifty-one percent attack. Proof of Work suggests that the more power a miner has, the higher his chances of receiving a reward. This situation kicks out small miners from the market and forces others to mine on an industrial scale. To solve this problem, miners in Ethereum 2.0 will be replaced by validators. To become a validator, it will be enough to keep at least 32 ETH on the account and install a special client. Validators will confirm the transactions of the network and receive passive income in the form of staking for their services. According to the project’s roadmap, annual staking returns will range from one point eighty one percent to eighteen point one percent.
According to many experts, the transition to Ethereum 2.0 will allow Ether to compete not only with other cryptocurrencies, but also with DeFi projects, which now hold the first positions in staking income.
In addition, Ethereum will provide more opportunities for development, and the platform itself will consolidate its status as the most popular altcoin network.
Best grandchild of Bitcoin
If Bitcoin is called the grandfather of all cryptocurrencies, then Ethereum is its best grandchild. The Ethereum network has become one of the greatest providers of digital technologies. The native token of Ethereum — ETH has a market cap of more than two hundred billion dollars. In two months, the price of ETH increased by more than 50%. In other words, ETH is perfect not only for investors and traders but also for miners. With such impressive growth, the prospects of ETH look very promising.
How to buy Ethereum
Currently, ETH can be traded on EXMO in pairs with different fiat and cryptocurrencies: Buy ETH
