On Wednesday, Bitcoin passed $2,300 and more than doubled its value since the beginning of the year. The success of Bitcoin has attracted newcomers in the industry who offer their own versions of digital currencies or cryptocurrencies.
One of these rivals to Bitcoin is Ethereum which has increased its value from $8.24 on January 1, to $203. This represents a rise in the value of 2,367%.
Reasons for the rise in value of cryptocurrencies
Economists and financial analysts believe that the main reason for the rapid increase in the value of digital currencies is that there is a lot of uncertainty surrounding traditional currencies and that investors are looking for alternatives.
This is true since investors are worried that there might be a slowing down in President Trump’s economic reforms that could potentially weaken the dollar. Furthermore, a lot of uncertainty surrounds both the British pound and the euro because no one can predict the consequences of Brexit to both the UK and the EU. Some political analysts even predict a total collapse of the European Union that would lead to total economic chaos.
An additional reason that led to the rise in demand and value of cryptocurrencies like Bitcoin and Ethereum is that Japan and other Asian countries have changed their policies making it easier for people to trade in digital currencies.
Differences between Ethereum& Bitcoin
There are not many differences between Ethereum and Bitcoin since both serve almost the same purpose. However, some of these differences may be the reasons that certain investors may choose one over the other. Two of these are briefly analyzed below.
Blockchain: Ethereum uses a different blockchain technology than Bitcoin as Ethereum can be used in more real life applications.
It was designed to support “smart contract” applications. A “smart contract” is a software able to automatically execute the terms of a contract after pre-specified conditions have been met. This makes business faster and more cost effective. However, this might not be enough to convince all investors to move to Ethereum as they are used to Bitcoin and may not want to change their habits.
Price: Ethereum has a much lower value than Bitcoin. This could simply mean that it has much more room to grow and investors who believe that find it more attractive than Bitcoin. However, Ethereum is new in the market and investors who are risk averse will probably still choose Bitcoin which is the already established option.
The future of cryptocurrencies
Cryptocurrencies are here to stay. However, some analysts have expressed fears that the rapid rise in their value may be a “bubble” that may burst at any time especially when global economic conditions improve and investors’ attention returns to traditional currencies. This will surely not be the end of cryptocurrencies as they will remain in the market as payment or trading systems. Whatever you decide, always remember never to put all your eggs in one basket by diversifying your portfolio.
