Bitcoin (BTC 1.81%) is the largest cryptocurrency in the market, but with a total market value of about $240 billion, second-largest digital asset Ethereum (ETH 1.32%) isn't exactly tiny itself. While these are both forms of the same general asset class, there are some major differences between the two. In this Fool Live video clip, recorded on March 18, senior analyst John Rotonti and Motley Fool Deutschland lead analyst Bernd Schmid discuss the key differences investors should be aware of.
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John Rotonti: There are other cryptocurrencies. One of the ones that I hear the most about is Ethereum. What are the differences between Bitcoin and Ethereum, or Bitcoin and other cryptocurrencies?
Bernd Schmid: This is a great question and very difficult to answer. Nonetheless, for me, I am an engineer actually, and even now, I'm trying to frame it from an investment perspective. Ethereum is also based on a blockchain. I'm not sure if you could call it the cryptocurrency, if it's a currency or not. What is a currency? Ethereum was designed about six or seven years ago, I think 2014, 2015, if I'm not mistaken. Based on the idea, Bitcoin is great, but I would like to make this programmable. For example, I would like to make an automatic program, a code which is like, you want to borrow me some Bitcoin, we have to orally agree and we have to sign an agreement or something like this. The creator for Ethereum was thinking, "Hey, why don't we just make this as a code on the blockchain?" When both people agree to borrow Bitcoin, that this will be recorded on the blockchain and the transfer happens automatically. So the whole process will be automated. I think this was the main idea behind Ethereum, and Ethereum is actually more like a platform. It's a platform for building such kind of contract like I was just describing, like lending contracts, or you could build decentralized exchanges like completely automated, like you have an exchange which is running just based on code on the Ethereum blockchain, so to say. This is what Ethereum was designed for. You could theoretically do the same thing with Bitcoin or these things could be delivered with Bitcoin. The Bitcoin community, the guys who run the notes, right now at least, they want to keep Bitcoin basic. They don't want to add functionality. So Bitcoin is just useful currently as buying it, storing it, and transferring it to somebody else. You cannot do much more with it on the Bitcoin network.