Bitcoin versus. Dogecoin versus. Ethereum: Comparison of the best cryptocurrencies
The cryptocurrency has been in tears recently, as government spending and Federal Reserve liquidity floods the financial system. This has helped spark a rise in popular digital currencies including Bitcoin, Ethereum, and (perhaps surprisingly) Dogecoin. But the move is also fueled by growing speculation that cryptocurrency is the ‘must-see’ wave of the future.
While cryptocurrencies generally have a few things in common, what are the differences between these three popular cryptos? A lot, in fact, and here are some of the biggest accolades.
What cryptocurrencies have in common
Cryptocurrencies are built using what’s called blockchain technology, which uses a distributed ledger to produce, track, and manage digital currency. Think of it as an ongoing digital receipt of all transactions in the currency, including a list of who owns what currency and how much.
This “receipt” is constantly checked by a decentralized computer network, helping to prevent fraud and ensure the correct functioning and accounting of the currency.
Cryptocurrency is “mined” by powerful computers called miners who perform complex mathematical calculations to create coins. They also earn coins by processing currency transactions.
Thousands of cryptocurrencies exist, and literally any number could be created using similar blockchain technology. Cryptocurrencies allow the user to transfer money semi-anonymously, although the FBI and IRS are improving in tracking transactions and freezing accounts.
Main differences between three popular cryptocurrencies
Cryptocurrencies can be created for many different purposes, and each can occupy different parts of the crypto universe. The table below summarizes some key differences between Bitcoin, Ethereum, and Dogecoin, each with a separate goal and maximum coin count.
|Initial objective||Created to be used as currency or store of value||Created to sell the processing power of the decentralized network||Created as a parody of Bitcoin and the doge meme|
|Approximate market capitalization *||$ 1.02 trillion||$ 314 billion||$ 41.4 billion|
|Number of pieces*||18.69 million||115.66 million||129.24 billion|
|Maximum number of pieces||21 million||Unlimited, but the emission is fixed||Unlimited|
* Estimated value at the end of April 2021
Purpose of cryptocurrency
Each of these three cryptocurrencies was created for a different purpose. Dogecoin was notably a satire on the growing popularity of Bitcoin and the doge meme featuring a charismatic Shiba Inu. Meanwhile, Bitcoin and Ethereum were created for more serious purposes, including facilitating transactions or serving as a store of value.
The market cap of each is made up of the total of existing coins multiplied by the current trading price, and there is a big divergence. Bitcoin is the most important, with Ethereum behind a distant second and Dogecoin among the top 10, according to CoinMarketCap. Traders are clustering around the most popular cryptocurrencies and the volume drops significantly below the top 20.
Although these currencies are some of the most popular for traders, Bitcoin is the one that has emerged among the general public. It is becoming easier and easier to access Bitcoin, with several ways of buying or storing currency that piggyback on existing applications such as PayPal or Robinhood.
It is also useful to note how many coins can be issued in each cryptocurrency. Many traders have flocked to Bitcoin due to its strict issue limit of just 21 million. If money continues to flow into Bitcoin and demand increases, this fixed limit virtually guarantees that the price will increase over time. While this can be good for traders, it makes Bitcoin more difficult to use as a currency.
In contrast, Ethereum’s issuance is unlimited, but its issuance schedule is fixed, which can slow the production of new coins. Meanwhile, the production of Dogecoin is unlimited, which is part of the joke. This unlimited issuance did not appear to stop the coin from skyrocketing in 2021, from around half a cent per coin on January 1 to around $ 0.32 at the end of April.
At the end of the line
If you are planning to trade cryptocurrencies, it is important to understand that not all are created equal. Certain features such as the limited issuance of Bitcoin can make a currency more attractive than others, at least over a longer period of time. But in the short term, cryptocurrency is driven by sentiment, so even something created as a joke and with unlimited issuance can rally strongly if a wave of interest arises.