SWOT Analysis of Bitcoin and Ethereum
The crypto market is today flooded with new digital currencies being launched every other day. Some of these cryptos make it big, whereas others tend to fizzle out soon after coming to the attention of crypto traders. In this cutthroat world of digital currencies, where today’s “next big thing” can soon become yesterday’s news, there are some cryptos which have gained a reputation for being stable, investor-friendly and trustworthy. Let’s look at what makes these cryptocurrencies tick and what features can be exploited by new and upcoming cryptos to enable them to usurp these market leaders.
Bitcoin
The world’s largest cryptocurrency with respect to market capitalization is Bitcoin. Created in 2009, it runs on a blockchain and its price has jumped by 8900% over the last 5 years. As the original cryptocurrency, Bitcoin did have an entry-level market advantage; however, its growth since then has been simply outstanding. What makes Bitcoin so special? There are multiple reasons as described below.
Strengths:
Bitcoin trading is fully anonymous and untraceable which is a huge advantage for users who want their financial data hidden. The structure of Bitcoin involved peer-to-peer network which eliminates the role of middlemen in the transaction. This ensures minimal government control or regulation of Bitcoin and hence less dependency on micro and macro-economic trends.
Weaknesses:
As more and more people hop on to the Bitcoin bandwagon, the more blockchain will limit transaction speeds. Hence Bitcoin is currently facing a problem of slowing transaction speeds. Another weakness is the inability to recover a lost Bitcoin wallet password which effectively means crypto gains are lost forever in case the wallet access is blocked.
Opportunities:
As an early mover in the cashless currency space, Bitcoin was well placed to exploit numerous inadequacies in the banking and payment processes. The next step for Bitcoin is to leverage the potential of the blockchain technology to store data like criminal records, birth certificates etc. which can meet public needs of data privacy and protection.
Threats:
The anonymous trading feature of Bitcoin means it is susceptible to be used for criminal or illegal activities. This would make it tougher for law enforcement to track criminal transactions and prosecute the offenders. Also, competitors like Ethereum and Binance Coin are fast catching up with Bitcoin and are likely to erode its market advantage in coming years.
Ethereum
Ethereum is a decentralized software platform that enables smart contracts and applications to be built without third party interference. As the second-largest cryptocurrency in the market, Ethereum transitioned to a proof of stake (PoS) algorithm in 2021 to incentivize users for transactions on the network. Is Ethereum poised to overtake Bitcoin in the game of cryptocurrencies? Let’s find out!
Strengths:
It is the first blockchain to be programmable and developers use it to build decentralized applications (DApps). This has high potential and has led to the Smart Contract feature where the transactions are trustworthy and decentralized. Ethereum has DApps being developed in multiple domains– crypto wallet collectibles, financial applications, games etc.
Weaknesses:
A major drawback is scalability where network performance needs to be improved, especially with the changing of the consensus mechanism from PoW to PoS at this stage of Ethereum’s life cycle. Poorly written code for smart contracts poses a grave risk as it can enable hackers to profit from system and security lapses.
Opportunities:
Ethereum provides a game changing opportunity by having intelligent contracts combined with currency in a single transaction. The potential provided by smart contracts automatically executing when conditions are met and greater use of secure cold wallet collectibles or non-fungible tokens (NFTs) gives an insight into how the Ethereum network can be utilized going forward.
Threats:
Upcoming cryptocurrencies like Cardano, Tether etc. are projecting the benefits of a decongested network which includes lower wait times and reduced expenses when transferring cryptos. As newer technologies are launched and solutions developed to overcome scalability issues similar to those of Ethereum’s, it would be essential for Ethereum to update its existing network and resolve pain points which can adversely impact its customer base.
Closing Remarks
As described above, though Bitcoin and Ethereum are the heavyweight cryptocurrencies at this point in time, both have vulnerabilities which can be exploited by newer technologies and this can potentially reduce their market share. The crypto market is still growing, and the competition generated by the entry of new players can challenge the dominance of more established digital currencies. However, at the moment, the top spots are still occupied by Bitcoin and Ethereum and they remain the benchmark for pretenders to the crypto throne!