Bitcoin, Ethereum, and the US Dollar: What's the Difference?

by MSE Staff | Published 31 Jan 2022 

There are many different cryptocurrencies on the market today, but Bitcoin and Ethereum are two of the most well-known. But what's the difference between them? And how does the US dollar compare? In this blog post, we will explore the differences between these three currencies and see which one comes out on top!

What are Bitcoin and Ethereum, and how are they different from the US dollar?

Bitcoin and Ethereum are cryptocurrencies that are often described as digital currencies. However, cryptocurrencies were classified as property by the Internal Revenue Service (IRS) in their 2014-21 ruling. While cryptocurrencies like Bitcoin and Ethereum are used to make transactions like fiat currencies, they are not currencies. This is most evident in the fact that tax liabilities resulting from transactions made using cryptocurrencies must be classified as either business income or capital gains which is not the case with fiat currencies. It's more accurate to describe cryptocurrencies as digital assets with a range of utility that intersects with fiat currencies like the US dollar.

 The US dollar, on the other hand, is strictly a currency. Currencies are a medium of exchange between items of value. For example, you contribute 2 weeks of labor to the production of value for your employer and your employer compensates you with $3,000 which is an amount of currency that represents the value of your economic output. You can then exchange that currency for other items of value such as $20 worth of apples. Without currency, you would have to barter with or work for the apple farmer just to eat. Currency is a necessary medium that allows us all to exchange the things we want and need to survive in society.

Another distinction to make is that fiat currencies do not store value. Fiat currencies like the US dollar typically inflate over time (losing value). Inflation is what happens when you have too much money buying too few things. Take for example the inflated cost of a Mcdonald's hamburger between 1970 and 2022. In 1970 a Mcdonald's hamburger cost $0.18 (USD). In 2022 a McDonald's hamburger cost $1.59 (USD). The hamburger itself didn't increase in value. Instead, the Consumer Price Index (CPI) would show that the currency's purchasing power decreased over time. While some cryptocurrencies are designed to experience some inflation, they are intended to increase in value. This is partially what makes cryptocurrencies attractive for investment opportunities.

Let's recap. Cryptocurrencies like Bitcoin and Ethereum are considered property in the US; they are taxed as either business income or capital gains. While Bitcoin and Ethereum can be used like fiat currency, they are not fiat currency. Cryptocurrencies are intended to be a store of value while fiat currencies like the US dollar are intended to be a medium of exchange between items of value.

How do people use Bitcoin and Ethereum, and what are the benefits of using them instead of traditional currency?

Cryptocurrencies like Bitcoin and Ethereum are digital assets that have a range of uses. People use them to make transactions, similar to how they would use fiat currencies like the US dollar. However, there are some distinct benefits to using cryptocurrencies over traditional currency.

The first benefit is that cryptocurrencies can be used in more ways than traditional currencies. For example, you can't sit on cash and expect it to grow in value, but you can with Bitcoin. This is because cryptocurrencies grow in value as their demand increases. The more people who use Bitcoin regularly, the more value it has.

Another benefit of using cryptocurrencies instead of traditional currency is their security features. Cryptocurrencies are encrypted which makes it difficult for criminals to steal them or hack into your account. In addition, cryptocurrency transactions are recorded on a public ledger which makes it difficult for people to engage in fraudulent activities.

While there are many benefits to using cryptocurrencies over traditional currency, it's important to note that they aren't perfect. Cryptocurrencies have been known to experience price volatility which can cause them to lose value quickly. Additionally, not all businesses accept cryptocurrencies as payment yet. However, this is changing rapidly as more people adopt them into their everyday lives.

What impact could Bitcoin and Ethereum have on the global economy, and how might they change the way we do business in the future?

Bitcoin and Ethereum have the potential to revolutionize the global economy. Their biggest impact could be on how we do business. For example, cryptocurrencies could help reduce fraudulent activities like money laundering and embezzlement. Additionally, they could make it easier for businesses to conduct transactions with each other by eliminating the need for third-party intermediaries. This would save businesses time and money, which could lead to increased efficiency and productivity across the globe.

While it's still too early to know for sure how Bitcoin and Ethereum will change the global economy, there's no doubt that they hold tremendous potential. As more people adopt them into their everyday lives, we can expect to see even greater things from these groundbreaking technologies.

Are there any risks associated with using Bitcoin and Ethereum, or is it safe to invest in them?

There are risks associated with using Bitcoin and Ethereum, but it's ultimately up to each individual to decide whether or not they want to invest in them. One of the biggest risks is that cryptocurrency prices can be very volatile. This means that they can both increase and decrease in value rapidly. Additionally, the Securities and Exchange Commission (SEC) has issued statements cautioning investors that cryptocurrency exchanges and Initial Coin Offerings (ICOs) are not regulated by the SEC and are not afforded adequate protection against fraudulent activities.

However, these risks shouldn't dissuade you from investing in cryptocurrencies if you believe in their long-term potential. Just like any other investment opportunity, there is always a chance for loss, but there is also the potential for gain. Do your research before making any decisions and remember to consult your financial advisors.

How can you buy Bitcoin and Ethereum, and what are some of the most popular exchanges for doing so?

You can buy Bitcoin and Ethereum on many different exchanges. Some of the most popular ones include Coinbase, Kraken, and Crypto.com. To purchase them, you'll need to create an account with the exchange and deposit some funds. Once you have done that, you can then buy Bitcoin or Ethereum by exchanging your currency for it.

It's important to note that not all exchanges offer both Bitcoin and Ethereum. Be sure to do your research before choosing an exchange so that you can be sure they offer the cryptocurrencies you're interested in buying.

Final Thoughts

Cryptocurrencies, such as Bitcoin and Ethereum, are quickly becoming a popular investment. However, before you jump in with both feet, it's important to understand how these currencies work and the risks associated with investing in them. In this blog post we've explored some of the basics about cryptocurrencies- from what they are to why people might choose to use them instead of US dollars or other traditional currency options. If you're looking for more information on how to build wealth or want to chat about investing strategies - let us know!