Bitcoin vs Ethereum - What's the Difference?

Plus, a woman asks if her advisor is ripping her off

Ric Edelman: It's Tuesday, July 2nd, and Joe Biden is still running for president. Hey, I've got an update for you. I promised yesterday on the podcast that I would explain to you today the difference between bitcoin and Ethereum, and I will, but before I do that, I need to give you an update on the status of the Ethereum ETFs.

Boy, how fast things change. Yesterday I recorded my podcast in the morning telling you that everybody was expecting the SEC to finalize the paperwork and approve the S1s, which are the regulatory filings that ETF providers have to submit to the SEC to allow the ETFs to begin trading. Everybody was expecting the S1 process to be completed by as early as today or tomorrow, allowing the Ethereum ETFs to enter the market. 

But yesterday, after I posted my podcast to you, the SEC announced they have asked for more changes to the S1s. And this is going to kick it into next week at the earliest. You know, it's just astonishing to me how the SEC is dragging their feet on this. Gary Gensler, the SEC chair, says that he is going to approve these ETFs by the end of the summer. I just cannot fathom why it is taking so long, but so be it. Oh, well, here we are. It's frankly not bad news because after all who wants to have these things launch a couple of days before the July 4th holiday weekend, when half of everybody's already on vacation? So not a big deal in the long run.  

Anyway, the ETFs are not going to come to market this week. The good news is really, it gives you more time to get yourself up to speed as to how these ETFs work. What is the Ethereum? That's the fundamental question, right? And to help understand what is Ethereum, you really need to understand, well, what is bitcoin? Because bitcoin was the first digital asset based on blockchain technology. And if Bitcoin didn't solve every objective or goal or desire, that is what led to the development and invention of Ethereum. 

So let's start first to understand Ethereum by looking at bitcoin. Bottom line, there are lots of differences between bitcoin and Ethereum. Bitcoin operates on a proof of work protocol, Ethereum on a proof of stake protocol, I could cite a whole bunch of other differences and distinctions, but frankly, who cares, so what? 

I mean, do you really need to care whether the car operates on gasoline versus diesel? Not really. You just want to get to the grocery store. So let's ignore all the technological mumbo jumbo and just talk about the practical application as a user and investor in these two different coins.  

Okay, great. We'll start there. Bitcoin, bottom line, fundamentally, it's merely a store of value. It's a place for you to hold your money. You want to hold your money where it is going to be available to you at any time, where it is, hopefully, pretty safe, and where, hopefully, it'll rise in value to preserve the buying power of your money. People turn to all sorts of places as they a store of their value. We turn to bank accounts, of course. We turned to US treasuries. We turn to stocks and bonds and real estate and gold and oil. There are lots of places that people turn to some turn to artwork and rare coins and stamps, collectibles like comic books. Even sneakers designed by NBA players. So lots of different places you can choose as your store of value. And Bitcoin has proven to be exactly one of them. It has proven to be liquid. It's available 24/7/365 on a global basis. It has proven to be very profitable. It's the most profitable asset class in history, up over 70 million percent since inception in 2009.  

Safe? Well, that's a debatable term. Long term, bitcoin has certainly proved to be safe because its price has continued to rise, but it has also been subject to extreme volatility. So in a short period, bitcoin has been anything but safe. So, bitcoin nevertheless serves as a store of value, and much of what I just said, liquidity, safety, growth – those three things apply to varying degrees to all those other stores of value as well. The stock market, the bond market, the real estate market, the gold market, the oil market. Those things are liquid. Those things have increases in value, but they also suffer from volatility, sometimes extreme. So, bitcoin falls in that camp very significantly. 

But bitcoin has one fundamental limitation that interferes with its usability or applicability in the world of global commerce. And the issue is this, when I send you my bitcoin, you receive it almost immediately. And that's a bit of an issue because, well, I might not want you to. In other words, when I give you money, I might be doing so because you're giving me something in exchange. You're giving me a product or you're providing me a service. Well, I don't want you to get my money until you deliver your end of the bargain. And I can't do that with bitcoin. As soon as I send it to you, you get it. So if I want to create an if-then transaction, meaning if you do this, then you get my money, I can't do that with bitcoin. It's not particularly helpful. Bitcoin, in other words, is known as dumb money. Just like the rest of our money is dumb money. This is the problem that fundamentally is the reason Ethereum was invented in 2015.  

Ethereum is known as programmable money or otherwise known as a smart contract. With Ethereum, you can control the timing of the transmittal. In other words, I can send you my Ethereum, but with the caveat, you don't receive it until you satisfy some kind of condition. Ethereum, therefore serves almost like an escrow agent. That's what you use when you buy a house, right? You deposit money, earnest money. When you sign a sales contract to buy the house, but the seller of the house doesn't get your earnest money until you sign the settlement papers to actually transfer the title of the house from the seller to the buyer. The escrow agent holds on to your money and doesn't release it to the seller until all the conditions are satisfied. Ethereum works in a highly similar way. And this is really exciting because businesses around the world are all based on contracts. They're all based on, yeah, we'll sign the contract. I'll agree to pay you money, but you don't actually get the money until you fulfill the contract. So with Ethereum, I can set the condition under which the money is actually transferred. For example, you give me the concert tickets that I bought from you. Or, so and so wins an election, or so and so wins the next football game, or you only get my money if it rains on Thursday, or what have you. 

We can program the conditions for the transaction into the coin itself. This is revolutionary, and this is why so many of the Fortune 500 are actively engaging with Ethereum in their businesses today. Nike and Parmigiano Reggiano, the Norwegian Seafood Association, Breitling, the list of companies in the variety of industries is virtually endless as everybody's discovering application in their businesses using Ethereum. Which you can't really do as effectively as you can with Bitcoin.  

This is why Ethereum has risen to become now the second largest digital asset by market cap, second only to bitcoin. It becomes worth, oh, give or take around $1.5 trillion. Ethereum is worth a third of that, about $500 billion. And that makes bitcoin, between the two, bitcoin and Ethereum, they control about 70% of the total market cap of the entire crypto asset class. That makes bitcoin and Ethereum the Coke and Pepsi of crypto. And so, while there's great enthusiasm for bitcoin as a store of value, there's an equally great enthusiasm for Ethereum as a commercial application. And this is why there's so much excitement about it. And this is why after the bitcoin ETFs were brought onto the market, the very next digital asset to be brought as an ETF is Ethereum.  

And there's even a little bit more to know, and you need to understand that there are eight different ETFs that are going to come to market in with Ethereum, and you need to understand the differences between them, how they compare, and that's why you need to download our Ethereum ETF Toolkit. I created this for you so that you can understand what Ethereum is, how it differs from bitcoin, and most importantly, how to compare all these different Ethereum ETFs against each other with a cool little grid. The Ethereum ETF Toolkit is free. Just like the Bitcoin ETFs Toolkit was free when we provided that back in January. The link to it is in the show notes. You can download it right now and get yourself up to speed.  

The big question that investors and investment advisors are asking, of course, is which one of these coins should I invest in? You know, it's kind of like asking which one of these are going to gain greater commercial and investor interest? Which of the two coins is going to rise faster in price? Well, you can try to predict the right answer to those questions, or you could just buy both of them, you know, diversify, and then periodically rebalance. If you do buy both of them, it raises a related question, do you buy them equally? 50/50, or do you acknowledge the fact that bitcoin is three times the size of Ethereum and therefore you do not 50/50, but instead you do 75/25? Or do you go contrarian saying, well, if bitcoin is that much bigger than that likely means Ethereum is going to grow faster than bitcoin. So instead of 75/25, you do 25/75. It's all entirely up to you.  

There is a related question you should be asking. And I think we can all anticipate the answer. The question being, is this all there are ever going to be bitcoin ETFs and Ethereum ETFs? And the answer in my view is a solidly, no – we are going to see a lot more than just these two. As soon as the Ethereum ETFs come onto the market, you're going to see another wave of ETF applications that are combo. They're going to have both bitcoin and Ethereum inside the ETF. So instead of you having to buy two different ETFs, you'll be able to buy just one. And the one ETF will manage your bitcoin and Ethereum for you. And you're going to see a wide variety of bitcoin and Ethereum ETFs on the market. Some will be passively managed. Others will be actively managed, where the managers will buy and sell within the fund based on what they think is going to happen next to bitcoin and or Ethereum.  

Some of them, whether they're active or passive, are going to have a 50/50 allocation. Some of them are going to have a 75/25. Some of them are going to have an allocation based on market cap. Others are going to do it on equal weighting. So we're going to see a wide variety of additional ETFs come onto the marketplace. If there's one thing the ETF industry has demonstrated to us, it's creativity in the launch of new product. So they are not going to sit and be satisfied with these bitcoin ETFs and Ethereum ETFs. You're going to see new ETFs come onto the market beyond these two.  

And in fact, it is already underway. VanEck and 21Shares, both of those ETF providers, are already offering the bitcoin ETF. Both of them will be offering the Ethereum ETF and both of them have already filed for a spot Solana ETF. Solana is one of the most exciting digital assets in the marketplace, a fast-growing digital asset. Many people believe it's going to overtake Ethereum for the simple reason that Solana operates very similarly to Ethereum, but it allows the transactions to settle much, much faster. In other words, Ethereum cannot handle nearly as many transactions per second as Visa and MasterCard. Solana can handle far more per second than Ethereum can. Still not quite up to speed of MasterCard and Visa, but it's getting there.  

So there's a lot of excitement about Solana. Its price has been rising dramatically at a far faster rate than either bitcoin or Ethereum over the past couple of years. And so these two ETF providers have already filed for a Solana ETF. I'm not sure, frankly, as a side note, how optimistic I am that the SEC will say yes to the Solana ETF. The SEC has said in court documents that it regards Solana as a security. And because of that, I don't believe that the SEC is going to allow Solana to be an ETF because it has not filed paperwork to be a security. On the other hand, the SEC was forced to say yes to bitcoin and Ethereum ETFs because a court ordered the SEC to do so. And the reason the court ordered the SEC to do so is that both bitcoin and Ethereum Futures trade in the marketplace and the court ruled if you're allowing Futures to trade for bitcoin and Ethereum, how can you deny spot ETFs? It was illogical the court said in fact, it was capricious and arbitrary, and demanded that the SEC approve of both of those. But there is no Futures product for Solana. So the SEC has no such compulsion allow a Solana ETF. So I'm not sure how fast we're going to see it. I would love it if we did, but the bottom line is eventually we will in the future, I don't know if it'll be a month, a year or a decade – in the future, you will see a whole slew of crypto ETFs representing a wide variety of coins and tokens. So what we're now experiencing is just the beginning.  

And this is why you need to become knowledgeable about all of this right now, before that happens. I mean, are you going to learn about a product only after it's available in the marketplace? You'll be caught flat footed. You won't be able to be prepared to assist your client or to make the proper investment decisions for your portfolio. And this is why you need to get your CBDA professional designation. You need to become Certified in Blockchain and Digital Assets. Thousands of financial professionals from 37 countries have gone through our CBDA course. It's the oldest and highest regarded program of its kind in the industry. We are the official crypto education provider for Schwab and Fidelity and for dozens of other organizations. And you need to get engaged right now. It's an online self-study course with a world class faculty. You can take the course in one class a night over series of evenings. You can binge it in a weekend. We've got a holiday weekend coming up with you've got nothing to do. Wonderful opportunity for you to get your CBDA designation. And it is listed in the FINRA database of professional designations. So you get to proudly proclaim that you hold the CBDA alongside your CFP and your CFA and your CPA. You can now be a CBDA – get all the info, the links in the show notes. 

Coming up next on the show, a question that I got from one of our listeners. 

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Welcome back to The Truth About Your Future, I'm Ric Edelman. I got a question from Lila of New Jersey. Here's what she wrote. “Ric, I have $110,000 in my IRA. My advisor's fee is about $250. I received an email from him saying he sold some shares to get paid. I'd like to know if he can do this without my prior approval.”  

Lila, most likely, yeah, he can do this. Not because he's doing it without your prior approval, but I strongly suspect that you gave him that approval and you've simply forgotten. And the reason I think that, is that you said you've got about $110,000 in your IRA, and he debited about $250, and he does that quarterly. Well, do that arithmetic, and he's basically debiting about $1,000 a year on an account that's about $100,000. In other words, he's debiting the equivalent of a 1% fee on an annual basis. That's a very typical fee among financial advisors. Some a little bit more, some a little bit less. But based on your handy math, it seems that that's what's going on. And the fact that he's doing this on a quarterly basis means it's systemic, this is periodic, routine, administrative, operational. And I am highly suspicious that you gave him this approval when you opened your account, he probably told you when you became a new client, that his fee is 1% a year that he debits it in arrears on a quarterly basis. And you signed new account paperwork. You signed a client agreement with him. And that paperwork and agreement gave him permission of what's something that's called limited discretionary authority. That limited authority gives him the ability to sell some of your assets on a quarterly basis in order to generate his fee.  

This is routine, this way, you don't have to write him a check every three months. He doesn't have to bill you. It makes life simple and easy for everybody. It's automated and there's no invoicing. There's no accounts receivable and accounts payable on his end. It's all automatic. The information shows up on your quarterly statement from your brokerage account that you see exactly that the money was debited as you saw. That's how you knew it. So, I think everything is fine. I don't see any real concern or problem here.  

Now, if you are uncertain about this, if you really don't remember giving him such approval or you can't find any paperwork in your files you signed, such agreements, then by all means, call him on the phone and ask him, and ask him to remind you about this fee and how it was assessed, how it was derived, what is the fee schedule he's charging you to arrive at this dollar amount he's debiting you. And I'm sure he'll be able to provide you the paperwork with your signature on it, giving him permission. And if he can't or won't, well, that raises a red flag.  

Separately, you need to ask yourself, do you like this? Do you like the fact that you're paying him $250 a quarter for the services that he's providing you? You've got to ask yourself, what are those services? Are those services of value? Are there additional services that he could be providing within that fee that you're not already receiving? So, in other words, it sounds like you are surprised about the fee. You aren't, I think, instinctively feeling that you're getting your money's worth for it. In other words, it's time to have a conversation with him, revisiting your relationship and deciding, do you want to continue using him as your financial advisor or perhaps seeking services elsewhere? But, on the surface of it, I don't think you have to worry. I don't think there's any scam or fraud occurring here, but I think it's an opportunity for you to have a refreshing conversation with your advisor to make sure you're happy with the relationship that you have at this point.  

You can send me your question as well, just send it to Ask Ric at TheTruthAYF.com. The link is in the show notes. 

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Ric Edelman: I’m glad you’re with me here on The Truth About Your Future. If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube – and remember leave a review on Apple podcasts. I read them all! Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app. 

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Links from today’s show: 

Become Certified in Blockchain and Digital Assets: https://dacfp.com/certification/  

Spot Ethereum ETFs Toolkit: https://dacfp.com/ethtoolkit/  

Spot Bitcoin ETFs Toolkit: https://dacfp.com/toolkit/  

Ask Ric: https://www.thetayf.com/pages/ask-ric 

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