Total market value of each currency
billion
$60
40
20
0
Ether
Bitcoin
2017
Daily averages
A virtual currency called Ether has been growing alongside
Bitcoin in the last year to $35 billion, compared with Bitcoin’s $43
billion.
The
price of Bitcoin has hit record highs in recent months, more than
doubling in price since the start of the year. Despite these gains,
Bitcoin is on the verge of losing its position as the dominant virtual
currency.
The
value of Ether, the digital money that lives on an upstart network
known as Ethereum, has risen an eye-popping 4,500 percent since the
beginning of the year.
With
the recent price increases, the outstanding units of the Ether currency
were worth around $34 billion as of Monday — or 82 percent as much as
all the Bitcoin in existence. At the beginning of the year, Ether was
only about 5 percent as valuable as Bitcoin.
The
sudden rise of Ethereum highlights how volatile the bewildering world
of virtual currency remains, where lines of computer code can be spun
into billions of dollars in a matter of months.
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Bitcoin,
the breakout digital currency, is also hitting new highs — one Bitcoin
was worth $2,600 on Monday. But the Bitcoin community has struggled with
technical issues and bitter internal divisions among its biggest supporters. It has also been tainted by its association with online drug sales and hackers demanding ransom.
Against
this backdrop, Ether has been gaining steam. The two-year old system
has picked up backing from both tech geeks and big corporate names like
JPMorgan Chase and Microsoft, which are excited about Ethereum’s goal of
providing not only a digital currency but also a new type of global
computing network, which generally requires Ether to use.
In a recent survey
of 1,100 virtual currency users, 94 percent were positive about the
state of Ethereum, while only 49 percent were positive about Bitcoin,
the industry publication CoinDesk said this month.
If
recent trends continue, the value of Ethereum’s virtual currency could
race past Bitcoin’s in the coming weeks. Virtual currency fanatics are
monitoring the value of each and waiting for the two currencies to
switch place, a moment that has been called “the flippening.”
“The
momentum has shifted to Ethereum — there is no doubt about that,” said
William Mougayar, the founder of Virtual Capital Ventures, which invests
in a variety of virtual currencies and start-ups. “There is almost
nothing you can do with Bitcoin that you can’t do with Ethereum.”
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Even
though most of the people buying Ether and Bitcoin are individual
investors, the gains that both have experienced have taken what was
until very recently a quirky fringe experiment into the realm of big
money. The combined value of all Ether and Bitcoin is now worth more
than the market value of PayPal and is approaching the size of Goldman
Sachs.
Investors
buying Ether are placing a bet that people will want to use the
Ethereum network’s computing capabilities and will need the currency to
do so. But that is far from a sure thing. And real-world use of the
network is still scant.
Bitcoin, on the other hand, has made inroads into mainstream commerce, with companies like Overstock.com and Expedia accepting Bitcoin for purchases, along with the black-market operators who use the currency.
The
fact that there are fewer real-world uses for Ethereum has many market
experts expecting a crash similar to the ones that have followed
previous run-ups in the price of Bitcoin and other virtual currencies.
Even during recent pullbacks, though, the value of Ether has generally
continued to gain on Bitcoin in relative terms.
Ethereum was launched in the middle of 2015 by a 21-year-old college dropout, Vitalik Buterin, who was born in Russia and raised in Canada. He now lists his residence, jokingly, as Cathay Pacific Airlines because of his travel schedule.
The
Ether he holds has made him a millionaire many times over, but he has
generally avoided commenting on the price increase in Ether.
Mr.
Buterin was inspired by Bitcoin, and the software he built shares some
of the same basic qualities. Both are hosted and maintained by the
computers of volunteers around the world, who are rewarded for their
participation with the new digital tokens that are released onto the
network each day.
Because
the virtual currencies are tracked and maintained by a network of
computers, no government or company is in charge. The prices of both
Bitcoin and Ether are established on private exchanges, where people can
sell the tokens they own at the going market price.
But
Ethereum was designed to do much more than just serve as a digital
money. The network of computers hooked into Ethereum can be harnessed to
do computational work, essentially making it possible to run computer
programs on the network, or what are referred to as decentralized
applications, or Dapps. This has led to an enormous community of
programmers working on the software.
One
of the first applications to take off was a user-led venture capital
fund of sorts, known as the Decentralized Autonomous Organization. After
raising over $150 million last summer, the project crashed and burned, and appeared ready to take Ethereum with it.
But
the way that Mr. Buterin and other developers dealt with the problems,
returning the hacked Ether to users, won him the respect of many in the
corporate world.
“It
was good to see that there is governance on Ethereum and that they can
fix issues in a timely manner if they have to,” said Eric Piscini, who
leads the team looking into virtual currency technology at the
consulting firm Deloitte.
Many
applications being built on Ethereum are also raising money using the
Ether currency, in what are known as initial coin offerings, a play on
initial public offerings.
Start-ups
that have followed this path have generally collected Ether from
investors and exchanged them for units of their own specialized virtual
currency, leaving the entrepreneurs with the Ether to convert into
dollars and spend on operational expenses.
These
coin offerings, which have proliferated in recent months, have created a
surge of demand for the Ether currency. Just last week, investors sent
$150 million worth of Ether to a start-up, Bancor, that wants to make it
easier to launch virtual currencies. If projects like Bancor stumble,
Ether could as well.
Several big companies have also been building programs on top of Ethereum, including the mining company BHP Billiton, which has built a trial program to track its raw materials, and JPMorgan, which is working on a system to monitor trading.
Over the last few months, over 100 companies have joined the nonprofit Enterprise Ethereum Alliance, including global names like Toyota, Merck and Samsung, to build tools that will make Ethereum useful in corporate settings.
Many
of the companies using Ethereum are building their own private versions
of the software, which won’t make use of the Ether currency.
Speculators are betting that these companies will eventually plug their
software into the broader Ethereum network.
There
is, though, also the possibility that none of these big trials come to
fruition, and the current excitement fizzles out, as has happened many
times in the past with Bitcoin after big price surges.
“I
hope this is the year where we start to close the gap between the
speculative value and the actual value,” Mr. Mougayar said. “There is a
lot at stake right now.”
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