(Terra collapsed in the summer of 2022. Please, be careful about putting money into anything Terra-related)
In this article, I will be comparing two crypto projects, Terra and Ethereum. I will explain the similarities and differences between the two projects, and their native coins. Despite being majorly different, the comparative analysis of these two coins will help investors choose the right project.
Due to its vast ecosystem of applications and developers, Ethereum will stay on the top. However, Luna can be extremely beneficial for traders looking for new and reputable projects to invest in or trade.
Let’s get into what they are and what the similarities and differences are:
If you have invested in or consider investing in Ethereum, you need to check this article out: My personal Ethereum investing and trading strategy.
What are Terra and Ethereum?
Terra has created a next-generation blockchain payment platform for the rapidly expanding Asian commercial sector. The goal is to increase productivity for payment service providers while increasing value for customers.
Terra assisted in forming an eCommerce coalition with 15 founding partners, representing a combined $25 billion in Gross Merchandise Value (GMV) and a 45 million-strong consumer base. This tells me that Terra is seeing some major adoption. Terra wants to become the first extensively used cryptocurrency by driving acceptance through a robust e-commerce coalition that involves Asia-Pacific behemoths like TMON, Baemin, Carousell, Qoo10, and Tiki.
Ethereum is a decentralized, publicly available, and parallel processing network that allows smart contracts and decentralized applications (apps).
Ethereum is the number one (by far) programmable blockchain. It is hosting basically all the popular DEFI apps like Uniswap and AAVE and most of the NFT market and Metverse projects like Decentraland. The main advantage of this is that the network effect makes Ethereum the go-to blockchain for future development, as all the existing applications increase the potential for new applications.
Actually, I believe that Ethereum might reach $100,000 in price within this decade.
How are Terra and Ethereum similar?
Marketplaces. You can buy, sell, stake, and trade both of these cryptocurrencies or reliable exchanges worldwide.
Native Tokens. Both of these projects have their own native coins. Terra has LUNA, and Ethereum has ETH.
Programmable Blockchains. Both of these crypto projects host applications on their networks.
Staking. You can stake both of these coins.
Smart Contracts. Both of these projects support smart contracts.
Burning. Both networks burn their native coins regularly.
How are Terra and Ethereum different?
Market Cap. The market cap for ETH is over 40 times larger than that of Terra.
Consensus Mechanism. Terra uses the PoS Tendermint consensus protocol, and Ethereum uses the PoW consensus protocol (will change to POS with ETH 2.0)
Transaction fee. The transaction fee in the Terra network is quite low compared to that of Ethereum’s ecosystem.
Oh, by the way:
I have a free newsletter you can sign up for where I send out technical analyses on Ethereum from time to time; check it out:
Tokenomics and Historical Performance of ETH and LUNA
Both of these coins have no maximum supply limit, but we can still learn a lot about the economics of the coins. The key thing to know is this:
LUNA is inflationary, while ETH is deflationary.
Terra (LUNA) has an estimated inflation rate of 3% per year. This makes the price decrease 3% per year (given everything else is equal).
Ethereum (ETH) actually burns more coins than the miners produce, making it deflationary. This acts as upward pressure on the price of the coins, as fewer coins mean more valuable coins (again, given that everything else is equal).
This is a major win for ETH as a long-term investment. In the short term, however, it doesn’t really matter too much.
Let’s take a look at the historical returns these coins have produced, going back to January 2020:
We see that Terra has outperformed Ethereum by a lot. Terra surged with over 14,000% since January of 2020, while Ethereum “only” increased with 2,500% roughly.
Does this mean that LUNA is a better investment than ETH? No, not at all.
It does tell us that LUNA historically has produced better returns, but at the same time, LUNA carries a much higher risk.
You have to understand this: The risk of holding Terra is exponentially higher than the risk of holding Ethereum. If the higher returns justify the higher risk is up to you to decide.
Conclusion: LUNA for short-term, ETH for long-term investment
Both of these projects eye a strong and more profitable future ahead as the market continues to grow. The investing sector has also shown more interest in these projects, as evident from their increasing trading volumes and market capitalization. Though Terra has a lot of distance to cover with the second-largest crypto token, it still manages to outshine Ethereum in historical performance.
Therefore, I conclude with this:
Ethereum is the better long-term investment due to the lower risk and large ecosystem of applications built on its blockchain. Terra is the best cryptocurrency to trade, as its volatility is higher, and historically speaking it offers higher returns.
Do You Invest In Crypto?
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