Bitcoin may have more than doubled this year, but rival Ethereum is up 2,000 percent. Here's why

A bitcoin rival also has the market's attention A bitcoin rival also has the market's attention
Wednesday, 24 May 2017 | 9:51 AM ET | 00:49
Bitcoin has more than doubled in price this year alone, but it has been outperformed by its closest rival Ether, which is up over 2,300 percent.

On January 1, bitcoin was trading at the day's high of $1,003.25. On Wednesday, it broke through the $2,300 barrier for the first time to hit a fresh record high of $2,377.32, according to CoinDesk, marking a year-to-date rise of 137 percent. To find out what's driving bitcoin's rally, read more here.

Meanwhile, bullishness around bitcoin has stoked appetite for other cryptocurrencies. One in particular known as ether is getting traction. Ether has risen from $8.24 on January 1, to a high of $203.30, according to data from Coinmarketcap.com. This represents a 2,367 percent rise year-to-date.

What is Ether?

Ether runs on an underlying technology called Ethereum, which is a different blockchain to the one that underpins bitcoin.

While ether does have digital "coins" like bitcoin, companies are more focused on how the Ethereum blockchain could be used in real-world applications.

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Ethereum has been designed to support so-called smart contract applications. A smart contract is a computer program that can automatically execute the terms of a contract when certain conditions are met, potentially taking a lot of the human involvement out of completing a deal. Barclays for example, have used a form of this technology to trade derivatives.

How is it different to bitcoin?

Firstly, Ethereum is a lot younger having only been started in 2014, whereas bitcoin began in 2009. Ether's market cap is at $18.6 billion versus bitcoin's $39.2 billion, according to Coinmarketcap.com.

Ethereum is also focused on smart contracts, while bitcoin is very much about payment technology.

Why has ether rallied so much?

While bitcoin has been getting support from certain governments and investors, the Ethereum blockchain has been backed by corporates wishing to use the technology for smart contract applications.

A group called the Enterprise Ethereum Alliance (EEA) was recently founded to connect large companies to technology vendors in order to work on projects using the blockchain. Companies involved in the launch include JPMorgan, Microsoft and Intel.

On Tuesday, the EEA announced another 86 firms joined the alliance, which is adding growing legitimacy to the cryptocurrency.

At the same time, the rally in bitcoin has seen investors turn to alternative digital currencies as well as attracting a broader investment base. A year ago, over 83 percent of ether buying happened with bitcoin, according to data from CryptoCompare, showing that it was mainly crytocurrency enthusiasts interested in it. As of Wednesday, bitcoin accounted for just over 32 percent of trade while fiat currencies such as the U.S. dollar and Korean won have risen sharply.

"Yes the direct fiat flow options are a fleshing out of the ethereum ecosystem and show its broad appeal," Charles Hayter, CEO of CryptoCompare, told CNBC by email.

Will the rally last?

Not all in the market are convinced that the ether rally will last. Bitcoin trader Jason Hamilton is worried that products like Ethereum could be cloned.

"People are buying a specific blockchain, but the big interests are in the technology. They'll probably make their own clones and the ether tokens everyone is buying won't be used for much except trading. Who knows, though," Hamilton told CNBC via a direct message on Twitter.

"I don't usually trade ether. I'm afraid of that bubble bursting, but it could go on bubbling up for a long time still."