In the world of cryptocurrencies, Bitcoin and Ethereum have been involved in a protracted debate. Despite the similarities in these digital currencies, there are fundamental differences in their purposes. Ethereum was primarily proposed to take blockchain beyond digital money.
Ethereum was intended to develop a fail-safe, decentralized finance system that would be free from manipulation. Bitcoin, on the other hand, did take digital currency away from the absolute control of an umbrella corporation.
Be it the shared principle of decentralization, or Blockchain influences, the differences between Bitcoin and Ethereum are discussed a lot. It is only through careful analysis between the two that this debate can be given closure.
This article is centered on discussing to the full, the similarities and differences between the world’s two biggest cryptocurrencies, Bitcoin and Ethereum.
Bitcoin and Ethereum are similar in some ways while different in many many ways. Although Ethereum created by Vitalik Buterin is only a few years old, it has managed to compete significantly with the biggest crypto, Bitcoin, which was created almost a decade ago by a Pseudonym, Satoshi Nakamoto.
What is Bitcoin?
Bitcoin is the world’s first decentralized digital currency launched in January 2009. It introduced a novel idea set out in a whitepaper by the mysterious Satoshi Nakamoto which offers the promise of an online currency that is secured without any central authority, unlike government-issued currencies. Bitcoins are not physical they are only balances associated with a cryptographically secured public ledger. Although bitcoin was not the first attempt at an online currency of this type, it was the most successful in its early efforts, and it has come to be known as a predecessor in some ways to virtually all cryptocurrencies which have been developed over the past decade.
The easiest way to define Bitcoin is to call it a “digital dollar,” minus all the formal regulations that come with a bank. It isn’t controlled by any government or bank. Its main goal is to supply an alternative to traditional fiat currencies. It is not a technology. It is not a company. It is money held in a digital form.
Over the years, the concept of a virtual, decentralized currency has gained acceptance among regulators and government bodies. Although it isn’t a formally recognized medium of payment or store of value in most parts of the world, this cryptocurrency has managed to carve out a niche for itself and continues to coexist with the financial system despite being regularly scrutinized and debated.
Anyone can create an account to buy and sell Bitcoin through websites like Coinbase. The price of Bitcoin then fluctuates based on supply and demand. However, now people are beginning to convert their Bitcoin into what are called “tokens,” which companies issue during an Initial Coin Offering (ICO), which allows people to invest in a company by purchasing tokens with their Bitcoin or any other currency. Based on the supply and demand of those tokens, their price (just like a share of stock after a company holds an Initial Public Offering, otherwise known as an IPO) goes up or down. These tokens operate on a secondary market, separate from the rise and fall of Bitcoin’s market as a currency.
Some people buy Bitcoin because they want to store their money somewhere else other than a bank. Some buy Bitcoin for investment purposes, believing that its price a few months or years from now will be substantially higher than it is today. And some people purchase Bitcoin as a means of investing in companies that raise money through an ICO, since equity in those companies cannot be purchased with traditional currency. All Bitcoin transactions are documented on a virtual ledger called the blockchain, which is accessible for everyone to see.
What Is Ethereum?
Ethereum is another cryptocurrency, and one many people see as a viable competitor with Bitcoin in the market. Launched in July of 2015, Ethereum is the largest and most well-established, open-ended decentralized software platform.
Ethereum enables the deployment of smart contracts and decentralized applications (dapps) to be built and run without any downtime, fraud, control or interference from a third party. It comes complete with its own programming language which runs on a blockchain, enabling developers to build and run distributed applications.
The potential applications of Ethereum are wide-ranging and are powered by its native cryptographic token, Ether (commonly abbreviated as ETH). In 2014, Ethereum launched a presale for Ether, which received an overwhelming response. Ether is like the fuel for running commands on the Ethereum platform and is used by developers to build and run applications on the platform.
The Ether is used mainly for two purposes — it is traded as a digital currency on exchange in the same fashion as other cryptocurrencies, and it is used on the Ethereum network to run applications. According to Ethereum, “people all over the world use ETH to make payments, as a store of value, or as collateral.”
Since the scope of Ethereum technology is more than being just a cryptocurrency, its indigenous cryptographic token known as Ether has multiple functionalities – each different from the other. Ether can be used as a fuel to power the compelling Ethereum network and reap its vast possibilities. On the other hand, it can also be used as collateral between individuals.
Ethereum helps in the deployment of decentralized applications and contracts that can run tamper-free and with no third-party involvement. It is built primarily for developers and comes with its framework. Its cryptocurrency counterpart Ether or ETH is also used by developers to create and execute distributed applications. It changes the process of block creation by data miners in blockchain technology and instead grants control to the most significant stakeholders in the network.
The dapps (decentralized applications) are similar to the apps we have on our phones or computers, but they run on the Ethereum network that uses ETH as its currency. Ether trades at a volume of $2.4m a day on average as at the time of writing.
Similarities Between Bitcoin and Ethereum
Since this article is focused on education and enlightenment. Let’s get on with the similarities between these two leading crypto currencies first before moving over to their discerning factors.
- First and most importantly is the fact that the ethereum and bitcoin crypto currencies doesn’t require any third-party interference.
- Secondly, Bitcoin is considered as digital gold and both can be used for payment as digital currency.
- Third, the decentralization factor is another. The crux of blockchain architecture lies in the ledger distribution of blocks, thus empowering every participant with all information. Such transparency leads to the elimination of any central or single-point system in the network, and thus becoming more secure and efficient. Ethereum and Bitcoin are both decentralized and therefore preferred for transactions by corporations, big and small.
- Also, Bitcoin and Ethereum both use Distributed Ledger Technology (DLT) called blockchain. Blockchain is a public distributed ledger system that has blocks containing data spread across a vast mesh of networks. In every transaction that occurs, a block containing transaction data, chosen from a pool, and then verified by miners becomes a part of the system. Since the block information gets distributed across all nodes, the encrypted data becomes transparent and, therefore, free from any potential tamper.
- Ethereum and Bitcoin use and build on the same ideology to develop a secure, stable, and quick digital network.
- Furthermore, there is the issue of smart contracts. In a blockchain network, the blocks first get verified by data miners with help of their data containing digital signatures, before becoming a part of the network. Taking from the same ideology, the Ethereum framework called ‘Solidity’ is used to set conditions for stimulating a transaction to occur. Because of its quick and safe functionalities, developers create smart contracts in the Ethereum network that can go without any downtime.
- Both Bitcoin and Ethereum are the market leaders in their own specific way. So, we shouldn’t comment on which one is better. Both are unique in their own way. Just stay updated on the market trends to get the most out of it.
- Lastly, both coins use the same mining method, i.e, Proof of Work (POW). These days not all coins use the same method. However, mining is the process of how transactions are validated on the blockchain.
Differences Between Bitcoin and Ethereum
Comparing Bitcoin to Ethereum is more like comparing a man to a woman. Both are two currencies that are inherently different in their own ways and serve two different purposes.
- First while Bitcoin is an alternative to fiat currency, Ethereum is a “Do It Yourself” platform for decentralized programs.
- Secondly, while Bitcoin was designed primarily for transaction purposes, Ethereum is a ledger technology that companies use to build new programs. Both Bitcoin and Ethereum operate on what is called “blockchain” technology, however a lot of users believe Ethereum is far more robust, allowing for the building of decentralized applications to be built on top of it.
- While both the Bitcoin and Ethereum networks are powered by the principle of distributed ledgers and cryptography, the two differ technically in that transactions on the Ethereum network may contain executable code, while data affixed to Bitcoin network transactions are generally only for keeping notes.
- Another difference include block time (an ether transaction is confirmed in seconds compared to minutes for bitcoin) and the algorithms that they run on (Ethereum uses ethash while Bitcoin uses SHA-256).
- The Bitcoin and Ethereum networks are different with respect to their overall aims. While bitcoin was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value, Ethereum was intended as a platform to facilitate immutable, programmatic contracts, and applications via its own currency.
- BTC and ETH are both digital currencies, but the primary purpose of Ether is not to establish itself as an alternative monetary system, but rather to facilitate and monetize the operation of the Ethereum smart contract and decentralized application (dapp) platform.
- Furthermore, Bitcoin has a scarce supply of 21 million Bitcoins, out of which 17 million has already been mined, hence BTC is limited in nature, hence it’s pricing. On the other hand, Ethereum is unlimited in nature but the creation of new coins is very tightly controlled to keep inflation from ruining the coin’s value.
- Bitcoin creates a new block every 10 minutes (on average) while Ethereum takes only 14 to 15 seconds for a block to mine.
- To solve the scaling problem, Bitcoin introduced a system called SegWit (Segregated Witness), which is a new way to make the transactions easier and faster. It even introduced the Lightning Network which involves setting up multiple payment channels (off blockchain) to go around the blockchain. On the other hand, Ethereum introduced updates such as Plasma, which will only broadcast smart contracts to the main Ethereum blockchain after the contract’s completion and Casper, which involves switching from the old proof-of-work mining system to a more efficient proof-of-stake algorithm.
- While Bitcoin is mostly a means of payment, Ethereum is a programming platform on which you can write applications (dApps). With Ethereum, transactions have a different cost (called Gas) based on bandwidth use, computational complexity, and storage space. In Bitcoin, transaction costs are measured based on their block size only.
- Bitcoin’s hashing algorithm is SHA-256, which can be performed efficiently with special-purpose hardware, known as ASICs (Application-Specific Integrated Circuit). The Ethereum hashing algorithm is Ethash which is memory intensive so it’s far more difficult to build an economical special-purpose chip for. This allows for Ethereum to have greater mining decentralization.
- Bitcoin hard forks include Bitcoin cash, Litecoin, Bitcoin Gold, Bitcoin Classic and many more. Ethereum hard forks created Ethereum Classic. A hard fork relates to blockchain technology which is a radical change to the protocol that makes previously invalid transactions valid (or vice-versa). This requires all nodes or users to upgrade to the latest version of the protocol software.
- Bitcoin applications in real time include sectors such as banking, retail, entertainment and so on. Blockchain technology is growing exponentially to grab the top spot in the most innovative discovery of the decade. Even it is being used for voting and betting and many other industries. On the other hand, Ethereum applications are more prominent in domains such as self-driving cars, then casinos or gambling, politics and so on.
- Through the years, Bitcoin has proved to be a better store of value, while Ether, Etheruem’s currency, is a faster payment method.
- Bitcoin aims to provide an alternative for fiat currencies, providing a permissionless currency that isn’t regulated by any government or bank. It’s a sort of “digital gold”; Ethereum, on the other hand, is considered as a “world computer” that executes code (also known as smart contracts) in a decentralized manner.
- Bitcoin’s scripting language is intentionally limited to transactional processing, known as turing incomplete. In other words, it’s a simple language that knows only how to do one thing – send money from A to B. While Ethereum’s primary innovation was to expand on Bitcoin’s basic instructions into a fully-featured programming language (also known as Turing-complete). Ethereum is therefore a much more sophisticated language which also leaves more room for error.
- Ethereum allows for uncle blocks to be included into the blockchain. In Bitcoin, an uncle block, also known as an orphan block, will be invalidated. Therefore, Bitcoin uses a harsher difficulty adjustment to reduce the likelihood of having two blocks mined at the same time.
Conclusively, today’s hype surrounding Bitcoin, Ethereum, cryptocurrency, and blockchain technologies rivals the dot-com bubble in the 90s. There is a lot of money pouring into this space, and it doesn’t seem to be slowing down anytime soon. Both currencies are perfect for innovation and are indispensable. There is a rise in careers in blockchain technology and blockchain has tremendously changed the very face of the technology industry forever.
Bitcoin and Ethereum have separate roles and are aiming at parallel or different goals. The entire purpose of Ethereum is not to compete with Bitcoin or any other cryptocurrency instead, it shows the vast possibilities of a powerfully simple system of Blockchain. Both Bitcoin and Ether can be considered as two contributors to the cryptocurrency community and bring high value to the system. Both have had their issues in the past and are still facing future uncertainties.
Duru Joselyn is a content creator, writer, self development coach and news analyst. She specifically enjoys writing on anything pertaining to cryptocurrency and the blockchain industry. Joselyn is a fun loving Nigerian who not only has a flair for giving information updates; she also enjoys a variety of outdoor activities especially traveling and photography.