Ethereum vs. Bitcoin: What’s the Difference?
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- August 1, 2023
As the two largest crypto coins, Ethereum and Bitcoin are naturally subject to constant comparison. Investors want to know more about how they hold up to each other so that they can pick a side in the Ethereum vs. Bitcoin debate, or, just to be more informed when choosing where to invest.
If you’re one of these investors that’s interested in how Bitcoin and Ethereum stack up against one another, you’ve come to the right place. Continue reading to better understand the differences between the two most popular crypto coins in the world.
Browse This Content:
- What is Bitcoin (BTC)?
- What is Ethereum (ETH)?
- ETH vs BTC: What are the Key Differences?
- Frequently Asked Questions (FAQs)
- Should I Buy Bitcoin or Ethereum?
What is Bitcoin (BTC)?
Before we can compare Ethereum vs. Bitcoin, we have to understand them both separately. Right off the bat, it’s important to understand that as the first cryptocurrency, Bitcoin was the basis that Ethereum was built upon.
Bitcoin was the world’s first digital, decentralized medium of exchange. Bitcoin was invented by an anonymous individual or group of individuals under the alias “Satoshi Nakamoto”. In 2009, Nakamoto mined the starting block of the blockchain (the technology that powers Bitcoin), and embedded in it was the text, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” This illustrated that Bitcoin was created largely in response to the 2008 Financial Crisis.
This crisis, caused by some of the largest banks in the world, made clear the potential risks associated with relying on banks as intermediaries in all of our financial transactions. Thus, Bitcoin was born. According to Nakamoto, Bitcoin would be able to:
- Eliminate the need to share personal information with an intermediary,
- Reduce fraud and counterfeiting,
- Reduce transaction fees, especially when transferring money globally,
- Prevent inflation and manipulation with a limited amount of Bitcoin that can be mined (21 billion), and more.
All of this was possible using blockchain technology and its ability to harness the power of thousands of computer nodes on a network. Computers on the network input and verify immutable transactions on the blockchain, with Bitcoin rewards as the incentive.
This peer-to-peer enabled network successfully operates without a centralized authority, and has been the basis for thousands of “altcoins” (other types of crypto coins) — including Ethereum, which would soon become Bitcoin’s biggest competitor.
What is Ethereum (ETH)?
The cryptocurrency associated with the Ethereum network, better known as Ether, is the second largest cryptocurrency to Bitcoin as of September 2021. Launched in 2015, the Ethereum network was inspired by the decentralized nature of Bitcoin, and the possibilities for its adoption outside of the world of finance.
Unlike Bitcoin, Ethereum was not created with the intention of simply being an alternative medium of exchange; Ethereum is actually a blockchain-based platform for apps, and Ether was born as a method of payment for the platform.
The Ethereum platform allows software developers to create and monetize decentralized applications (dApps) of any kind. They can’t be censored, taken down or otherwise influenced by centralized servers on the internet.
Instead of being hosted on one server controlled by an entity, these apps are powered by blockchain technology and written in Ethereum’s coding language, Solidity. Examples of dApps in existence right now include ones for gaming, insurance, crowdfunding, trading cryptocurrency and more.
The computers needed to maintain the Ethereum network and write code are expensive — that’s where Ether comes in. App creators must pay to use the Ethereum network in the form of Ether. Similarly to Bitcoin, the Ethereum network uses a proof-of-work system to uphold the blockchain and confirm transactions, using Ether.
ETH vs BTC: What are the Key Differences?
Ethereum and Bitcoin were two of the most prominent cryptocurrencies, each with its unique features and purposes. Here are some key differences between Ethereum and Bitcoin:
While both, Ethereum and Bitcoin, are decentralized networks, Bitcoin's primary focus is on maintaining a decentralized and censorship-resistant digital currency.
In contrast, Ethereum aims to be a more versatile decentralized platform for executing smart contracts and building decentralized applications (dApps). As Ethereum evolves its consensus mechanism from Proof-of-Work to Proof-of-Stake, its level of decentralization may change. Ultimately, the degree of decentralization in both networks depends on the distribution of nodes and miners contributing to their respective blockchains.
2. Smart Contracts:
While Bitcoin's scripting language allows for some basic functionalities, it is not Turing complete. This means that the scripting language is limited in its capabilities and can only execute a set of predetermined operations.
On the other hand, Ethereum introduced a Turing-complete scripting language called Solidity, which allows developers to create complex smart contracts. These smart contracts can automatically execute actions when certain conditions are met, enabling a wide range of decentralized applications.
3. Supply Limit:
Bitcoin has a capped supply of 21 million coins. This limited supply is intended to create scarcity and potentially increase the value of each bitcoin over time.
On the contrary, Ethereum does not have a hard supply limit, which means it has an infinite supply. However, there were discussions and proposals to introduce Ethereum Improvement Proposals (EIPs) to implement a supply cap, similar to Bitcoin. Keep in mind that the situation might have evolved since then.
4. Block Time and Mining Algorithm:
Bitcoin has a block time of around 10 minutes, and it uses the Proof-of-Work (PoW) consensus algorithm. Miners compete to solve complex mathematical puzzles, and the first one to solve it gets to add the next block to the blockchain and is rewarded with newly minted bitcoins and transaction fees.
The block time of ETH was around 13-15 seconds due to its faster block generation time. However, Ethereum has been in the process of transitioning from a PoW consensus algorithm to a Proof-of-Stake (PoS) consensus algorithm. PoS relies on validators who "stake" their coins as collateral to create new blocks and secure the network, and they are rewarded with transaction fees for their services.
5. Development Community and Use Cases:
Bitcoin has a more established position as a digital gold and a store of value. It is widely recognized as a hedge against inflation and economic uncertainty. Its primary use case is as a store of value and a means of transferring value across borders.
Ethereum's development community is known for its focus on decentralized applications and smart contracts. Many decentralized finance (DeFi) projects, non-fungible tokens (NFTs), and other innovative applications are built on the Ethereum platform.
It's important to note that the cryptocurrency space is highly dynamic, and the differences between Ethereum and Bitcoin might evolve over time as both projects continue to develop and improve. Always verify the latest information from reliable sources for the most up-to-date details.
Conclusion: Should I Buy Bitcoin or Ethereum?
Now that you have understood the main differences between Bitcoin and Ethereum, you might be in the right position to make an investment decision.
Your personal crypto investment strategy is just that — personal. While many factors will come into play when you decide when, where and how to invest in crypto, keep in mind that you’re not just investing in the value of a coin.
In addition to investing in the predicted future of a given coin’s value, you’re also investing in the predicted future of their impact. As you make strategic moves in hopes of capitalizing on a coin’s volatility, don’t discount your personal values, beliefs and hopes for the future of decentralization.
Don’t forget that you don’t have to pick a side in the Ethereum vs. Bitcoin debate. One may align more with your investment goals, but you can always invest in and use both if you so choose!