Know the Difference: Bitcoin vs. Ethereum

It is possible to say with certainty that the two most well-known or heard cryptocurrencies in the market are Bitcoin and Ethereum. In terms of market capitalization, these two are worth more than hundreds of billions of dollars. The initial ideation of these assets was aimed at challenging traditional economic and banking systems. Many newcomers to the crypto industry are confused about how these "coins'' exist and work. So, what makes them so valuable? Are there any differences between them, and what are they used for? First of all, let’s find out what each of them is.

What is Bitcoin (BTC)?

Bitcoin was founded by Satoshi Nakamoto, the name used by the presumed pseudonymous person or persons, and launched in 2009 after the project’s white paper was released. The white paper is a document stating that Bitcoin is a peer-to-peer electronic cash system. It also describes how the project uses cryptography and consensus algorithms to create.

Central banks control, manage, and print the money we use today. Apart from cash, all money transactions go through banks. The idea of creating Bitcoin was to enable users to send and receive money between each other privately with a digital wallet through a decentralised network, and this network is fueled by a distributed ledger called the blockchain to achieve a secure and transparent system for transferring digital currency.

This cryptocurrency is designed as an alternative to fiat currencies (paper currencies) and the banking system. Who would have thought Bitcoin would one day get universal recognition and adoption among both individual users as well as vendors, stores, and digital merchants?

The growth of Bitcoin has been enormous since 2009, when it initially launched. Today, the market cap of Bitcoin is currently at a whopping $585.33 billion! From this figure, it can be seen as having the highest value compared to any other assets or projects in the market, and a common belief is that it is going to be the future of finance.

 

What is Ethereum(ETH)?

Ethereum is the second-largest cryptocurrency network. It was launched a few years after Bitcoin as an altcoin (alternative currency) by Vitalik Buterin and several other programmers. Despite what many believe, Ethereum is NOT a cryptocurrency. Yes, it has a native token known as Ether (ETH); however, it was originally built by leveraging blockchain technology with the idea of allowing users to create decentralised applications, or dApps, with smart contracts.

dApps share the same attributes as Bitcoin: they are trustless and permissionless, and they are completely accessible. dApps is just a general term consisting of smart contracts, non-fungible tokens (NFTs), and DeFi (decentralised finance).

 

A smart contract is a self-executing contract when specified conditions are met and the terms of the agreement are directly written into code. It removes the need for intermediaries, as they are designed to be transparent and enforceable without the need for a trusted third party. This technology is crucial, as it has replaced many traditional processes such as the manual verification and approval of withdrawals. With the use of smart contracts, this can be automated and processed instantly.

 

The biggest dApp ecosystem in crypto is Ethereum. Smart contracts enable the creation of applications that interest investors. These applications may include exchanges, lending protocols, and other functionalities. Ethereum was the leading asset that made decentralised applications feasible on the blockchain. Ethereum aims to revolutionise internet-based services by giving users increased control, while Bitcoin's primary focus is currently on being a superior form of currency without additional functionalities.

 

What are the similarities?

The obvious similarities between Bitcoin and Ethereum are that both are decentralized and they each have a native token or cryptocurrency, BTC & ETH, as a reward for verifying transactions, and this same token is also used as payment for transactions. 

 

As mentioned, they both run on blockchain, an immutable and distributed ledger that records transactions in a transparent and secure system. They do not operate under the control, management, or regulation of a central authority, such as the Federal Reserve or the government. Therefore, these networks are open to participation by anyone, regardless of background, wealth, or origin. 

 

These two assets are leading in the industry in terms of market cap, wallet users, and trading volume. There is no other competition that can be anywhere near Bitcoin or Ethereum. 

 

What are the differences?

Apart from running on decentralised blockchains, using the same software and cryptographic encryption, and having native currencies, the functions of Bitcoin and Ethereum are substantially different. Let’s take a look at the differences between both cryptocurrencies in detail.

 

Bitcoin primarily focuses on payments and is a protected asset. It utilises a consensus mechanism called Proof of Work, where miners have used huge amounts of energy and computational power to solve complex problems for mining transaction blocks and validating transactions.

 

On the other hand, Ethereum is based on a consensus mechanism known as Proof of Stake. To secure the network, provide services to it, and earn stake rewards, it is a requirement for validators to stake 32 ETH. As compared to mining, staking takes up less energy and is more achievable.

Both Bitcoin and Ethereum have speculative value, but their use cases differ. Bitcoin derives its value from network adoption, mining, and its ability to facilitate online money transfers. On the other hand, Ethereum's value is primarily driven by network adoption and growth within its app ecosystem. Ethereum holds utility for those interested in DeFi, as users need ETH to pay for gas fees when using dApps, which adds to its importance in the ecosystem.

 

In a nutshell, Bitcoin is great as a substitute to fiat currencies and traditional banking, eliminating all unnecessary regulations and procedures, and is best used as a medium of exchange or a store of value. On the other hand, Ethereum has the additional function of smart contracts to help run applications via the ETH token like ERC-20, ERC-721, ERC-777, etc.

 

BTC vs. ETH: So which one is better?

This question is difficult to answer as it depends on what users are looking for, so there isn’t an answer to it! Bitcoin and Ethereum have different functionalities, and these two are not supposed to compete against each other. Of course, it would be logical to compare the two, as one asset may excel more than the other in some areas.

 

To reiterate, Bitcoin is primarily designed for payments and storing value, while Ethereum was created to host many decentralised apps in the market today. All that being said, the cryptocurrency space is a rapidly evolving ecosystem that encompasses various cryptocurrencies that may excel in areas where even Bitcoin and Ethereum may have limitations.