Ethereum vs Bitcoin : Key Differences and Comparison


Deepak Prasad

BlockChain

Bitcoin and Ethereum are two of the most popular and valuable cryptocurrencies in the world. While they share some similarities, they are also distinct in their purposes, design, and functionalities.

Bitcoin was created in 2009 as a decentralized digital currency, designed to facilitate peer-to-peer transactions without the need for intermediaries like banks or governments. Bitcoin's key features include its limited supply, high level of security, and transparency. It uses a proof-of-work consensus algorithm, which requires miners to solve complex mathematical equations to validate transactions and create new blocks in the blockchain.

Ethereum, on the other hand, was introduced in 2015 as a platform for building decentralized applications (DApps) and smart contracts. Unlike Bitcoin, Ethereum is not just a currency but also a blockchain-based operating system that enables developers to create and deploy decentralized applications. Ethereum's unique features include its programmability and the ability to create custom tokens and execute complex smart contracts. It uses a proof-of-stake consensus algorithm, which requires validators to hold a certain amount of ETH to validate transactions and create new blocks in the blockchain.

In summary, while Bitcoin is primarily a digital currency designed for peer-to-peer transactions, Ethereum is a blockchain platform designed for developers to build decentralized applications and execute smart contracts.

 

Ethereum Vs Bitcoin: Overview

Here are some key differences between Bitcoin and Ethereum explained in bullet points:

Bitcoin:

  • Designed as a decentralized digital currency
  • Limited supply of 21 million coins
  • Uses proof-of-work consensus algorithm
  • Transactions are validated by miners
  • Transactions are primarily used for peer-to-peer payments and store of value
  • No support for smart contracts
  • Transaction times can be slow and expensive during high network congestion

Ethereum:

  • Designed as a decentralized platform for building DApps and executing smart contracts
  • No limit on supply of ETH coins
  • Uses proof-of-stake consensus algorithm
  • Transactions are validated by validators who hold a certain amount of ETH
  • Transactions can be used for a wide range of purposes beyond payments, including executing smart contracts and creating custom tokens
  • Supports programmability and the creation of custom tokens
  • Transaction times can be faster and cheaper than Bitcoin, but can still be affected by network congestion.

 

Focusing on below image, in the Bitcoin protocol addresses map the transactions from sender to receiver. The only program that runs on the blockchain is the transfer program; given the addresses and the key signature, this program can transfer money from one user to another.

Ethereum generalizes this concept by placing an EVM at every node so that verifiable code can be executed on the blockchain. Here, the general scheme is that an external account will pass arguments to a function, and the EVM will direct that call to the appropriate contract and execute the function, granted the appropriate amount of ether and gas are supplied. As a consequence, every transaction in Ethereum can be considered a function call.

Ethereum vs Bitcoin : What's the difference?

 

Bitcoin Fundamentals

Bitcoin was first introduced in January 2009. Satoshi Nakamoto proposed a novel concept in a white paper. Unlike government-issued currencies, Bitcoin provides the promise of an online currency that is secure without the intervention of a central authority. Bitcoins are balances that are tied to a public ledger that is cryptographically secure.

Although Bitcoin was not the first attempt to build an online money of this type, it was the most successful in its early attempts and became known as the pioneer, in some respects, of almost all cryptocurrencies produced over the previous decade.

The notion of a virtual, decentralized currency has garnered recognition from regulatory and government bodies throughout the years. While Bitcoin is neither an officially recognized form of payment nor a store of value, it has carved out a place for itself and continues to survive in the financial system while being frequently examined and scrutinized.

 

Ethereum Fundamentals

Blockchain technology is being utilized to develop applications that go beyond merely including digital currency. Ethereum, which debuted in July 2015, is the most popular and well-established open source decentralized software platform.

Ethereum enables the development and deployment of smart contracts and decentralized applications (dapps) with no downtime, fraud, supervision, or intervention from outside parties. Ethereum has its own programming language that runs on the blockchain, allowing developers to create and execute distributed applications.

Ethereum has a wide range of possible uses and is built on its own cryptographic token, ether (usually abbreviated as ETH). Ether is largely used for two purposes:

  • to trade as a digital currency like other cryptocurrencies
  • to power programs on the Ethereum network.

 

Key Differences between Ethereum Vs Bitcoin

Coin limitation

  • Unlike Bitcoin, which has a fixed quantity of 21 million coins, ETH has no maximum supply. This is due to the fact that BTC functions as a currency. If its supply were infinite, it would depreciate, just as fiat currencies would if additional money was produced.
  • ETH, on the other hand, like programmable money, does not strive for stability. Instead, it seeks to add value and usefulness by generating possibilities and recruiting users and businesses to build on its technology. Of course, this does not rule out the possibility of an increase in the value of BTC.

 

Acceptability

  • BTC is accepted in many more locations than ETH. According to a 2020 HSB poll, 36% of small and medium-sized businesses in the United States accept Bitcoin, as do large corporations such as Microsoft and Wikipedia.
  • There are just a handful of sites where you can spend ETH. However, this distinction does not make BTC more valuable or helpful than ETH, as they serve very different purposes.

 

Technology

  • Both ETH and BTC use distinct forms of blockchain technology. To minimize centralization, ETH employs its own Proof-of-Work (PoW) hashing method called Ethash, which was developed to guard against ASICs.
  • BTC employs a PoW method based on Secure Hash 256 (SHA-256), a one-way feature created by the US National Security Agency (NSA) to safeguard digital data.
  • Both approaches are safe and decentralized, although they provide various benefits based on the cryptocurrency's purposes. These technology disparities have also resulted in scalability and block production time discrepancies.
  • On BTC, the transaction might take minutes, whereas on ETH, it merely takes seconds.

 

Overall functionality

  • In addition to being accepted in many locations, BTC began to function as national legal money, which was first observed in El Salvador. However, ETH has a distinct use, which is exchange automation. Its smart contracts let two parties complete a transaction, such as buying a property or renting a cab.
  • ETH not only reduces the number of middlemen, reducing bureaucracy, waiting times, and costs, but it also increases security by assuring that all transactions are automated, irreversible, and transparent.
  • Both cryptocurrencies have a wide range of worldwide applications in their respective sectors, as well as the ability to decentralize influence and power, putting people's assets back in their own hands.

 

The environmental impact

  • Positive, environmental, social, and governance factors are coming to dominate the investing platform as consumer awareness grows. Large corporate players have begun to select investment options based on ESG considerations.
  • This implies that as soon as miners (miners) band together to build a green and sustainable mining system, more firms will enter the market, demand will increase, and prices will rise as a result.
  • Currently, BTC and ETH rely on PoW mining, which results in large CO2 emissions. BTC is a major environmental issue. ETH, on the other hand, has a substantially lower carbon impact.
  • Furthermore, his intention to transition from a PoW to a PoS system constitutes a significant step toward responding to the implications of ESG.
  • A PoS system eliminates the need for mining by requiring validators to collect their currencies in return for incentives for positive validation behavior, cutting energy costs by almost 100%.

 

Transaction Speed and Cost

  • Bitcoin's transaction speed and cost can be slow and expensive during times of high network congestion.
  • The average transaction fee on the Bitcoin network can range from a few cents to several dollars, depending on network congestion.
  • In contrast, Ethereum's transaction speed and cost can also be affected by network congestion but are generally faster and cheaper than Bitcoin.
  • The average transaction fee on the Ethereum network is typically lower than Bitcoin, and the confirmation time is usually faster.

 

Which is better, Bitcoin or Ethereum?

It's difficult to say definitively which is better, Bitcoin or Ethereum, as it ultimately depends on the user's perspective and needs. Both cryptocurrencies have their strengths and weaknesses.

Bitcoin is more established and has a larger market cap, making it a more stable investment. Its primary use case is as a digital currency for peer-to-peer transactions. Bitcoin has been around for over a decade and has a well-established user base, which has helped to cement its status as a store of value.

Ethereum, on the other hand, is more versatile and has a wider range of use cases beyond just payments. Its primary use case is as a platform for building decentralized applications and executing smart contracts. Ethereum is more programmable than Bitcoin, meaning that developers can build more complex applications on top of the Ethereum blockchain using smart contracts.

In terms of transaction speed and cost, Ethereum is generally faster and cheaper than Bitcoin, though both can be affected by network congestion. Ethereum's average transaction fee is typically lower than Bitcoin, and its confirmation time is usually faster.

One area where Ethereum has a clear advantage over Bitcoin is in its environmental impact. Ethereum's proof-of-stake consensus algorithm consumes significantly less energy than Bitcoin's proof-of-work consensus algorithm, making it a more environmentally friendly choice.

Ultimately, the decision of whether Bitcoin or Ethereum is better will depend on the user's goals and preferences. If someone is looking for a more stable investment with a well-established user base, Bitcoin may be the better choice. If someone is interested in the versatility of blockchain technology and wants to build decentralized applications, Ethereum may be the better choice.

 

Summary

Ether (ETH) is arguably the second most popular digital token after Bitcoin (BTC). In terms of market capitalization, Ether and BTC are the second and third largest cryptocurrencies. Bitcoin and Ether have substantial distinctions, although they are similar in many aspects. Ethereum allows for the creation and implementation of smart contracts and decentralized applications.

Developers utilize Ether to build and run apps on the platform's network. While Bitcoin is accepted in many places, it has not yet served as national legal tender in El Salvador. Smart contracts on ETH allow two parties to perform a transaction, like as buying a house or renting a cab.

 

Further Reading

Bitcoin
Blockchain explained
Proof of Work

 

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Deepak Prasad

He is the founder of GoLinuxCloud and brings over a decade of expertise in Linux, Python, Go, Laravel, DevOps, Kubernetes, Git, Shell scripting, OpenShift, AWS, Networking, and Security. With extensive experience, he excels in various domains, from development to DevOps, Networking, and Security, ensuring robust and efficient solutions for diverse projects. You can reach out to him on his LinkedIn profile or join on Facebook page.

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