Bitcoin vs. Ethereum: What’s the Difference?
It almost sounds like a boxing match: Bitcoin vs. Ethereum. Bitcoin (BTC) and Ethereum (ETH) are undoubtedly the two most popular cryptocurrencies and have contributed significantly to the sector’s growth.
While Bitcoin is the most popular cryptocurrency globally, Ethereum is a computing platform. Its native cryptocurrency, ether power Ethereum. Both are decentralized since they are not issued or regulated by a central bank or other authority.
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Let us briefly look at the historical foundation behind the creation of bitcoin and Ethereum before understanding the significant differences between the two cryptocurrencies.
What is Bitcoin?
Bitcoin was created in 2008 through a white paper written by its pseudonymous creator Satoshi Nakamoto. It was the first cryptocurrency that functioned independently of any central authority based on decentralized ledger technology (DLT) called the blockchain. Created as a peer-to-peer (P2P) electronic cash system, the first block of data on its blockchain, known as the genesis block, was mined in January 2009.
Bitcoin is also regarded as digital gold or ‘gold 2.0’ because it is scarce and durable like precious metal. It can also be easily stored and divided, although it isn’t a formally recognized payment medium. Bitcoin’s market value accounted for close to 87 percent of the total cryptocurrency market when the boom began in 2017. By February 2022, Bitcoin’s market share had declined to 42 percent of the cryptocurrency market. It is because of the launch of various other cryptocurrencies in the world.
What is Ethereum?
Ethereum is a decentralized computer for the world and distributed blockchain network powered by its native cryptocurrency, Ether, to make transactions and interact with applications built on top of the Ethereum network. Ethereum’s co-founder Vitalik Buterin published a white paper in 2013 detailing the use of smart contracts, which are self-executing agreements written in code. Buterin and Ethereum’s other co-founders sold Ether to raise funds for Ethereum’s development in 2014 and formally launched the blockchain technology in July 2015, Ethereum.
Now let us look at the critical differences between the top two cryptocurrencies.
For instance, since both BTC and ETH are decentralized cryptocurrencies, they rely on computers running copies of their networks, known as nodes, to ensure every network participant is on the same page.
Sometimes it isn’t easy to set them apart as competitors because, in reality, they complement each other by serving different purposes. For example, BTC may be used as a store of value and a haven. In contrast, ETH is used to interact with applications built on the Ethereum blockchain to access decentralized financial services.
You can issue new tokens on both the Bitcoin and Ethereum networks. Bitcoin uses the Omni layer platform, which creates and trades currencies. Ethereum tokens follow different standards, with the most popular one being ERC-20 which defines a list of rules for the tokens on the network.
Bitcoin transactions look monetary, but transactions may have notes and messages affixed to them that must be encoded into data fields. Ethereum transactions can also contain codes to create smart contracts or interact with self-executing contracts and applications built using them.
The time for new data blocks to be added to confirm transactions also varies. Blocks on the Bitcoin network are added on an average every 10 minutes, while on Ethereum, it may take just 15 seconds.
Public wallet addresses are unique identifiers that allow users to receive funds comparable to an International Bank Account Number (IBAN) used by a financial institution to identify which bank and country a client’s account belongs to.
Both Bitcoin and Ethereum currently use a consensus protocol called proof of work (PoW), but in 2022, Ethereum will be moving to a different system called proof of stake (PoS) as part of its Eth2 upgrade.
More significantly, though, the Bitcoin and Ethereum networks are different concerning their overall aims. Bitcoin was created as an alternative to national currencies, while Ethereum is a platform to facilitate contracts and applications via its currency.
Although BTC and ETH are both digital currencies, the primary purpose of Ether is not to establish itself as an alternative monetary system but instead to facilitate and monetize the operation of the Ethereum smart applications. The Bitcoin network theoretically should not compete with Bitcoin.
The Ethereum ecosystem is growing by leaps and bounds, thanks to the surging popularity of its apps in areas such as finance, arts and collectibles, gaming, and technology. It has enabled ETH to surge 510 percent in 2021, compared with a 93 percent gain for BTC. Bitcoin had a market cap of $1.08 trillion in November 2021, accounting for about 48 percent of the total cryptocurrency market, while Ethereum, with a market cap of $528 billion, had a market share of 23.4 percent.