By Larry Wright
Cryptocurrencies like Bitcoin and Ethereum are the two major blockchain-based innovation applications that have gained the greatest traction in recent years. Even though many people consider these two assets to be rivals, the reality is not nearly as cut and dried. Bitcoin is sometimes referred to as “digital gold,” whereas Ethereum is often referred to as “a digital universe.”
Both cryptos use distributed ledger technology to construct a valuable layer on the computer; however, the mechanism behind Bitcoin is restricted to only transactions and exclusivity. Ethereum goes one step farther than blockchain by incorporating a computer-based technology into the economic layer. This allows it to replace standard financial tasks, such as borrowing and selling, with the help of necessary programming code.
Both of these technologies are maintained and protected by a comprehensive framework of people all over the globe known as miners. Miners are compensated for the role they play in ensuring the security of the platforms they belong to. In 2008, when centralized institutions throughout the globe abandoned the world, Satoshi Nakamoto created bitcoin to lay down the basis of a decentralized control system of the monetary system.
Bitcoin served as an inspiration for Ethereum’s development, but Ethereum improved upon Bitcoin by including a consensus mechanism into its platform. Ethereum’s blockchain technology has unlimited possibilities due to its versatility, in contrast to Bitcoin’s network, which only serves one purpose as a speculative investment.
Discovering the distinctions between Bitcoin and Ethereum is the first step on a much longer and more in-depth journey into the world of technical progress and how the technology may be headed in the near future. In this article, we’ll first discuss these two cryptos in detail and then learn their differentiating characteristics. Let’s mark your first step into this virtual money world.
Introduction to Bitcoin (BTC)
The first decentralized cryptocurrency, Bitcoin, was created in 2009 and is now the most widely used virtual currency in the world. In the earlier months of 2009, a completely anonymous creator of Bitcoin, who was identified as Satoshi Nakamoto, processed the first set of data to be added to the blockchain, commonly referred to as the genesis block.
Since then, the number of people using bitcoin has continuously grown. Though it has had its down times too, especially during the earlier years, its growth has been stable in the late years. Bitcoins were created to function as a peer-to-peer computerized monetary system, allowing users to make payments without the need for a centralized bank or other financial institution.
Bitcoin gives individuals the ability to exercise complete autonomy over their monetary affairs, free from the influence of any central bank, corporation, or other financial organization. Alternatively, it is supported by a decentralized group of users who run the Blockchain network technology and abide by a predetermined set of guidelines.
The program decides how exchanges work, how long it has taken for operations to complete, the production ceiling of 21 million Bitcoins, as well as a number of other aspects of the cryptocurrency. Everything is controlled by miners of the BTC.
The background, which is the detailed history of each and every operation that has ever been done using Bitcoin, is stored in the blockchain, which is accessible to the general public. This way, everyone has a record of every transaction that has ever existed, and all of the related data is available to everyone who wishes to get a hold of data.
In order to generate and publish these transactions, miners on the Blockchain system make use of a Proof-of-Work (PoW) process. This technique requires computers to employ huge amounts of computing power to execute hashing operations. For those who don’t know, proof-of-work is the method that the members of the networks use to come to some agreement.
Because of Bitcoin’s processing and agreement procedures, which keep the business up with little interruption, cybercriminals and organizations cannot modify the balances of other users or consume their resources for their ill motives. This protects users’ resources against double-spending too.
Bitcoin’s standing as a virtual currency that cannot be altered and that can be exchanged at any time, even without the involvement of middlemen or financial institutions, is largely responsible for the rise in acceptance of this digital money. Bitcoin was initially designed to function as a medium of exchange, enabling users to buy a variety of products and services.
However, in recent years, it has also developed into a kind of wealth storage and a very profitable area of investment. So, if you are looking forward to BTC investment, now is the time to do it.
Introduction to Ethereum (ETH)
A decentralized computer can be built on top of Bitcoin’s blockchain-based technology, but Ethereum pushes things a step beyond by leveraging the innovation to construct a decentralized computer. Ether (ETH) is being used to exchange goods and services and communicate with apps developed on the Ethereum platform and is expanding its usage with every passing day.
Ethereum is a decentralized, open-source, and shared blockchain, which came into being in 2013 by Eth’s co-founder, Vitalik Buterin. He actually published a white paper that thoroughly explained what smart contracts are and how they are used.
For those who don’t know, a smart contract is an arrangement that may carry out its terms automatically when its pre-programmed requirements are met. The use of smart contracts makes it possible to develop decentralised apps, often known as DApps. These are software programs that may function independently of anyone controlling the organization.
In 2014, Buterin, as well as the other co-founders of Ethereum, traded Ether in order to acquire money for the further advancement of Ethereum. Established in July 2015, the Ethereum system is designed to decentralize every aspect of the internet in order to realize its full potential. Ethereum, like Bitcoin, is a decentralized platform, meaning it does not have a central leadership that governs it.
Instead, it relies on the proof-of-work (PoW) mechanism to guarantee that malevolent actors cannot change the information stored on the blockchain. Solidity, Ethereum’s proprietary software platform, is the native language that is used for the writing of smart contracts, which are then complexly executed on the chain. Because smart contracts may be used, Ethereum might have a diverse range of uses if it were developed further.
The pace of technological development on the Ethereum platform is rapidly increasing, with decentralized apps already delivering banking institutions and nonfungible assets (NFTs) serving as samples of what such comprehensive software enables programmers to construct. As seen, Eth is being used to engage with apps that run on the Ethereum platform. On the other hand, Bitcoin could only be utilized as a means of exchange in the form of wealth and are just like currencies we use daily.
Customers are required to pay charges in Ether in order to create smart contracts, cash for operations, and utilize decentralized applications (DApps). As the price of Ether continued to rise, more and more people began to save their wealth in ether wallets.
Decentralized apps that are developed on Ethereum make it possible for Ether and other cryptocurrencies to be used in a wide variety of contexts, such as serving as security for loans or being leased out to lenders in order to obtain interests.
For instance, a user could make use of a decentralized network to get a loan in the amount of $250 while also collecting interest on the $500 worth of ETH that they first put in the program. Definitely, a win-win situation if you know how to play this magnificent Eth game!
Bitcoin vs. Ethereum
Now that you have a thorough understanding of what Ethereum and Bitcoin are and how they work let us discuss some of the ways in which the two cryptos differ from one another.
History
The very first aspect where Eth and BTC are different is their respective historical backgrounds. Bitcoin was the very first crypto ever developed; as previously said, Satoshi Nakamoto distributed it to the public in the year 2009.
It is unknown if this name refers to an individual or a group of individuals, and it is also unknown whether the person or persons in question are living or have passed away since everything was completely anonymous. As was said up top, Vitalik Buterin, a researcher alongside a developer, was the one who first published Ethereum in the year 2015.
He made improvements to the site by using the ideas behind blockchain technology and the pre-existing original crypto, Bitcoin. As a result, the platform now has a great deal more capability. Buterin is also the one who came up with the idea for the decentralized programming and smart contract system known as Ethereum.
Degree of Availability
The way in which Bitcoin and Ethereum operate in this regard is one of the most significant areas in which they vary from one another. One of the characteristics that help to define Bitcoin is the fact that its total supply is capped at 21 million. Satoshi came up with this number.
This limited number of units that are permitted to be coined fosters exclusivity, which, similar to gold, may serve to keep its valuation stable. After the maximum production, the limitation has been reached, and block incentives have been distributed, miners will begin to focus their attention on other potential sources of income, such as transaction costs.
Alternately, Ethereum does not impose any restrictions on its overall quantity but does restrict the amount that may be produced each year. The networking restricts production by “burning” Ether to discourage miners from manipulating the system and to strive toward maintaining a deflationary value for the cryptocurrency throughout the period.
Though, this approach is apparently eliminating some of the difficulties that Bitcoin might encounter concerning its limited production; nevertheless, as a consequence of this, the currency value of Eth might become more unpredictable as compared to BTC.
Effect on Environment
The blockchain initiatives known as “proof-of-work” are the ones that Bitcoin and Ethereum belong to. That implies that consumers may run apps on their own devices to assist in combating fraudsters and verifying the correctness of purchases.
Mining is the procedure that enables individuals to earn benefits in the form of bitcoin in return for their work. However, mining requires a substantial amount of power, which is one of the primary reasons why bitcoin in particular, has received a lot of negative attention.
On the other hand, Ethereum seems to be in an attempt to adapt its software to a structure similar to “proof-of-stake” as an attempt to lower its power construction. Proof-of-stake Blockchain technologies do not need mining; rather, they utilize a technique called staking, which allows users to put bitcoin at risk in order to guarantee the correctness of activities.
Staking is the method through which blockchain technologies verify the legitimacy of money transfers. When the system operates as it should, people who participate in it are rewarded with benefits analogous to interest on a bank account.
Using a proof of stake mechanism, a user is able to mine cryptocurrency or verify the transfer of funds in a batch depending on the number of coins that they currently possess. The greater a person’s currency holdings, the greater the processing power that individual will have.
Because of this transition, it’s possible that Ethereum may eventually become more environmentally friendly than Bitcoin over time if practiced under the right circumstances. It is important to point out, nevertheless, that this would be a complicated adjustment that hasn’t even been finished in its entirety.
But at the other extreme, several Bitcoin advocates highlight that the mining process is not always detrimental to the environment provided that miners make use of sustainable power.
Mining
Miners have the ability to verify transfers in Bitcoin via a mechanism that is called proof of work. Ethereum is subject to the same constraints. Miners from all over the globe compete against one another using proof of work by attempting to solve a challenging computational challenge to be the first person to add a block of the transaction to the blockchain.
On the other hand, Ether is currently focusing on transitioning to a new method of transaction validation called as proof of stake, as mentioned above. A miner in Bitcoin gets paid with 6.25 bitcoins every moment he contributes a block to the network. This amount was determined in November 2021, is constant, and subjected to no fluctuations.
However, in Ethereum, a miner, also known as a validator, will always be rewarded with three ETH tokens whenever a new block is entered into the system. This payment will never be reduced by one-half too.
Fees
Bitcoin users are not required to pay any fees for their transactions. You have the option of paying the miner more funds in order to have his attention be focused specifically on your transaction; nevertheless, the transaction will still be processed even if you choose not to pay the charge.
However, if we look at Ethereum, in order for your operation to go through successfully on Ethereum, you will need to give some amount of Eth as a fee for your transaction. Your contribution of Ether will be turned into something that’s known as a gas equivalent. This is indeed the gas unit that powers the work required to add your operation to the public blockchain ledger.
Ethereum and Bitcoin Aren’t Competitors
Investigating Bitcoin vs. Ethereum directly results in a more in-depth conversation on the ways in which distributed ledger technology has the potential to change each aspect of modern life. Bitcoin and Ethereum are going to play a pivotal role in the development of a wide range of industries, from the financial sector to the judicial system and the building industry.
It is critical to have a solid understanding because Bitcoin and Ethereum are based on radically distinct concepts. Bitcoin may be used as a kind of value storage, while Ethereum is a framework for hosting decentralized apps.
Ethereum and Bitcoin have the same fundamental structure; nevertheless, the technological innovation that underpins Bitcoin is used to protect Ethereum’s infrastructure rather than Bitcoin’s. Because blockchain allows us to build a fully decentralized and unchangeable method of doing business, designers no longer have to depend on providing people access to our valuable data to complete transactions.
There may not be much that can be compared between Bitcoin and Ethereum because there will be significant differences between life following the initial widespread use of cryptocurrencies. When compared, the two demonstrate the adaptability and individuality that can be found within the cryptocurrency sector, whether it’s the purchase of consumables with Bitcoin or the sale of art NFTs using Ethereum.
When it comes to selecting between Bitcoin and Ethereum, there is not a single cryptocurrency that stands out as superior. ETH is more useful than Bitcoin, which was obviously primarily intended to be held as investment capital only. It is up to each individual owner to decide whether Bitcoin or Ethereum is more suited to his needs.