Bitcoin vs Ethereum: The Comparison and Definition

Bitcoin vs Ethereum

Over the past several years, interest in cryptocurrencies, sometimes known as digital currencies, has grown significantly. Some banking institutions now accept coins like bitcoin, whose value has surged in recent years.

Bitcoin (BTC), the first cryptocurrency, and Ethereum (ETH), the second-largest cryptocurrency by market cap, are the two most valuable cryptocurrencies in existence. They have considerably supported the growth of their respective marketplaces.

These two coins are dominant, but they are also extremely different from one another. Let’s see how they contrast.

The Introduction of Bitcoin

Satoshi Nakamoto, a pioneer in the crypto industry, introduced Bitcoin in 2009. The concept behind this digital currency was straightforward: to offer a decentralized, open, and widely available alternative to traditional money, often known as fiat currency.

Due to the peer-to-peer nature of the electronic cash system, there is no central authority over the transactions. Additionally, the BTC USDT trading pair has one of the best and most well-known correlations to bitcoin.

The Basics of Ethereum

The native coin of Ethereum, Ether, which is used to conduct transactions and communicate with other Ethereum network users, is supported by the open-source, decentralized blockchain network Ethereum. 

Everyone can benefit from the Ethereum network since it enables users to construct any type of digital technology. Although it has a token that supports the blockchain, users can also opt to use it to pay for material products and services.

The Difference between Bitcoin and Ethereum

Although the distributed ledger and cryptography principles underlie both the Bitcoin and Ethereum networks, there are major technological differences between them.

Bitcoin’s Proof of Work vs. Ethereum’s Proof of Stake

The proof-of-work (PoW) protocol, used by the cryptocurrency Bitcoin, enables network nodes to agree on the state of all information stored and guards against certain network threats. But one disadvantage of proof-of-work is that it takes a lot of energy to keep it going.

The proof of stake (PoS) protocol was recently adopted by the Ethereum network, which runs on the ether cryptocurrency token, as part of a series of related updates to make Ethereum more resilient and secure.  Sharding is one strategy aimed at addressing scalability issues.

BTC Decentralized Payments vs. ETH Decentralized Software

A payment mechanism free from banks and other centralized organizations was the original goal of Bitcoin’s development. The goal of the cryptocurrency’s creators was to enable direct payment transmission and receipt without the use of a middleman like a bank.

On the other side, Ethereum was created to be a platform for distributed computing. The Ethereum platform’s creators intended for it to serve as a base for decentralized software applications, or “smart contracts” and “distributed apps,” to be used (dApps).

Their Purpose

Both bitcoin and ether are digital currencies that can be purchased, sold, and traded on the specific crypto exchange. Bitcoin is a cryptocurrency that serves as a medium of exchange for payments and a store of value for investors saving or speculating.

Whereas, Ether’s main goal is to make it easier and more profitable for smart contracts, decentralized applications, and any other blockchain-based solutions to operate.

Consensus Mechanism

By eliminating the need for middlemen or central banks to control the currency, Bitcoin’s mining and Proof-of-Work consensus methods ensure that transactions may be handled safely. As a result, the system’s uptime is almost zero percent. Bitcoin has gained popularity over time because it is tamper-proof.

The proof-of-stake mechanism is used by the Ethereum blockchain, and new blocks are created by a network of individuals known as validators. These blocks include a list of attestations (validators’ signatures and votes on the block’s authenticity), transactions, information about the blockchain’s current state, and much more.

Supply of Tokens

The total number of bitcoins that will ever be created has a hard cap of 21 million. Every successfully mined block produces new Bitcoin. The total amount of Bitcoins, called block reward, that miners receive for successfully mining a block is halved every 210,000 blocks.

Unlike Bitcoin, Ethereum does not yet have a hard cap on the total amount of ETH, which can worry some investors who prefer crypto investments that are controlled by a deflationary monetary structure.

Transaction Fees

While both the Ethereum network and the Bitcoin network charge transaction processing fees, the manner in which each network handles these costs differs.

In Ethereum, users who want to send or receive Ether pay for this service with “gas,” a unit of Ethereum. On the other hand, Bitcoin does not require users to pay for transaction processing costs.

Take Away

Many similarities exist between ether and bitcoin. Wallets for cryptocurrencies are used to store and trade each digital currency. Both employ blockchain technology and are decentralized, which means they are neither created nor controlled by a central bank or other institution.

Bitcoin and Ethereum are in a good position to contribute long-term value to fostering a robust, developed, and diversified crypto ecosystem given their disproportionate visibility and established, yet distinct, functionality.