Bitcoin vs. Ethereum: An Overview
Ether (ETH), the native cryptocurrency of the Ethereum network, is the second most popular digital token after bitcoin (BTC). As the second-largest cryptocurrency by market capitalization (market cap), comparisons between ether and bitcoin are only natural.
Ether and bitcoin are similar in many ways: Each is a digital currency traded via online exchanges and stored in various types of cryptocurrency wallets. However, there are many significant differences. Bitcoin is designed to provide an alternative to physical or fiat currency; Ethereum is intended for complex smart contracts and decentralized applications.
Key Takeaways
- Bitcoin signaled the emergence of a radically new form of digital money that operates outside the control of any government or corporation.
- With time, people began to realize that one of the underlying innovations behind Bitcoin—the blockchain—could be used for other purposes.
- Ethereum proposed to use blockchain technology not only for maintaining a decentralized payment network but also to power tamper-proof decentralized financial contracts and applications.
Bitcoin
Bitcoin was launched in January 2009. It introduced a novel idea set out in a white paper by the mysterious Satoshi Nakamoto, which introduced Bitcoin as an online currency without any central authority, unlike government-issued currencies. There are no physical coins, only balances associated with a cryptographically secured public ledger.
Although Bitcoin was not the first attempt at an online currency of this type, it was the most successful in its early efforts. As a result, it has become known as the predecessor to virtually all cryptocurrencies that have emerged over the past decade.
Over the years, the virtual, decentralized currency concept has gained acceptance among regulators and government bodies. Although only formally recognized as a medium of payment or store of value in a few countries, Bitcoin has managed to carve out a niche for itself and continues to co-exist with the financial system despite being regularly scrutinized and debated.
At the start of the cryptocurrency boom in 2017, Bitcoin’s market value accounted for close to 87% of the total cryptocurrency market. By late August 2022, Bitcoin’s market share had declined to 39.6%, but by October 2023, it had rebounded to more than 51%.
Ethereum
Blockchain technology is being used to create applications that go beyond just enabling a digital currency. Launched in July 2015, Ethereum is the largest and most well-established, open-ended decentralized software platform.
Ethereum enables building and deploying smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from a third party. To accomplish this, Ethereum comes complete with its own programming language that runs on a blockchain.
The potential applications of Ethereum are wide-ranging using its native cryptographic token, ether (commonly abbreviated as ETH). In 2014, Ethereum launched a presale for ether, which received an overwhelming response.
Ether generally has four purposes: It is traded as a digital currency on exchanges, held as an investment, used to purchase goods and services, and used on the Ethereum network to pay transaction fees.
Key Differences
While both the Bitcoin and Ethereum networks are powered by the principle of distributed ledgers and cryptography, the two differ technically in many ways. For example, transactions on the Ethereum network may contain executable code, while data affixed to Bitcoin network transactions is only used to record transaction information. Other differences include block time (an ETH transaction is confirmed in seconds, compared with minutes for BTC), and their consensus mechanisms are different: Bitcoin uses proof-of-work, while Ethereum uses proof-of-stake.
The Bitcoin and Ethereum blockchains and networks are different concerning their overall aims. Bitcoin was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value. Ethereum was intended as a platform to facilitate immutable, programmatic contracts and applications via a global virtual machine.
Proof of Work vs. Proof of Stake
Bitcoin uses a consensus protocol called proof of work (PoW), which allows the network nodes to agree on the state of all information recorded and prevent certain types of attacks on the network. In September 2022, Ethereum moved to proof of stake (PoS), a set of interconnected upgrades that made Ethereum more secure and sustainable. To address issues regarding scalability, part of the transition to proof of stake is danksharding, which will continue to be addressed through future updates.
A major criticism of proof of work is that it is highly energy-intensive because of the computational power required. Proof of stake substitutes computational power with staking—making it less energy-intensive—and replaces miners with validators, who stake their cryptocurrency holdings to activate the ability to create new blocks.
Purposes
BTC and ETH are both digital currencies, but the primary purpose of ether is not to establish itself as an alternative monetary system but to facilitate and monetize the operation of the smart contract, dApps, and any other blockchain solution that can be thought of.
Future
The Ethereum ecosystem is growing by leaps and bounds thanks to the surging popularity of its dApps in areas such as finance (decentralized finance, or DeFi apps), arts and collectibles (non-fungible tokens, or NFTs), gaming, and technology. Ethereum will also introduce danksharding sometime in the future to enhance its scalability.
Bitcoin has also experienced change, introducing the Taproot upgrade to enable smart contracts. The Bitcoin Lightning Network is another project being worked on as a second-layer protocol that intends to take transactions off-chain for the purpose of speeding up the network.
It remains anyone's guess which cryptocurrency and blockchain will stand the test of time—perhaps they both will. But one thing is certain—both have induced much-needed discussions about financial systems worldwide.
What Is the Main Difference in Application Between Bitcoin and Ethereum?
Bitcoin is primarily designed to be an alternative to traditional currencies and hence a medium of exchange and store of value. Ethereum is a programmable blockchain that finds application in numerous areas, including DeFi, smart contracts, and NFTs.
How Many BTC and ETH are Currently in Circulation?
As of Oct. 26, 2023, there were 19.52 million BTC and 120.26 million ETH in circulation.
What Are Some Similarities Between Bitcoin and Ether?
Ether and bitcoin are alike in many ways. Each digital currency is traded on online exchanges and stored in cryptocurrency wallets. Both are decentralized, meaning they are not issued or regulated by a central bank or other authority, and both use blockchain technology.
The Bottom Line
Bitcoin and Ethereum are two blockchains with their own cryptocurrencies, bitcoin and ether. Each was created with different purposes in mind to address separate issues, but they also have many similarities.
