Ethereum and Bitcoin are both cryptocurrencies that use blockchain technology. Their transactions are recorded on public blockchains. However, Ethereum and Bitcoin have some key differences. They operate on different blockchains and serve different purposes.
This article will provide an overview of the two cryptos and compare Bitcoin vs Ethereum across various factors like purpose, technology, scalability, supply, and use cases. Understanding their unique strengths and differences will help you better understand the evolving landscape of blockchain-based cryptocurrencies.
Bitcoin Overview
Bitcoin is the first cryptocurrency and is a peer-to-peer (P2P) network that allows online payments to be sent and received between parties without intermediaries.
In particular, Bitcoin uses a publicly distributed ledger known as a blockchain to verify and record transactions. Additionally, the primary purpose of Bitcoin is to decentralise digital money without any central authority or government, unlike traditional currency.
To validate the transaction and add new blocks to the blockchain, Bitcoin uses the proof-of-work (PoW) mechanism. This requires Bitcoin miners to solve complex mathematical problems, making tampering with the blockchain history difficult.
Ethereum Overview
Ethereum is a decentralised platform for developing and running decentralised software programs known as smart contracts and distributed apps (dApps). In addition, Ethereum allows peer-to-peer contracts to be built and run without any control, permission, or interference from third parties.
Initially, Ethereum worked on the proof of stake concept similar to Bitcoin. However, in September 2022, Ethereum moved to proof-of-stake (PoS) to make the network more secure and sustainable. This PoS mechanism requires validators to stake their ETH to validate transactions and add new blocks to the blockchain.
Comparison Table: Bitcoin vs. Ethereum
Though Bitcoin and Ethereum are similar in several aspects, there are many differences as well. Below are some of the differences between Bitcoin and Ethereum.
Parameter | Bitcoin | Ethereum |
Creators | Satoshi Nakamoto | Vitalik Buterin, Charles Hoskinson, Gavin Wood, Jeffrey Wilcke, Mihai Alisie, Anthony Di lorio and Amir Chetrit |
Definition | Bitcoin is a decentralised digital currency. | Ethereum is a decentralised application platform. |
History | The Bitcoin whitepaper was published on 31 October 2008 and launched in 2009. | Ethereum was conceived in 2013 and launched in 2015. |
Purpose | Store of value and financial transactions. | Smart contracts, dApps, DeFi, NFTs and Web3. |
Use Case | Digital money or store of value. | Smart contracts, decentralised finance (DeFi), NFTs, and more. |
Supply | Bitcoin’s supply is capped at 21 million. | Ethereum supply is unlimited. |
Smart Contract Capabilities | Bitcoins do not have full support for smart contracts in the same way that other platforms like Ethereum do. Bitcoin’s scripting language, Script, is relatively simple. | Ethereum allows the creation of smart contracts that run on blockchain and are executed when the predetermined terms and conditions are met. |
Programming Languages For Smart Contracts | Bitcoin’s smart contracts are written in programming languages like Script and Clarity. | Ethereum’s smart contracts are written in programming languages like Solidity, Vyper, etc. |
Transactions | 7 transactions per second. | 30 transactions per second. |
Hash Algorithm | Bitcoin uses an SHA-256 algorithm. | Ethereum runs on the Keccak-256 hash algorithm. |
Consensus Mechanism | Proof-of-work (PoW). | Proof-of-stake (PoS). |
Block Time | 10 minutes on average. | 15 seconds on average. |
Block Limit | The Bitcoin blockchain has a 1 MB block limit. | Ethereum blockchain does not have any block limit. |
Energy Consumption | Energy consumption is very high. | Energy consumption is lower than Bitcoin. |
Transaction Fee | Bitcoin has a static transaction fee. | Transaction fee is based on gas price. |
Currency | The currency of Bitcoin is BTC. | The currency of Ethereum is ETH. |
Ethereum vs. Bitcoin: Key Differences
Purpose
The most important difference between them is their purpose. BTC was created as a digital currency, an alternative to traditional currency or fiat, after the 2008 financial crisis.
Ethereum is an open-source platform for creating smart contracts and decentralised applications or dApps. dApps and smart contracts can interact directly without the need for a middleman.
Technology
Bitcoin uses a Proof-of-Work (PoW) consensus mechanism. Proof-of-work is a mechanism in which miners solve complex mathematical problems to add a block to the blockchain.
Ethereum used a Proof-of-Stake consensus mechanism. PoS is a more energy-efficient way to ensure transactions and add blocks to the Ethereum blockchain.
Proof-of-Stack requires the validators to stake crypto (ETH) to validate transactions and add a block to the blockchain.
Scalability
Bitcoin uses a Proof-of-Work (PoW) mechanism, which is not too scalable. The BTC network can handle only a limited number of transactions per second, 7.
ETH uses a Proof-of-Stake (PoS) mechanism, so the Ethereum network is more scalable than the Bitcoin network. ETH network can have 30 transactions per second. Ethereum is solving the scalability issue through the sharding process.
Supply
The supply of a cryptocurrency is the total number of coins that can ever be available or created at any time. The maximum supply for Bitcoin is capped at 21 million. Currently, 19.5 million Bitcoins are available worldwide.
Ethereum has no fixed supply limit. Currently, approximately 120 million ETH are in supply. The new ETH is added to the supply at a controlled rate.
Use cases
The primary use case of Bitcoin is simple; it’s a digital money or store of value. Digital money or currency can work similarly to traditional currencies and fiat. Bitcoin is also considered “digital gold” due to its store of value as a hedge against traditional financial volatility.
The use case of ETH is broader than that of BTC. ETH allows the building of smart contracts and Dapp. This enables many DeFi, NFT, governance, gaming, supply chain management and other applications to run on its blockchain.
Price Dynamics And Influencing Factors
Bitcoin is the number one cryptocurrency in terms of market cap as well as popularity. BTC leads the cryptocurrency price. As per historical data, Bitcoin prices follow a bull run and bear cycle surrounding its mining reward halving.
As per market cap and popularity, Ether is second only to Bitcoin. The price also fluctuates based on Ethereum ecosystem development, usage demand and gas fees. Ethereum leads in developer activity, dApps, DeFi adoption, NFT sales, and use as a blockchain platform.
Smart Contracts
Bitcoin’s scripting language is optimised for simple money transfers rather than complex smart contract development. Ethereum game-changing innovation is smart contracts that run on blockchain.
Verification Process
In Ethereum vs Bitcoin, the Consensus mechanism originally used the energy-intensive method that is Proof-of-Work (PoW). Bitcoin is still using the proof-of-work mechanism. Ether, on the other hand, shifted to a more eco-friendly proof-of-stake in its major ‘Merge’ upgrade. This will significantly use less energy.
Energy Consumption
One of the key differences between Ether vs Bitcoin is energy consumption. Bitcoin uses more energy, and this brings obvious criticism to Bitcoin. Ethereum’s Proof-of-Stake will reduce energy consumption. This makes Ethereum more sustainable long-term.
Rewards
In terms of reward, in the ETH vs BTC. Both the crypto assets provide validations to add new blocks to the blockchain. Bitcoin miners compete for block rewards. They currently get 6.25 BTC in PoW mining.
However, ETH follows the Proof-of-Stake method and validators receive rewards for staking ETH instead of mining rewards.
Bitcoin vs Ethereum: Which is Better?
In ETH vs BTC, Bitcoin is more valuable and seen as more reliable in terms of Investment. Multiple publicly traded companies also hold Bitcoin in their treasury. BTC is better in terms of store of value against inflation and market volatility. All the cryptocurrencies follow the Bitcoin price.
ETH use cases are vast compared to Bitcoin’s relatively straightforward role as a payment network. In terms of use cases and development, scalability and energy efficient ETH is much better than Bitcoin.
Conclusion
In ETH vs BTC, Bitcoin is more valuable and seen as more reliable in terms of Investment. Multiple publicly traded companies also hold Bitcoin in their treasury. BTC is better in terms of store of value against inflation and market volatility. All the cryptocurrencies follow the Bitcoin price.
ETH use cases are vast compared to Bitcoin’s relatively straightforward role as a payment network. In terms of use cases and development, scalability and energy efficient ETH is much better than Bitcoin.
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