When it comes to Bitcoin and Ethereum comparison, they are often considered the Pepsi and Coca-Cola of the crypto space. They are often compared as the number one and number two largest cryptos. Despite some similarities, Bitcoin and Ethereum are so fundamentally different.
Bitcoin Basics
Bitcoin (BTC) was introduced in January of 2009, offering a revolutionary concept outlined in a white paper by the pseudonymous Satoshi Nakamoto. Bitcoin provides the promise of a decentralised digital currency, unlike government-issued money. There are no physical bitcoins, just balances connected with a public ledger that is cryptographically secured.
Although bitcoin was not the first attempt at virtual money of this sort, it was the most successful early attempt. Bitcoin has been regarded as a forerunner to practically all cryptocurrencies established in the last decade.
The notion of a virtual, decentralised currency has gained support among government bodies and regulators throughout the years. Cryptocurrency has carved itself a niche despite not being a legally recognised medium of exchange or store of value. It continues to coexist with the financial system while under regular scrutiny and debate.
Ethereum Basics
Ethereum (ETH), introduced in July 2015, is the biggest and most established open-ended decentralised software platform. Ethereum allows the implementation of smart contracts and decentralised apps (dApps) without downtime, fraud, centralised control, or third-party intervention. Ethereum has its programming language on the blockchain, allowing developers to build and execute distributed applications.
Powered by its cryptographic token, ether, Ethereum has many possible use cases. In 2014, Ethereum conducted a presale for ether, which got an overwhelming response. Ether is the fuel for executing commands on the Ethereum network, and developers utilise it to develop apps on the platform.
Ether serves primarily two purposes: it is exchanged as a digital currency on exchanges, similar to other cryptocurrencies, and it powers apps on the Ethereum network. According to Ethereum, people worldwide use ETH as a payment method, as a store of wealth, and as collateral.
Similarities Between Bitcoin and Ethereum
Both currencies are decentralised and use a blockchain managed by several nodes, making it difficult for a central authority like the government to exercise control and manipulation over them.
All blockchain transactions must be confirmed before anything can proceed. Both Bitcoin and Ethereum employ a blockchain to record transactions and guarantee that nothing is lost.
Both Bitcoin and Ethereum support anonymous transactions. Each transaction may be tracked and recognised, and the identifying information consists of the sender’s and recipient’s public keys. Although no identities are published, all parties must guarantee that their secret keys remain safe to protect their information from the general public.
Numerous government restrictions govern both digital currencies. Currencies are typically available for trade in many nations, although there may be limitations on how much a person can buy. In certain countries, crypto investment earnings are considered taxable income.
Differences Between Bitcoin and Ethereum
While both the Bitcoin and Ethereum networks run on distributed ledgers and encryption, there are several fundamental differences.
Bitcoin vs ethereum: How do they differ? Photo: AlekseyIvanov / Shutterstock.com
History
Bitcoin’s primary claim to fame was the first and most well-known cryptocurrency. As said, it was invented by the mysterious Satoshi Nakamoto in 2009. There will never be more than 21 million bitcoins generated through the process known as bitcoin mining. If their adoption continues to expand, this restriction may boost their value over time, making bitcoin a deflationary currency.
Vitalik Buterin, a researcher and programmer, launched Ethereum in 2015 based on the principles of blockchain and Bitcoin. Since its inception, the Ethereum blockchain has seen both ups and downs. In 2016, due to a large hack, the Ethereum blockchain split — a process known as forking – to form the primary Ethereum blockchain. The record of the hack was retained on the second blockchain, Ethereum classic.
Mining proof
Bitcoin operates based on transaction verification’s proof-of-work (PoW) consensus mechanism. Under this proof, bitcoin miners solve cryptographic riddles using computer power. As an incentive for contributing processing power to the system, miners correctly verifying transactions earn bitcoin as incentives.
After moving to the Ethereum 2.0 chain, Ethereum boosted its network performance. The proof-of-stake (PoS) consensus mechanism relies on nodes for transaction verification. The selected nodes have a stake in ether; therefore, verification depends on the ownership of currencies rather than processing power.
Use cases
Bitcoin was created as a decentralised currency and payment network. It is used as a means of exchange for value or a currency that can be transferred across borders without additional fees or foreign exchange requirements.
Alternatively, ether can be used to purchase products and services and transfer and validate ownership of digital assets thanks to smart contracts. You can use ETH to buy a piece of real estate and get a non-fungible token (NFT) to represent property ownership. Also, many metaverse apps, such as Decentraland and Defi financial services, like the Uniswap exchange, are supported on the blockchain of Ethereum.
Market cap
Bitcoin has a maximum token supply of 21 million. In what is known as a halving, the total amount of BTC miners receive for successfully mining a block is halved every 210,000 blocks. This is a successful deflationary monetary strategy to ensure the value of BTC. In 2009, one block reward was equivalent to 50 BTC, but after halving in May 2020, it decreased to 6.25 BTC.
Ethereum, on the other hand, does not yet have an onerous restriction on the total supply of ETH, which concerns those speculators who value crypto investments guided by a deflationary monetary system. However, it’s worth mentioning that several proposed modifications, such as EIP-1559, include deflationary techniques that may, in the future, solve the problem of ether.
Scaling
The low network speed of Bitcoin is one of the most significant obstacles to its broad adoption. In 2017, the SegWit upgrade eliminated redundant data from the bitcoin blockchain to increase its speed. The Lightning Network is an extra option for the bitcoin blockchain that enables smaller transactions to be completed at a much quicker pace.
Ethereum grows in part by transitioning to a PoS network and adding shard chains to its infrastructure. The addition of shard chains to the leading network helps store data off the main chain so that transactions may be processed more quickly.
Cryptography
When it comes to cryptography, hash algorithms contribute to the difficulty of hacking blockchain technology and to its security. Cryptographic hashing algorithms protect the users’ privacy and guarantee system security.
Bitcoin employs the Secure Hash Algorithm (SHA-256), a complicated cryptographic algorithm. It takes around 10 minutes and substantially more hashing power to mine a new block on the Bitcoin network, and each block may hold 1 MB of data. Consequently, the Bitcoin blockchain can process three to five transactions per second.
Ethereum employs a lightweight algorithm known as Ethash. There is no block limit on the Ethereum blockchain. The miners determine how many transactions are included in a block, which can now accommodate around 15 transactions per second.
Fees
When using a blockchain to accomplish a transaction, you often need to pay a transaction fee. Bitcoin’s transaction fee is optional. You can opt to pay extra to ensure that your transaction is prioritised by miners and processed more quickly. Otherwise, it will go through anyway.
On the other hand, when you make an Ethereum transaction, you must define how much Ether you are ready to spend for your transaction to be added to the blockchain. It is termed “gas,” and what it drives is called a “transaction.”
In 2021, the average daily Bitcoin transaction fee fluctuated between $1.78 and $62. The average gas cost per transaction on Ethereum varied from $1.59 to $70.00.
Prices
Bitcoin’s market capitalisation is more than double that of Ether as of March 2022. A single Bitcoin is also much more valuable. One Bitcoin costs around $38,000, whereas one ETH costs approximately $2,628. Despite the price disparity, the values of these cryptocurrencies are interrelated.
Both cryptocurrencies reached their price peaks in late 2021, with Bitcoin hitting over $64,000 and ETH at $4,600. Bitcoin soared when El Salvador adopted it as legal tender, whilst Ethereum surged to a new all-time high due to the proliferation of NFTs.
Nonetheless, nothing is definite in crypto land. When Bitcoin declined at the end of 2018, Ethereum declined considerably more. In 2020, however, when the cryptocurrency market momentarily recovered, the correlation between Ethereum and Bitcoin’s prices resumed. Since then, there has been a strong correlation between the two virtual currencies.
5-year historical performance of BTC vs. ETH. Image: CoinMarketCap
Bitcoin vs. Ethereum Comparison Chart
|
Bitcoin (BTC) |
Ether (ETH) |
Inventor |
Satoshi Nakamoto |
Vitalik Buterin, Joseph Lubin, Gavin Wood, etc. |
Release date |
January 2009 |
July 2015 |
Consensus mechanism |
Proof-of-work |
Proof-of-stake |
Supply Style |
Deflationary (a finite total token supply of 21 million) |
Inflationary (unlimited supply, 18 million tokens released each year) |
Intended purposes |
To be a medium of exchange to buy goods and services, a store value |
A platform for smart contracts to develop games, NFTs, DeFi apps, etc. |
Algorithm |
SHA-256 |
Ethash |
Transactions per second |
3-5 TPS |
15 TPs |
Price |
Around $64,000 (in late 2020) |
Around $4,600 (in late 2021) |
Bitcoin vs. Ethereum, which is better?
Which is better, Bitcoin or Ethereum? There is no obvious winner. Bitcoin and Ethereum have different applications and are not necessarily competitors. Both have a lengthy presence in the history of cryptocurrencies, making them seem more credible to confident investors. When deciding how to invest in Ethereum or bitcoin, you should analyse what makes sense for your portfolio and what you feel has potential.
If you gathered coins early on and want to be able to use them, Bitcoin may make sense. Bitcoin may also make sense if you want a long-term store of wealth and believe cryptocurrencies are here to stay.
On the other hand, if you’re searching for a suite of Defi solutions, Ethereum may be your choice. Using Ethereum-related chains and dApps, you have multiple ways to put your money to work. Using NFTs, it is also simple to start your project or produce digital art.
FAQs
What distinguishes Bitcoin from Ethereum?
The primary distinction between bitcoin and Ethereum is their respective uses. Bitcoin is often used as a currency, a payment network and a store of value. Ethereum, on the other hand, has several applications in games, NFTs, Defi apps, and more. Ethereum is transitioning from a PoW system to a PoS system, while bitcoin aims to preserve its PoW system.
Why is bitcoin more valuable than Ethereum?
Bitcoin’s status as the first and most well-known cryptocurrency may be a reason for its higher price. In addition, there is a limit on the total supply of bitcoins; thus they may serve as a store of value. There is no restriction on how much ether might be issued.
Can Ethereum surpass bitcoin in price?
Even if there is no restriction on the supply of ether that may be issued, its price can surpass that of bitcoin. If Ethereum becomes widely embraced as the backbone for the next evolution of the internet, demand for ether might grow, causing its price to rise. This may also be the case if more individuals use it for Defi and other apps.
Who is Ethereum’s greatest rival?
Cardano (ADA), Solana (SOL), Stellar Lumens (XLM), and Polkadot (DOT) are among Ethereum’s most prominent rivals, sometimes called the top “Ethereum Killers,” with much cheaper gas prices and enhanced features. However, Ethereum is presently the leader regarding market cap and the number of decentralised applications (dapps).
How do you buy bitcoin or ether?
Bitcoin and ether may be purchased on various cryptocurrency exchanges such as Binance, CoinSpot, or Crypto.com. For Australian investors and those who prioritise security when trading, CoinSpot is highly recommended, as the CoinSpot fee scheme and its security features may pique their interest.
The final thoughts
Cryptocurrencies represent a new asset class, and it will be fascinating to observe whether they revolutionise the way we interact with money. Bitcoin and Ethereum are now considered alternative investments because of their price volatility. When deciding which crypto to invest in, you should always conduct your research and consider the most recent trends, news, technical and fundamental analysis, and expert opinion to form your view of the market’s potential. Never invest more money than you are willing to lose.