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Bitcoin and Ethereum - for years now, the word “cryptocurrency” brings these two names to the mind of common people above anyone else. As a matter of fact, a recent study conducted on US crypto users shows that these two lead the pack of dedicated crypto lovers. So, what are they? Are they more similar or dissimilar? Read on to find out.
Bitcoin
Bitcoin was first introduced in 2009 by the pseudonymous Satoshi Nakamoto to provide a secure, open-source, and decentralised alternative to government-issued currencies. Functioning on a peer-to-peer network premised on blockchain technology, it was the first successful form of money without a physical configuration, known as cryptocurrency. Since then Bitcoin became the harbinger of the idea and gave way to the plethora of cryptos that have materialised in the past decade. All other cryptos (including Ether) follow Bitcoin in terms of value, and even now it is transacted more than any other cryptocurrency. Its native cryptocurrency is called BTC.
Ethereum
Ethereum was launched by a Russian-American 19-year-old named Vitalik Buterin in mid-2015 with the aim of breaking the limitations of Bitcoin. He envisioned an automated system (that later got the name “smart contracts”) that will follow certain predefined criteria and contingencies to execute a sequence of actions. So he developed the Ethereum platform with a built-in programming language rooted in blockchain technology that can be used by anyone to create decentralised applications (dApps) functional without the risk of breakdowns, forgery, governance, or third-party intervention. The native cryptocurrency of Ethereum is Ether (ETH).
Bitcoin vs. Ethereum: Similarities and Differences
Ethereum was originally meant to be simply an application of blockchain that enables the Bitcoin network and not an adversary of Bitcoin. However, Ether's success has driven it to challenge all cryptocurrencies, including Bitcoin, because of a range of ways it deviated from its starting point.
Similarities
Despite their well-known rivalries, Ethereum and Bitcoin dominate the crypto markets and actually share quite a few similarities.
Bitcoin (BTC), Ethereum (ETH) dominance - their market cap relative to the market cap of all other cryptocurrencies in the world - on January 17, 2022
Blockchain technology base:
BTC and ETH both share the same technology - blockchain, and therefore, experience all the same benefits and downsides of the technology.
They both run on a peer-to-peer network with a shared ledger and without any central governance. The ledger is public and the data once entered, is permanent. The data is protected with layers of blockchain security and is very hard to hack.
On the other hand, the lack of regulation sometimes causes some trouble for users, especially if a crime happens. Moreover, even now, both currencies are quite volatile, and therefore, are subject to market risks. Also, although rare, 51% of attacks can be an issue.
Verification method:
Currently, both BTC and ETH follow the Proof-of-work (PoW) verification system, where certain members (miners) compete to perform convoluted computations to authenticate transactions, in exchange for rewards in the network. This verification method has come under rigorous scrutiny for its massive energy consumption resulting in outrageous pollution.
Differences
Now, let’s come to the differences between Bitcoin and Ethereum, which as you may already somewhat know, comprise a long list.
Purpose:
Overall, Bitcoin and Ethereum were started with different objectives in mind, causing them to function differently. While bitcoin was founded as a substitute for the monetary system and thus seeks to be a means of trade and a repository of wealth, Ethereum was designed as a host framework for irreversible, programmable agreements and applications that will use its own currency and will have no constraints on its utility.
Usage of data:
The biggest difference between the two would be that BTC’s transaction data is generally maintained for notes and evidence, while transactions of ETH may have implementable code that developers are free to use to create dApps. Consequently, ETH has wide applications like smart contracts, NFTs, and DeFi.
Consensus mechanism:
Even though presently both BTC and ETH use PoW as the consensus mechanism for the verification of transactions, Ethereum promised to switch to Proof-of-Stake (PoS) mechanism in 2022. PoS replaces miners with reviewers, who bet their cryptocurrency possessions to unlock the capacity to produce new blocks, making the process more energy-efficient.
Coins in circulation:
The number of coins in circulation for the two diverges by quite a big number. There are about 118,545,259 ETH, as opposed to 18,886,912 BTC. There are also separate codes that they both follow to decide this distribution. While Bitcoin’s supply is decidedly limited to no more than 21 million, Ether sports a 4% inflation rate and a token wipe system in play to compensate for its high production rate.
Market cap:
In terms of market cap, however, Bitcoin so far has won by a landslide. As of November 2021, the market cap of ETH was $528 billion, which was only approximately one-tenth of Bitcoin’s, which was $1.08 trillion and also covered almost 48% of the entire crypto market.
Users:
The users of BTC and ETH differ too, both by number and by behaviour.
Owing to its limited circulation, Bitcoin retains worth over time, no matter how many valuable cryptocurrencies come into the game. Also, it has gained a reputation for being a digital asset that has the ability to be a store of value. For this reason, Bitcoin is treated and termed as “digital gold”, and has a bigger organisational client base.
Conversely, Ethereum has a much higher engagement rate of users and transacts much more quantity every day than Bitcoin. The volume of Bitcoin transactions per day is as of now at about 250,000, while Ethereum transactions are roughly 1.1 million. In fact, Ethereum is such a versatile platform that some users choose to store their Bitcoin on the Ethereum blockchain rather than the other way round. This phenomenon is known as “wrapped bitcoin”. Ether is also called “digital silver” because of its limitless possibility for use cases.
Transaction fees and becoming a regular mode of payment:
One more area where Ethereum loses to Bitcoin by a significant margin is the exceedingly high gas fees. Ethereum transactions are faster than Bitcoin’s, which come at a cost - gas fees. These reimburse users for confirming transactions and can be astronomical in the case of Ethereum, particularly for minor exchanges. Fortunately, we may have a solution to this problem in 2022, once it is possible to implement layer2 protocol on the Ethereum blockchain.
Nevertheless, this leads to one of the biggest inconveniences associated with ETH - it’s tough to use it as a retail form of payment, just like, say, no one will pay almost as much as the price of the item for its delivery. So, most merchants are more inclined towards accepting Bitcoin as a mode of payment, but not Ethereum.
In Conclusion,
Truth be told, comparing Ethereum and Bitcoin is like comparing electricity and gold - two completely different concepts. So, it’s really no wonder that they have many different functionalities, and therefore, a divergent user base. Even investing in them completely depends on the needs and visions of the investors themselves. No expert can definitively state which is “better”, because they really are not competitors. Anyhow, we can certainly conclude that both are extremely important for the crypto ecosystem to survive, thrive, and create a different world someday.
Author Bio
Ralph Kalsi is an entrepreneur, blockchain consultant and blockchain enthusiast who collaborates with businesses in Australia. With his vast knowledge and industry experience in blockchain, he helps to drive sustainable business growth. He is the CEO and proud founder of Blockchain Australia™. You can find him on Twitter and LinkedIn.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.