How Do Ethereum And Bitcoin Differ?
Out of the over 1600 cryptocurrencies available on the market, Bitcoin and Ethereum have consistently ranked top three by market capitalization since 2016. In fact, some speculators think Ethereum might overtake Bitcoin one day, citing its versatility. But how exactly do these virtual currencies stack up against each other?
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Bitcoin
Created in 2009 by a group of individuals or a lone creator called Satoshi Nakamotov, Bitcoin is the pioneer of cryptocurrencies and the first thought that comes to mind when most people hear the words crypto or blockchain. Part of Bitcoin’s appeal is that it was the first digital currency to detach itself from a specific country or bank, and it keeps the identities of its users anonymous.
Ethereum
A few years after Bitcoin’s creation, Ethereum’s founder Vitalik Buterin analyzed blockchain technology’s use case, and in 2015 released a crypto that served as more than just a currency, i.e., Ethereum. Like bitcoin, anyone can use Ether (Ethereum’s native currency) for peer-to-peer payments.
However, what makes Ethereum stand out is the provision for its users to build and deploy Dapps (decentralized applications) across Ethereum’s blockchain and create smart contracts. Most Dapps, including NFT applications and crypto games, exist on Ethereum’s blockchain.
Bitcoin vs. Ethereum
Many parallels have been drawn between Bitcoin and Ethereum, given their status as the two most prominent cryptocurrencies. Although Bitcoin still reigns supreme in the world of crypto, Ethereum’s functional edge is too apparent to ignore, not to mention increasing environmental concerns over Bitcoin mining. Here are some key differences between these two digital currencies.
Foundational Concepts
By loose definition, Bitcoin is “digital gold.” Its original purpose was to replace fiat currencies by facilitating peer-to-peer transactions without fiat currencies’ shortcomings, e.g., stringent bank regulations and inflation. Compared to transactions via the traditional banking system, Bitcoin transaction fees are almost negligible, and there is no centralized authority regulating how your money works.
As far as peer-to-peer transactions are concerned, Ethereum works more or less the same as Bitcoin. The major difference is Ethereum provides a platform for users to create smart contracts and build Dapps deployable on Ethereum’s blockchain. Smart contracts are self-executing contracts between buyers and sellers that run automatically when certain conditions occur. With Ethereum’s smart contracts, users can exchange anything of value.
Mining
Just like gold and other precious minerals, crypto owners have to mine their cryptocurrencies, except the entire process is digital. Currently, both Bitcoin and Ethereum use a consensus protocol called proof of work to validate transactions. Proof of work involves miners around the globe racing to solve complex math puzzles so they can add new transaction blocks to the blockchain.
However, proof of work is not environmentally friendly, as it requires immense computational power. Ethereum is transitioning to a more eco-friendly consensus protocol called proof of stake, where users can validate transactions based on the number of coins they own.
Transaction Time
The average time needed to complete a Bitcoin transaction, i.e., add a new block, is 10 minutes. On the other hand, Ethereum is light years ahead, with the average transaction taking only 12-15 seconds.
Fees
Bitcoin transaction fees are entirely optional: users can pay miners more money as an incentive for them to pay extra attention to their transactions. Nevertheless, transactions are often successful with or without a fee.
Ethereum requires its users to pay some Ether for their transactions to go through. Gas is the standard unit for measuring the Ether paid on each transaction. Gas fees drive the computation needed for miners to add transactions to Ethereum’s blockchain.
The Numbers
Ethereum has 100 million more coins than Bitcoin – 118 million Ether versus 18 million Bitcoins. Despite this disparity, Bitcoin’s market capitalization is still bigger at $781 billion compared to Ethereum’s $368 billion.
Thanks to its faster transaction speed, Ethereum handles roughly 1.2 million transactions per day while bitcoin handles a meager 260,000. Also, Bitcoin has a hard cap/issuance limit of 21 million bitcoin encoded in its source code – Bitcoin’s supply will never exceed 21 million. Ethereum has no such issuance limits.
Conclusion
Besides bragging rights, it does not matter which cryptocurrency is bigger. Bitcoin has a larger market capitalization while Ethereum has more users and a larger community of developers working to improve it. Ultimately, the best crypto will depend on each users’ requirements.
