Bitcoin Vs Ethereum: Similarities and Key Differences
Bitcoin and Ethereum are two of the most widely used cryptocurrencies. Have you considered how they compare, how they are similar and distinct in a variety of factors such as their origin, monetary policy, programming language, how they handle network upgrades, and so forth?
What we are going to learn?
What is Bitcoin?
Bitcoin was the first cryptocurrency, founded in the year 2009 by Satoshi Nakamoto, a crypto architect. This digital currency’s concept was simple yet innovative. It offered a decentralized and transparent monetary system accessible to everybody as a replacement for traditional cash, known as fiat currency.
What is Ethereum?
The white paper for Ethereum was published in 2013 and the project went live in 2015. Since its beginnings, Ethereum has gone through a lot of changes. It is an open-source, community-driven initiative.
Ethereum, like Bitcoin, is a peer-to-peer network that is immune to censorship and surveillance. The project’s goal is to make financial services and commerce accessible to all people. This is accomplished by allowing other cryptos to be developed as well as smart contracts to be executed on its platform.
Smart contracts are programs that run automatically when certain circumstances are satisfied and are maintained on a blockchain. Ethereum is more adaptable than Bitcoin because of these features.
For the bulk of the last few years, these two coins have ranked first and second in terms of market capitalization. Many people like to compare these two projects, yet they have more contrasts than similarities. It’s as if you’re comparing apples and oranges.
Similarities between Ethereum and Bitcoin
- Right now, both use POW (proof-of-work) consensus techniques. This implies you’ll have to spend money on electricity and technology to safeguard the blockchain through mining and hash power.
- Both BTC and ETH can be used for peer-to-peer transactions.
- Both of these popular coins are supported by a large number of software wallets.
- Both programs are open source and have thriving development communities.
- They are also considered decentralized because they have a big global network of independent nodes.
Key Differences between Bitcoin and Ethereum
ETH vs BTC: The Beginnings of Projects
Satoshi Nakamoto published the white paper that gave birth to Bitcoin in 2009. There was no crowdfunding, and the initial Bitcoins had to be mined on the Bitcoin network. Satoshi Nakamoto mined around one million Bitcoins, making him the single owner of the most. He, on the other hand, never spent any of his money and vanished from the internet, leaving no one to know who he was.
Its beginning can be traced back to the publication of the Ethereum whitepaper in 2013 by Vitalik Buterin. In 2014, an initial coin offering (ICO) was held in which a pre-mined amount of Ethereum was released to investors who primarily bought in Bitcoin. Vitalik Buterin is still active in the Ethereum project, where he plays a key leadership role. Anthony Di Lorio, Charles Hoskinson, Mihai Alisie, Joseph Lubin, Gavin Wood, and others were among the early leaders.
Use Cases: Bitcoin vs Ethereum
It’s intended to be a peer-to-peer value transfer and storage system. It’s just designed to perform that function. Bitcoin is also the native currency of the network that allows that function to be performed. The cost in Bitcoin is for completing transactions, and it is solely determined by the quantity of the data included in each transaction.
Ether, or ETH, is Ethereum’s native currency. It’s not intended to be a digital currency like Bitcoin, but rather a source of energy for a variety of transactions and services. Ether is more of a utility than a currency. To run the code over the network, you must pay a fee. The Ethereum Virtual Machine aspires to be a decentralized global computer that is spread across the network in nodes. It can store smart contracts that decentralized apps can employ to run, as well as tokens such as ERC 20 tokens that can be used in their own apps with a variety of functions. Decentralized finance and gaming are two of the apps’ most popular uses right now. Even though it is not its primary function, Ether has been used as a digital currency by some.
Language Used for Programming – Bitcoin vs Ethereum
Bitcoin keeps things simple when it comes to the scripting language. It makes use of the script language. This makes the code more resilient while also making it less susceptible to bugs that plague more sophisticated languages. However, this means it can only support simple smart contracts such as Multi-Signature and Escrow. On Bitcoin, more complex contracts are possible, but they require a second layer or a side chain solution. There are now projects working on this, but nothing has been implemented in any way. But, even if Bitcoin can’t handle sophisticated smart contracts, that’s fine because its primary focus, as well as the community’s, is on centralization, censorship resistance, and security. The Bitcoin community considers these to be critical.
The Ethereum scripting language was created with the goal of serving a specific purpose. Ethereum was created as a platform for smart contracts and decentralized apps. As a result, it must be able to handle more complicated logic. The technical term for it is “Turing complete.” This means there could be a broader range of defects in its code, which would be more difficult to uncover in an audit for both the protocol layer and the applications layer. Millions of dollars in Ether or Ethereum tokens have been lost due to various bugs. There is an inherent risk aspect, but it is expected that the added benefits of this powerful logic will surpass the drawbacks. In addition, the Ethereum community is working on measures to mitigate these dangers.
Monetary Policy of Bitcoin and Ethereum
Bitcoin’s supply inflation rate is hard-coded into the protocol. The total number of Bitcoins in circulation will never exceed 21 million. Over 19 million Bitcoins have already been mined, and the emission rate is 12.5 Bitcoins per block, which equates to 75 Bitcoins produced each hour at a rate of roughly 10 minutes per block. The rate is decreased by half every four years. The monetary policy of Bitcoin is regarded as fixed and non-inflationary.
On the other hand, Ethereum is a different cryptocurrency. At the time, there is no stated maximum cap, but it is occasionally reduced during significant network upgrades or Forks. The reward per block was recently reduced from three to two Ethers, and a block is generated every 15 seconds on Ethereum. This works out to be 480 Ethers each hour. Because Ether has no defined maximum supply, it is always rising up in theory.
Consensus Algorithm Used in Bitcoin and Ethereum
The SHA256 proof-of-work algorithm is Bitcoin’s consensus algorithm. ASICs can mine this data (Application Specific Integrated Circuit). ASICs are designed to perform only one type of computational task. As a result, they are able to dominate general-purpose processors such as CPUs and GPUs. In the case of Bitcoin ASICs, they’re designed to be the best at mining their algorithm. ASICs contribute a significant amount of hash power to the Bitcoin network, ensuring that the blockchain is exceptionally secure. A 51 percent attack would necessitate a large number of resources. However, because of the concentration of mining power, some people are concerned that ASICs may lead to decentralization. However, this is a point of contention among the community.
Ethash is Ethereum’s proof-of-work algorithm, which is meant to make mining using ASICs difficult. They make it more accessible to GPUs on your computer that can run graphics more accessible for mining. This method is more decentralized, but it is potentially less secure. POW does limit Ethereum’s scalability because the Ethereum Virtual Machine—the world’s supercomputer—requires a high volume of transactions and complicated logic. The goal has always been to switch to the POW consensus algorithm in the long run. This means you won’t need as much energy or heavy hardware to keep the network running. Instead, the cost is realistically simulated by staking Ether in order to obtain the right to solve blocks and receive block rewards.
Ethereum vs Bitcoin: Transaction Speed
Bitcoin has a transaction rate of 4 transactions per second, and the speed of on-chain transactions is quite slow. This is due to the POW network’s decentralization. Of course, we’ll need a greater throughput to compete with Paypal and credit card firms for mass acceptance. This is peer-to-peer electronic cash in its purest form. The second tier of Bitcoin’s lightning network should be able to handle millions of transactions per second and meet the requirements.
Ethereum, on the other hand, is a little faster, with transactions occurring at a rate of 15 per second. But, at the end of the day, it has the same constraints as Bitcoin. They also have solutions in the work such as sharding, proof-of-stake, and Raiden, which is comparable to lightning, all of which should significantly improve network throughput.
Forks or Network Upgrades Used in Bitcoin vs Ethereum
In terms of network upgrades, or forks, the majority of forks in the Bitcoin realm are soft forks, which maintain backward compatibility. This means that nodes do not need to change their software; they will continue to function normally, and the network will remain unaffected. However, there are controversial upgrades that do lead to a hard fork. Bitcoin cash was created as a result of arguments over block size and Segwit. However, in the Bitcoin world, these are exceedingly rare. One component of maintaining decentralization is keeping the protocol backward compatible, which is why it is a focus and priority in the Bitcoin industry.
Hard forks are frequently used to improve Ethereum, which could raise the danger of chain splits because they are not backward compatible and require you to upgrade. Any nodes that do not upgrade will be removed from the network. Ethereum’s leadership is more concentrated, and the developer community is more coordinated. As a result, there is more consensus on upgrade decisions. This means that in the Ethereum universe, hard forks seldom result in chain splits.
Transaction Models Used in Bitcoin and Ethereum
Unspent Transactions Output Model is one of the transaction models used by Bitcoin. Accounts are not kept on the Bitcoin blockchain. It just keeps track of transactions from one address to the next. The software for the wallet and nodes essentially aggregates the addresses managed by the same private key. Remember that one private key can manage a number of distinct addresses and display your total amount. A wallet is a collection of numerous addresses that hold an amount of Bitcoin that has not yet been spent. As a result, when you make a purchase, you spend the entire amount of those addresses. Now, if spending that amount means you sent more than you intended, the remaining will be forwarded to a “change address”. The UTXO mechanism is designed to strengthen the anonymity of Bitcoin transactions. This implies that your address is known, but you don’t have to provide any other aspects of your identification in order to transact. Now, because of the emergence of chain analysis software, which combines many elements to do tasks such as data science and so on, this does not give complete privacy and anonymity.
Ethereum, on the other hand, is based on the concept of accounts. This is a considerably simpler account concept in which you are given a single Ethereum address that functions similarly to any other account. For everything, a user would use the same address. Of course, you have the option of having two addresses or creating a third. You can, however, utilize them and continue to use them indefinitely. Wallets don’t establish new addresses every time there’s a new transaction, whether it’s a change, a purchase, or something else. However, because the whole history of a user’s account is available, unlike Ether scan, where the address is coupled to the user’s identity, this simplified paradigm equals less privacy and anonymity.
Bitcoin vs Ethereum: FAQs
Is it preferable to invest in Bitcoin or Ethereum?
Ethereum is more than a cryptocurrency from a technical standpoint. The Ethereum network serves as a marketplace for users to buy and sell decentralized applications and items. Ethereum may be a suitable alternative for you if you’re looking for more than just a cryptocurrency.
What is the most significant distinction between Ethereum and Bitcoin?
The distinction between Ethereum and Bitcoin is that Bitcoin is merely a currency, but Ethereum is a ledger technology that is being used by businesses to create new programs. Both Bitcoin and Ethereum are based on blockchain technology, but Ethereum’s is significantly more reliable.
Is Ethereum going to outperform Bitcoin in terms of value?
Analysts have predicted that the price of ETH will be even more unpredictable than that of Bitcoin in the next months, owing to Ethereum’s move to a less energy-intensive version known as Ethereum 2.0 among insiders. Upgrades to Ethereum may make it more desirable and long-lasting.
Is it possible to run Bitcoin on Ethereum?
Bitcoin is not recognized as a currency on the Ethereum platform. Ethereum and Bitcoin have their own protocols and processes that are unrelated to one another. This means that some transactions may be permitted on one platform but not on another.
What will happen to Ethereum after version 2.0 is released?
The Ethereum 1.0 chain, in particular, will become one of the 64 shards that make up Ethereum 2.0. This indicates that the whole data history will be kept. This means that ETH holders do not need to take any action to transfer their ETH from the 1.0 chain to the 2.0 chain.
Ethereum and Bitcoin are more distinct than you would think. This isn’t to say that one is superior to the other. The majority of them are related to various applications and use case scenarios. Their various design and development goals are also reflected in their differences in design and development. Bitcoin and Ethereum aren’t even attempting to compete; instead, they’re attempting to meet different needs. It’s vital to understand the distinctions and implications as users and investors so you can make better decisions about your personal investment goals and what you want to do if you do want to utilize cryptocurrencies for various purposes.
Let me know what you think about our article in Bitcoin vs Ethereum? I hope it now clear how Bitcoin and Ethereum are different.