What is the difference between Bitcoin and Ethereum

Bitcoin is the first working cryptocurrency to appear; as such it quickly amassed a considerable following and remains up until now the most expensive digital asset in the world. Vitalik Buterin, the founder of Ethereum, drew his inspiration from the success of Bitcoin, and eventually developed Ethereum to be the closest Bitcoin’s rival with the market capitalization of 234B as of now.

Even if you were previously interested only in the financial performance of those two coins, it is important to understand: ‘How is Ethereum different from Bitcoin?’ It gives you a better perspective on the price potential of the two cryptocurrencies.

Just to be sure that we are on the same page: Ethereum and Bitcoin (starting with capitals) refer to the underlying technologies of respective cryptocurrencies. Ether (ETH) and bitcoin (BTC) refer to the currencies themselves.

From a practical point of view, Ether and bitcoin are pretty much the same: both are the units of value that one can trade or exchange like fiat money. As for the technologies involved, the stuff gets geeky. What is the difference between Ethereum and Bitcoin? Here is our take.

How is Ethereum different from Bitcoin

Taking the general similarities into account is indubitably useful, and we will get down to it in this article, too. What makes Ethereum different is primarily its support of smart contracts and the possibility to create custom user-made tokens. The tokens cannot leave the Ethereum blockchain.

Ethereum is faster in terms of transaction confirmation, too. The slowness of the Bitcoin blockchain is not necessarily a disadvantage: one could say that it makes bitcoins more suitable as a store of value. Ether has no max supply limit: the implementation of this is that it is cheaper but users are more willing to spend it.

Cryptographic functions of Ethereum and Bitcoin are different, too. Ethereum uses ethash while Bitcoin runs SHA-256 hashing function. Ethash was designed specifically for Ethereum. The rationale behind its creation was, in general, to target the known downsides of SHA-256. For example, its clumsiness and the ease of ASIC mining.

Smart contracts allow you to fully automate the following tasks that would otherwise involve paperwork and lengthy bureaucratic procedures:

  • Identification;
  • International trade;
  • Documentation;
  • Government;
  • Logistics;
  • Dividend disbursements.

The other possible application domains include insurance, medicine, and banking. In other words any kind of financial operation and the exchange of related data becomes fast, secure, permanently recorded into blockchain, and independent from third-party witnesses with the introduction of smart contracts.

The tasks that involve manual labor are vulnerable to human error. Automation decreases the chance of error to virtually zero. For example, when you file taxable incomes in detail.

How is Ethereum different than Bitcoin? Obviously, smart contracts constitute a major difference.

Transparency is another advantage of smart contracts. As soon as a deal is struck, it is recorded with all the related metadata for everyone to see. The data may pass further down a pipeline.

What does it mean that a smart contract “runs on the blockchain”? Ethereum miners contribute their computing powers to the network. They don’t just append new blocks and verify the integrity of blockchain, they execute smart contracts.

Bitcoin, on the other hand, is merely a public ledger. The platform has limited ability to work with smart contracts, which is why Vitalik Buterin was so disheartened by it.

So far the price of Ether increases more rapidly than the BTC price. Ether’s price has been rising approximately three times faster than bitcoin’s during the last year. If you knew the answer to the question, ‘What is the difference between Bitcoin and Ethereum?’ you would be able to predict the domination of Ether on the market years ago.

What is the difference between Ethereum and Bitcoin

Ethereum is about six years younger than Bitcoin, if this counts as a significant difference. What is the difference between Bitcoin and Ethereum aside from that?

Actually, there is one upcoming difference. Ethereum prepares to launch its notorious EIP-1559 upgrade that aims to move the whole network to the proof-of-stake consensus and even out the fees.

Currently, Ethereum uses the proof-of-work consensus: the more computing effort a miner has put into competing for the right to sign a new block, the higher the chance they’ll actually do it – for the block reward and for the gas fees the users have included into their payments. During the network congestion, miners select only the highest-paying transactions, leaving out the rest to wait in line. Bitcoin acts in the same way, although it does not see that much traffic demand.

When the Ethereum network load spikes up, users either pay humongous fees or wait up to a few days! For that reason, the Ethereum dev team introduced a fixed base fee to uniform the expenditures after update. There will also be an optional premium fee so that the users know the upper limit of their fees. The base fee is meant to burn, creating a mechanism for Ethereum deflation (possibly increasing the price through decreasing the proposition of Ether on the market); the premium fee will go straight to the miners / validators.

More importantly, proof-of-stake will lead to the dramatic decrease of Ethereum network energy consumption. You’ve heard that Bitcoin consumes more power than Sweden or Argentina, right? Scaling the network would harm the environment even more. If not for the sake of the environment, make a technology energy-efficient for the sake of common sense.

Network sharding is another innovation that addresses Ethereum’s scalability and speed issues. Instead of operating as a single entity, blockchain will be divided into fractions to distribute the load.

How is Ethereum different than Bitcoin

Constant innovation, scaling, the network congestion associated with CryptoKitties, NFTs, or Tether – this is what makes Ethereum more advanced and versatile than Bitcoin.

Is Ethereum generally better for all use-cases? No. Bitcoin is still considered digital gold, no matter how volatile or slow.

After all, it is not only about, ‘How is Ethereum different from Bitcoin?’ Both of the cryptocurrencies have paved the way for fast, safe, open, decentralized, and fair finance of the future.


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