Difference Between Bitcoin and Ethereum - The Largest Cryptocurrencies

Bitcoin and Ethereum are the two names that often pop up when someone mentions cryptocurrency. They are the two largest cryptocurrencies, but they are also quite different. Bitcoin today is mainly used as a store of value and is often referred to as digital gold. Ethereum, on the other hand, is a much more comprehensive blockchain, complete with its own programming language for development.

Both play a huge role in the fast-maturing decentralized ecosystem. And in this guide, we'll take you through the key differences between the two blockchains to help you understand them better.

A Primer on Bitcoin

Bitcoin

The idea behind Bitcoin was first set out in a 2008 whitepaper by a person under the pseudonym 'Satoshi Nakamoto.' Bitcoin then launched in 2009, with a goal to challenge the existing financial ecosystem.

Instead of relying on central institutions like banks, Bitcoin made transactions peer-to-peer. All transactions would be recorded on a public ledger and then verified by multiple computers, known as Bitcoin nodes. After that, the transaction is made permanent. It is visible to everybody on the internet, but it still can't be altered, as the power needed to do that is almost impossible to acquire for a single person or entity.

The early popularity of Bitcoin set the stage for new blockchains and cryptocurrencies, and the ecosystem has continued to grow.

A Primer on Ethereum

Ethereum

Ethereum was launched in 2015 after it was conceptualized in 2013 by developer Vitalik Buterin. But instead of competing with Bitcoin, it drew inspiration from it to create a larger decentralized ecosystem.

The blockchain makes it possible to create apps and processes that are powered by small programs of code, known as smart contracts. People can use decentralized apps (dApps) built on the platform to do a wide variety of tasks, with Ether (ETC) as the platform's currency.

It's often called "the world's programmable blockchain" and has inspired many other technologies, including decentralized finance (DeFi) and non-fungible tokens (NFTs).

The Key Differences Between Bitcoin and Ethereum

Both Bitcoin and Ethereum are blockchains, and they both have their cryptocurrencies (BTC and ETH). But as you can derive from above, they work differently, and their goals are different.

Functionality

Use and Functionality

The Bitcoin blockchain was created to facilitate the generation of digital cash in the form of BTC. Its main goal was to take back user control from financial institutions, and it has largely achieved that. It has also continued to grow and become a store of value due to its relative stability and continued value gain. Most people holding cryptocurrency long-term are holding Bitcoin.

On the other hand, Ethereum was created to facilitate the use of decentralized apps and smart contracts. It has been used to create a wide array of decentralized products and services, ranging from lending and borrowing to music distribution.

In fact, its co-founder, Gavin Wood, is credited with coining the term "Web3." The blockchain's crypto, Ether, has the main purpose of monetizing these operations.

Consensus Mechanism

Consensus Mechanism: Proof of Work vs Proof of Stake

Bitcoin operates on a consensus mechanism known as proof-of-work (PoW), which is a network-wide competition to solve a cryptographic problem. But to stand a chance to win, users have to provide computational power for validating transactions, with the winner then adding a verified block for a reward. The computational power is the "work," but this also means that Bitcoin mining is energy-intensive.

Ethereum also launched with the same consensus mechanism, but it always had a plan to move to a more energy-efficient system. It finally did on September 15, 2022, when it migrated to a Proof-of-Stake (PoS) mechanism.

In this system, power is substituted with staking. People stake their Ether (ETH) and can then take part in validation. You don't have to do so directly (it would require 32 ETH), as you can join a pool with other validators and earn from it.

Economics

Supply and Economics

Bitcoin has a hard cap of 21 million coins, which is the maximum number of coins that can be in supply. This creates a scarcity model that continues to increase its value, and it has contributed to the crypto being referred to as digital gold. To limit supply, it halves the number of Bitcoins created every four years. This recently happened on April 20, 2024, when the block reward decreased from 6.25 BTC to 3.125 BTC.

Ethereum doesn't have a limited supply. Instead, it uses more dynamic methods to balance supply and demand. For every transaction, a portion of the 'gas fees' is 'burned,' which removes them from supply. The rate of burning can be low or high depending on the amount of ETH in supply.

Transaction Times

Transaction Times

Ethereum is much faster in transaction times compared to Bitcoin. Bitcoin usually adds a block approximately every 10 minutes, which means your transactions can take a minimum of that time to be confirmed. Finality, which ensures that the transaction can't be reversed, needs about 1 hour.

Ethereum only takes 12 seconds to validate a block, which makes it much faster. Finality takes about 13 to 15 minutes.

Different Roles, One Bigger Picture

While BTC and ETH are the most popular cryptocurrencies, they aren't necessarily competitors. Bitcoin is more of a store of value due to its scarcity and security. On the other hand, Ethereum is mostly used as a platform for decentralized products and services. If you are just getting started, you'll probably need both, as the two are a key part of the decentralized ecosystem. Get Bitcoin to gain from its price increases, and join Ethereum for decentralized finance (DeFi) services.

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