Bitcoin vs Ethereum: Differences Explained
As an active crypto investor or follower, you must have heard about the Bitcoin and Ethereum cryptocurrencies several times, whether on the financial debate, in the media, or saw it listed on crypto exchange apps like Fasset and others. Although both Bitcoin and Ethereum appear to be similar types of cryptocurrencies, there are considerable differences that set them apart.
Also, if you are unsure whether to buy Bitcoin or Ethereum, or whether to invest in Ethereum or Bitcoin, this article will certainly assist you in making an informed investment decision. In this blog, we will discuss the key similarities and differences between Bitcoin and Ethereum.
But, before we get into the differences or similarities, let’s first get an overview of Bitcoin vs. Ethereum.
Ethereum Vs Bitcoin– An Overview
Bitcoin and Ethereum are two of the most valuable cryptocurrencies in the digital world, with respective market capitalizations of $859.84 billion and $388.04 billion as of February 2022. Given that they are two of the most valuable digital assets, Comparisons between them are natural. Furthermore, both of these tokens are decentralized. This means that no government or institute has authority over or regulates these cryptocurrencies.
Both Bitcoin and Ethereum are traded on cryptocurrency exchanges such as Fasset and follow a similar trading process.
On the one hand, Bitcoin– the first and original cryptocurrency, was designed to be a substitute for existing currency and thus a medium of exchange and a store of value.
Ethereum, on the other hand, is a decentralized, open-source blockchain with smart contract functionality– a computer program or a transaction protocol that allows you to transfer cryptocurrency to anyone for a nominal cost. The technology enables the execution of smart contracts and the development of decentralized applications (dApps) with no downtime, fraud, control, or third-party interference.
Bitcoin and Ethereum are both based on Blockchain technology. For the uninitiated, a blockchain system is designed to store transaction information in such a way that it becomes virtually impossible for anyone to delete or edit the data. In other terms, Blockchain is a digital ledger or a digital record of transactions.
However, in addition to these similarities, there are several differences between Bitcoin and Ethereum. But, in order to understand those distinctions, we must first get a brief introduction to Bitcoin and Ethereum.
What Is Bitcoin?
Bitcoin is the first virtual currency with the largest market share and value. It is a digital currency that was created to solve all of the challenges associated with the present currency or payment system. Every transaction we conduct today is approved or processed by banks or other appropriate agencies.
And they charge transaction fees for this service. Moreover, the existing system has various limitations, such as non-transparency, inadequate security, and others. All of these problems have given rise to the concept of creating a system without any middleman or financial institution.
In 2008, Satoshi Nakamoto– an anonymous programmer, proposed a solution. He proposed a currency system that would address all of the current payment system’s problems, including transaction costs, security, and transparency.
Bitcoin is a decentralized, public ledger. Users can sneak a peek into the ledger at any time and view all of the transactions and balances that are taking place. In addition to being transparent, Bitcoin is also decentralized and hence incredibly safe.
More than one computer stores a copy of the ledger, commonly known as the blockchain. This means that if you want to hack or take down the system, you must do so on thousands of computers at once, which is close to impossible.
So, that’s a quick rundown of what Bitcoin is. Let’s now take a closer look at Ethereum.
What Is Ethereum?
As previously stated, Ethereum, commonly known as Ether, is the world’s second-largest digital currency. Vitalik Buterin– the co-founder of Bitcoin Magazine, proposed Ethereum in November 2013 and brought it to life in 2014.
Ethereum is an open-source platform for decentralized applications (dApps), also known as decentralized programs. Using the Ethereum programming language Solidity, one can create a decentralized application that no single individual can control– not even the creator itself.
The Ethereum programming language Solidity is used to create “Smart Contracts” that run the dApps. Once a smart contract is deployed on the Ethereum network, it cannot be modified or corrected — it is permanent. The only way to update the program is to convince the entire Ethereum network, which is almost impossible.
In a nutshell, Ethereum is a fully decentralized platform or infrastructure for hosting decentralized applications (dApps) worldwide. The Ethereum platform’s purpose is to decentralize the internet altogether, give users more control over their data and allow them to transfer cryptocurrency to anyone for a minimal cost.
Ethereum’s applications are fueled by its native currency, Ether (ETH). Ether is primarily used for two purposes: first, it is traded as a digital currency on crypto exchange platforms, and second, it is used to power applications on the Ethereum network.
That is the very core of Ethereum. So let’s proceed to the next section to better understand the similarities between Bitcoin and Ethereum.
Similarities Between Bitcoin & Ethereum
The four primary similarities between Bitcoin and Ethereum are their decentralized form, the fact that they are both cryptocurrencies, that they leverage blockchain technology, and that they are both easier and faster to exchange. Let’s take a quick look at each of these similarities.
A. Digital Currency
Bitcoin and Ethereum are two of the most valuable cryptocurrencies in terms of market value, and they can be traded and transferred to one another via cryptocurrency exchange platforms. Also, like other cryptocurrencies, both cryptocurrencies– Bitcoin and Ethereum are highly volatile. For this reason, it is recommended that you conduct your own research or seek expert advice before investing in.
B. Decentralized Finance (DeFi)
Bitcoin and Ethereum are both examples of decentralized finance. This means that none of these cryptocurrencies rely on any government authority, central bank, or broker to perform transactions. Moreover, every transaction information is kept on thousands of computers worldwide, making it nearly impossible to edit or erase the data.
C. Instruments of Investment
Another thing that Bitcoin and Ethereum have in common is that they are both investment instruments. These cryptocurrencies outshine traditional investment tools in terms of returns. For example, during the financial year 2021-22, Bitcoin gave a whopping return of 800 percent. However, it is recommended that you study local or federal regulations and taxes before investing in cryptocurrency.
D. Based On Blockchain
To store transaction information, both Bitcoin and Ethereum use blockchain. Blockchain technology is a distributed ledger that is shared among computer network nodes. Using this technology, Bitcoin or Ethereum transaction data remains secure and decentralized.
These are the four most significant similarities between Bitcoin and Ethereum. Just as similarities, there are several differences between these two cryptocurrencies too, as explained below.
Ethereum Vs Bitcoin– The Major Differences
Despite the fact that both the Bitcoin and Ethereum networks are based on the principles of distributed ledgers and cryptography, there are multiple technical and non-technical factors that distinguish them.
1. Bitcoin Vs. Ethereum– History
The concept of Bitcoin was first published in a white paper in 2008 by an anonymous figure or group of people under the alias Satoshi Nakamoto. However, the currency was first used in 2009 when its implementation was made available as open-source software. Since then, Bitcoin has grown tremendously to become a significant store of value.
Crypto Fact: In 2010, Laszlo Hanyecz spent 10,000 Bitcoins at a local pizza business called Papa John’s to purchase two pizzas. His Bitcoins were worth only $40 at the time!
When it comes to Ethereum– Vitalik Buterin– a Russian-Canadian programmer, founded Ethereum in 2013 with co-founders Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin. Development work began in 2014 and was crowdfunded, and the network was live in 2015.
Just like Bitcoin, Ethereum can be used as a digital currency and a store of value. However, in addition to this, the Ethereum network also facilitates the development of decentralized apps and the execution of smart contracts.
2. Bitcoin Vs. Ethereum– Mining
At present, both bitcoin and Ethereum use the proof-of-work consensus protocol (PoW). However, later in 2022, Ethereum will transition to a different system known as Proof of stake (PoS). In the case of PoW, miners must compete to solve a puzzle using their computers’ processing power in order to add a block to the chain.
In the case of PoS– a protocol used by Ethereum– there is no such competition since an algorithm chooses the creator based on the user’s stake. Moreover, in the case of proof-of-stake (PoS), the miner who solves the block’s puzzle first receives the reward. On the other hand, there is no concept of rewards in PoS. Instead, miners only take transaction fees.
The PoW network consumes a lot of energy since it requires high-powered computers to solve puzzles that validate transactions. On the other hand, Proof of stake (PoS) networks use significantly less energy.
3. Ethereum Vs Bitcoin– Purpose
Following the Great Recession of 2008, Bitcoin was created in 2009. Nakamoto designed Bitcoin with the goal of providing the world with an alternative payment system that is fast, secure, and protects the world from inflation. The idea was to build a payment system that does not require involvement from a central bank, government authority, or broker but works and can be used the same way as traditional currencies.
Ethereum was created in 2015 by Vitalik Buterin– a programmer and co-founder of Bitcoin Magazine, with the goal of developing decentralized applications (dApps). It is also the largest open-ended decentralized software platform that allows the development of decentralized apps as well as facilitates the deployment of smart contracts.
In a nutshell, the Bitcoin blockchain was created solely to serve the Bitcoin cryptocurrency. In contrast, the Ethereum blockchain was designed to support both the Ethereum cryptocurrency and the development of dApps.
4. Bitcoin Vs. Ethereum– Supply Cap
Bitcoin has a maximum supply of 21 million coins. This limitation or cap is encoded in Bitcoin’s source code and enforced by network nodes. This means that no further Bitcoins can be mined once the 21 million Bitcoins have been mined.
The hard cap on Bitcoin is key to its value proposition as both money and investment. As of 2022, about 19 million of these Bitcoins have been mined, and with the same mining pace, the last Bitcoin is predicted to be mined in 2040.
Unlike Bitcoin, the Ethereum cryptocurrency has an unlimited supply but a maximum yearly supply cap of 18 million ETH.
5. Bitcoin Vs. Ethereum– Price History
First, let’s take a look at how the Bitcoin cryptocurrency has performed over time.
Bitcoin was priced at $5.27 in 2012.
In 2013, the price went up from $150 in October to $200 in November, eventually reaching $1,242 on 29th November.
In 2017, Bitcoin achieved a new high of $1,402.03 on 1st May 2017 and an all-time high of $19,783.06 on 17th December.
On 8th January 2021, Bitcoin reached a high of $41,973 and an all-time high (ATH) of $64,800 on 14th April. The same year, Bitcoin reached an all-time high of $66,974.77 on 20th October 2021.
In January 2022, Bitcoin’s price fell about 50% from all-time highs to below $35,000.
Now let’s take a look at how the Ethereum cryptocurrency has performed over time.
In June 2017, Ethereum was priced at $288.28, up from $75.07 in April 2017.
In 2018, the Ethereum price reached an all-time high of $1066 on 18th January but closed the year at $131, continuing its downward spiral.
Until July 2020, the price remained in the $200-$300 range.
The upward spiral, which began in August 2018 and ended in November 2021, has moved the Ethereum price to an all-time high of $4,426.74.
In the next three months, the Ethereum price fell about 50% from it’s all-time highs to below $2,600.
6. Bitcoin Vs. Ethereum– Crypto Market Share
Bitcoin maintains its market dominance, accounting for about 40% of the market in January 2022. However, it has shrunk from 70% at the beginning of 2021 to 40% in January 2022. At the same time, Ethereum’s market share nearly doubled in a year, rising from 13% to 27%. In February 2022, the overall market cap of Bitcoin is $859.84 billion, while Ethereum has a market cap of $388.04 billion.
The following are Bitcoin and Ethereum statistics as onFebruary 2022.
Bitcoin (BTC)
Price: $43,970.46
Market Cap: $833,676,269,713
Circulating Supply: 18,959,918 BTC
Ethereum (ETH)
Price: $3,121.76
Market Cap: $373,370,642,828
Circulating Supply: 119,602,505 ETH
These are the six primary differences between Bitcoin and Ethereum. Although most of them are technical, they are important to keep in mind as they will eventually help you understand these two of the top cryptocurrencies better and allow you to trade more profitably.
Now the question is, which cryptocurrency should you buy: Bitcoin or Ethereum?
Bitcoin Vs. Ethereum– Which One To Buy or Invest In?
Well, there is no simple or one-size-fits-all answer to this question. First, we must understand that Bitcoin and Ethereum are not competitors. Instead, both have fundamentally distinct concepts and purposes. Bitcoin, for example, is both a store of value and a medium of exchange. Ethereum, on the other hand, is a programmable blockchain that hosts decentralized applications (dApps).
In a nutshell, both cryptocurrencies– Bitcoin and Ethereum– have excellent fundamentals, and the future seems promising. That means you can invest in Bitcoin as well as Ethereum. However, in order to maximize profits, it is suggested that you get a basic understanding of cryptocurrency concepts such as Metaverse coins, stable coins, altcoins, and so on.
You can also use these tips and techniques to maximize your returns on cryptocurrency. Above all, before investing in cryptocurrencies, conduct your own research or consult a professional advisor.
Read our previous blogs to learn more about cryptocurrencies, virtual worlds, NFTs, digital assets, blockchain, and other topics. To begin your cryptocurrency investment journey, simply register with Fasset, select a payment method, and start trading.