Bitcoin vs. Ethereum
Bitcoin and Ethereum both reside within the top list of cryptocurrencies by market cap, price in the market and popularity. But despite these seeming commonalities, it's vital to understand that these two digital assets and their native platforms, a.k.a. blockchain networks, are crucially different.
Both cryptocurrencies are proclaimed not to be securities by the Securities and Exchange Commission (SEC), unlike the rest of the crypto assets in the market that are yet to be reviewed and ruled. However, the two assets share more differences than similarities, and each of these cryptocurrencies comes with advantages and disadvantages as well.
What are the main differences between Bitcoin and Ethereum, and in what ways do the two digital assets differ in protocols, mining process, transaction validation, block time, and application?
Bitcoin vs. Ethereum: Differences
Even if you have never used or owned cryptocurrency, you must have heard of Bitcoin – the first and the original coin that started the entire craze for cryptocurrency, bringing blockchain technology to mainstream attention along with it. Bitcoin represents a digital asset that poses as a currency given the fact that Bitcoin may transfer and hold monetary value across blockchain. The first and the top crypto by market capitalization was created and launched in 2009; however, its creator remains unknown, launching Bitcoin under the alias Satoshi Nakamoto.
According to the white paper of Bitcoin, the main idea was to create an alternative way of transferring monetary value under fees that would be lower compared to fees taken by banks, while the main authority of the network is to remain decentralized, presenting an open-source network with miners as the spinning wheel of Bitcoin’s transaction mechanism and validation protocol.
In official terms, Bitcoin is described as “a peer-to-peer electronic cash system,” which accurately clarifies its purpose. With Bitcoin, users may transfer funds in the form of Bitcoin units (satoshi) in minutes as opposed to having banks take days to complete transactions, and under significantly lower fees, all while miners are working on validating blocks during transactions.
Ethereum appeared five years after Bitcoin’s debut, while the crypto market was still going through its humble beginnings. It presented not only as a currency like Bitcoin did, but also as a network created for smart contract applications. Ethereum played a major role in the development of blockchain-based platforms, with Ethereum head Vitalik Buterin proving that blockchain can do more than transact monetary value across chains from one user to another. With the creation of smart contracts, Ethereum opened a new world of opportunities for developers and blockchain enthusiasts, also bringing Dapps — decentralized applications — to the scene.
The CEO and creator of Ethereum, Vitalik Buterin, describes Ethereum and the blockchain platform behind it as “supercomputer,” considering Ethereum to be far different from Bitcoin aside from sharing a decentralized nature and crypto market liquidity.
In addition to allowing the creation of various decentralized applications, Ethereum network also acts as a hosting network for tokens that don’t have a native blockchain platform, additionally encouraging the creation of valuable tokens. Summing up the differences between the two top cryptocurrencies in the market, the way Ethereum differs from Bitcoin can be explained by calling Bitcoin a peer-to-peer cash system, and while Ethereum has the integrity of a supercomputer made for smart contract operations in addition to transacting value.
While the term Bitcoin represents both the currency and the platform, the name Ethereum is related to the platform while its native currency is called Ether (ETH). Even though both networks use Proof of Work protocols, the specific protocol that Ethereum network uses is a version of PoW called “Ethash”. This version of Proof of Work provides advantages for average miners that don’t use expensive mining equipment such as ASIC miners, also requiring more memory to deliver this intended purpose.
Bitcoin vs. Ethereum: Advantages and Disadvantages
When discussing the advantages and disadvantages between Bitcoin and Ethereum, we may start from an integral part: validating transactions.
Bitcoin transactions are validated through the process of mining, which involves solving mathematical equations in order to validate transactions and collect rewards in the form of Bitcoin units (satoshi). Miners are at all times competing with mining equipment which makes Bitcoin mining extremely centralized and reserved only for those with the most advanced ASIC miners, meaning that mining companies hold a monopoly over Bitcoin mining. This is considered to be Bitcoin’s major disadvantage, given the fact that miners competitiveness may cause transaction fees to rise proportionally with the energy used for solving mathematical equations. Ethereum changed their PoW protocol to address the competitiveness in mining.
Ethereum, on the other hand, is planning to change its protocol from Proof of Work to Proof of Stake, which, as the name may suggest, relies on staking rather than mining for validating transactions. The future version of the network with a changed protocol should gain an advantage in terms of having a more efficient protocol that chooses validators based on their stakes — similar to voting rights in a company that offers shares — and rewarding stakers with ETH.
Additionally, Ethereum has an advantage in the time needed for a transaction to be completed, taking approximately 15 seconds as opposed to 10 minutes, which is the time needed for a Bitcoin transaction to be validated and transacted from one party to another. This refers to the block time of the two networks, where Bitcoin takes minutes as opposed to Ethereum’s block time taking only seconds.
The point where Bitcoin has an advantage is in terms of security. While Ethereum had a major and notorious security breach where the DAO system was affected, with millions in ETH stolen, Bitcoin’s security prevents such security attacks. The fact that both networks have scalability issues and may experience delays is about to change, at least for Ethereum, as developers are working on creating a viable solution that should address the issue of scalability.
Despite the advantages and disadvantages that both networks have, the purpose and application of the two is integrally different. Because of that, comparing Bitcoin and Ethereum only serves the purpose of emphasizing the major differences between these top cryptos.