Bitcoin VS Ethereum: What’s the Difference?

By April 19, 2021DApps
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Bitcoin vs Ethereum

Bitcoin and Ethereum are the two most popular cryptocurrencies available today. We’re starting to hear both of them appear in the news more and more every day. And there’s a clear reason why: Bitcoin has a market cap of over $1 Trillion, and Ethereum has a market cap of $230 Billion. But what are the differences between the two? And is one better than the other? I’m glad you asked, because that is what today’s article is about. Keep reading to learn more about Bitcoin vs Ethereum!

Before we get into the differences between Bitcoin and Ethereum, we need to know more about both cryptocurrencies first.

What is Bitcoin?

Bitcoin is a decentralized digital currency, which means that it is not physical, and not tied to or controlled by any governments or agencies. Bitcoin is created through mining, which is when a computer is set up to solve increasingly challenging equations, thus becoming a “node” in the Bitcoin network that verifies transactions. When a computer (owned by a miner) solves the equation, they are given a set reward in Bitcoin after the block that they solved gets validated by the existing Bitcoin ledger. This is part of what makes Bitcoin so secure. The entire network runs on the digital currency BTC (Bitcoin). This will be important to note later.

Now that the Bitcoin has been mined, it exists in a wallet. There are several different types of wallets, but what is important to note is that the crypto is still always digital. It exists in a string of characters with a passcode needed to access the Bitcoin associated with that wallet. From there, Bitcoin can be converted into cash, sent to other wallets anywhere on the globe without the use of a bank, or you can HODL your Bitcoin as a store of value. More and more merchants are also accepting Bitcoin as a means of payment as well, so in some instances it can replace your fiat currency. There is so much more to Bitcoin than just this, which was covered in our comprehensive guide.

How is Bitcoin Used?

As briefly mentioned above, Bitcoin has two primary uses: a store of value, and a peer-to-peer currency that can be transferred easily.

Store of Value

The most common use for Bitcoin right now is as a store of value. This is why you hear Bitcoin being nicknamed “digital gold.” Because of its limited supply and increasing difficulty to mine, it naturally limits the amount of Bitcoin in circulation, making it a limited asset, similar to gold.

Since there is increasing demand to own Bitcoin and a limited supply in circulation, Bitcoin’s value has been increasing. That can be seen most clearly during Bitcoin’s wild ride in 2020 to a massive all time high. Everyone was trying to get a piece of the limited supply of “digital gold,” which pushed the price up over 100%. Also just like gold, investors are beginning to flock to Bitcoin during times of market uncertainty, specifically revolving around increasing concerns of inflation of the U.S. dollar.

P2P Digital Money Transfers

The other primary use for Bitcoin is a peer-to-peer currency transfer system. It is extremely easy to send Bitcoin to anyone. All you need is their wallet, your wallet and the keys. There is no red tape or high fees that are put up by the traditional banking system. Additionally, it can be transferred into cash using exchanges or Bitcoin ATMs if you’re looking to have physical cash. Transactions are usually confirmed on the Bitcoin network in less than 30 minutes, making this an attractive option to those looking to move currency around easily without being slowed down by banks.

What is Ethereum?

Now that we’ve covered a brief overview of Bitcoin, let’s turn our attention to Ethereum. What exactly is it? Well, Ethereum is actually the name of a blockchain network, i.e. the Ethereum Network. This network is powered by the cryptocurrency called Ether. So just like the Bitcoin Network runs on BTC, the Ethereum network runs on ETH (Ether). This network operates in a similar way that Bitcoin does, but it is more advanced and much faster.

Ether is still mined like Bitcoin is, where transactions are verified and rewarded with new currency. The difference is that there is no cap of how much Ether can be mined, unlike how Bitcoin has a limited supply. Once this Ether is mined, it can be used to power smart contracts and decentralized applications. Now, that all sounds super technical, but we’ll be breaking it down next.

How is Ethereum Used?

The best way to further explain the Ethereum network is to examine it in action. As mentioned above, there are two primary uses for Ethereum: Smart Contracts and Decentralized Applications.

Smart Contracts

Ever wanted to pay someone for a job, but not until you knew the work was done? Or have you ever worried that after you finish a job for someone, they may just withhold the payment they promised you? That’s where the Ethereum blockchain network comes in. It is created so that a transaction can only happen after specific outlined conditions are made.

Let’s play this out with an example:

Suppose you wanted Bob to make you a burger, but only wanted to pay after you got your burger. The burger costs $5, so if you don’t have $5, you should not be able to have Bob even make you a burger at all. You would set up a smart contract that would look something like this:
IF you have $5, then you can request Bob to make you a burger. After the burger is made, THEN you pay Bob $5.

Once a contract is created, it can not be changed. So with Ethereum, you don’t have to trust the individual, both individuals need only trust the network!

Decentralized Applications

The other main use for Ethereum are Decentralized Applications (dApps). These apps build off of the smart contract system to deliver versions of some of the apps you already know and love, in a decentralized way. Here are two examples of this in action.

Google Stadia is a new way to allow everyone to game, powered by Google. Users sign up and can access the computing power of Google’s machines to power the game, and just have it streamed to their local device. In a similar way, Golem, a dApp, allows you to join a network of users that are renting their spare computing power on their local machines for you to use. Same model (just not used for gaming), with no centralized hub like Google that controls all the computing power.

Venmo allows you to send money to others. However, Venmo acts as a middleman between the banks of both individuals. In a similar fashion, Tornado Cash, a dApp, allows you to send anonymous peer-to-peer payment. Instead of moving the money themselves, this application simply tells the Ethereum blockchain what to do with your smart contract, based on what you say. No developers or anyone at Tornado can change your contracts, and there is no single entity that is confirming the transactions. Instead, the transactions are confirmed by the entire network.

To put it in the simplest terms, dApps give users a similar experience to what they would have with several prominent apps that are already made, just in a way that removes the single source of verification/power.

Bitcoin VS Ethereum

Now that we have a clearer understanding of how Bitcoin and Ethereum work and what they each do best, we can start to look at the main differences between the two. Where these cryptos differ the most is in how they are created, how they are used, and the future possibilities for each of them as the crypto industry matures. Bitcoin vs Ethereum… Fight!

How they are created

The first major difference appears with the creation of each cryptocurrency. For starters, Bitcoin can only be created through mining, which is a process of solving equations and adding the solutions to the Bitcoin blockchain. There is a limited supply of Bitcoin and the only way to obtain one if you don’t mine is to purchase it second hand.

Let’s compare that to the Ethereum network. You can generate Ether in a similar mining fashion, but there is an unlimited supply of Ether. Additionally, Ethereum is also switching to a Proof of Stake (PoS) model, where instead of the Ether miners confirming transactions, random users with high amounts of Ether in their accounts will confirm the transactions.

How they are used

The largest difference between Ethereum and Bitcoin comes with how they are used. As mentioned earlier, Bitcoin corresponds most closely to security. It is near impossible to hack, and it is increasing in value, with a limited supply and rising demand. The downside to Bitcoin is that transactions take a while to process on the network (about 30 minutes). These factors make it most useful to either hang on to, or use for transactions/transfers periodically.

Ethereum, on the other hand, takes just seconds to confirm transactions. This makes the Ethereum network operate as more of a database or utility. The point of Ether is not to be the end-all be-all. The true point of Ether is to power a network that can be an infrastructure that other companies can build on top of, which you can’t do with Bitcoin as easily. The Smart Contracts feature is not in the Bitcoin network, and the speed is much slower.

Future possibilities

As we conclude our discussion of Bitcoin VS Ethereum and the differences between the two, let’s spend the last bit of time taking a look at the differences in futures for both currencies.

Bitcoin

Bitcoin is continuing to mature, and it is more widely accepted as a store of value now. Over the past year, several large financial institutions have begun allowing their investors to start investing in Bitcoin through them. Additionally, more merchants are accepting Bitcoin as a method of payment.

Bitcoin will continue to pave the way for greater crypto adoption, while also being a legitimate form of currency and store of value.

Ethereum

Ethereum is maturing, and it is picking up where Bitcoin left off. Under the shadow of Bitcoin, the Ethereum network will pave the way for a whole new era for crypto. With faster transaction times, dApps and smart contracts, Ethereum has the potential to be a major backbone of the future of the crypto industry. It can be the foundation for changing the way contracts are created and completed in a multitude of industries.

Wrapping up, many people may be wondering, “But should I invest in Bitcoin or Ethereum?” While each investor must make the decision for themselves, we hope this article can provide some clarity about the value that both currencies have, and the future they could both bring. We shouldn’t think of Bitcoin or Ethereum as superior or competing with one another. In fact, they serve completely different purposes. Bitcoin ushered in the age of crypto and will continue to be an incredibly secure store of value. Ethereum has the ability to take what Bitcoin started and build it to a whole new level. What we may see in the future is both cryptocurrencies working together to help the whole crypto industry grow substantially. And who wins in that case? Everyone invested in Bitcoin OR Ethereum.

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