In our previous articles, we compared the three best altcoins – Ethereum (ETH), Solana (SOL) and Cardano (ADA). In this post we move forward into the magnificent world of cryptocurrencies to draw a detailed analysis of the two crypto heavyweights – Ethereum (ETH)vs Bitcoin (BTC). As we dive deep into their details, it will become easier to understand which is the best cryptocurrency.
For the longest time, investments have been limited to assets such as real estate, gold, bank deposits, and stocks. However, over the past few years, a new investment asset class called “Cryptocurreny” has garnered immense popularity among investors and traders all across the world. This latest form of asset has been doling out good returns for its investors, promising to disrupt the monopolistic traditional financial ecosystem. Suddenly, from global conglomerates to street artists, everybody wants a piece of this action.
Cryptocurrency – A Financial Revolution
The saga of this new financial revolution started with the inception of Bitcoin (BTC) in 2009. Since then, the popularity of cryptocurrencies immediately took off with scores of other digital tokens getting launched one after another. The growing popularity of these digital assets in the past decade and the recent acceptance of Bitcoin (BTC) as legal tender in El Salvador suggest that there is growing acceptance of these instruments and that cryptocurrencies are here to stay.
Comparatively new, Ethereum (ETH) which was launched in 2015 took the crypto industry by storm becoming the second most valuable cryptocurrency after Bitcoin (BTC). Soon, both the tokens gained astronomical traction becoming the “Coca- Cola and Pepsi” of the crypto universe. Over the past couple of years both the digital tokens have witnessed substantial price growth, attracting infinite new investors all around the globe to the burgeoning crypto industry.
Thus, gaining knowledge about the differences between Bitcoin and Ethereum will allow us to know exactly which cryptocurrency best suit the need of each investor. In order to understand the digital tokens in depth, we need to start from the beginning. Let us begin by looking at their history.
Brief History of Bitcoin
Bitcoin is known to be the biggest and oldest coin in the crypto world. It was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The primary purpose of Bitcoin was to establish itself as a viable alternative to traditional fiat currencies backed by countries.
This means, it is basically a store of value and often used as a medium of exchange. Since its well-known globally, this coin has been leading the market for the past decade. Over the years, it has experienced several major surges, and each time it has broken records, touching new all-time highs.
The digital coin has also experienced a fair share of ups and down during its journey till date. In 2017, Bitcoin’s price skyrocketed enabling the crypto industry to forge a ground-breaking financial renaissance as well as gain its own identity. However, following the rally, a massive correction took place dragging Bitcoin (BTC) to be termed as a bubble, and a failed asset. Several people predicted the crypto industry would come to an end.
Despite the negative sentiments, Bitcoin doubled in value again in just three years, reaching a new all-time high in 2021. It is worth noting that Bitcoin improves upon gold by offering increased portability. Unlike physical gold, which has to be mined from the earth and transported to markets, Bitcoin can be easily transferred over the internet, rightfully earning the title, “Digital Gold”.
Brief History of Ethereum
As for Ethereum (ETH), it was created in 2015 by Vitalik Buterin, a computer developer. It is a decentralized platform that runs smart contracts used to build and deploy decentralized applications (dApps) whose back-end code is placed in a distributed peer-to-peer network. The vital goal behind Ethereum is to form a decentralized suite of financial products that are capable of providing trustless products and services.
The decentralized applications are built on Ethereum that can be used for a variety of purposes including finance, gaming and social media. As the native currency on the Ethereum platform, ETH or Ether is needed to run dApps on the global computer that is the Ethereum blockchain.
Ether works very similarly to Bitcoin and can be used for peer-to-peer payments. People can use Ether to pay for transaction fees and gas, which is a unit of measurement used to calculate the amount of computational power needed to run a dApp.
Main differences between Ethereum and Bitcoin
As both the digital tokens race for dominance, it is becoming increasingly common to hear investors and developers weighing in their options between Bitcoin vs Ethereum. Although both Ethereum and Bitcoin are powerful digital assets, each platform has some major advantages as well as disadvantages. In order to compare the two crypto behemoths, let us segregate both the platforms under some basic categories
Although, Bitcoin and Ethereum are both based on the “blockchain” technology, Bitcoin (BTC) was created for the sole purpose of providing a way for people to transfer value from one to another without a central bank. It was designed to be an alternative to traditional currencies and hence a medium of exchange and store of value.
On the other hand, Ethereum is seen as a general purpose blockchain that outpaces Bitcoin when it comes to developing smart contracts and distributed applications. Owing to the boom in decentralized finance (DeFi) and non-fungible tokens (NFT) in the recent past, Ethereum (ETH) has witnessed an exponential growth.
However, it depends completely on user requirements. Bitcoin works better as a peer-to-peer transaction system while Ethereum works well when an individual needs to create and build distributed applications and smart contracts. In a nutshell, Bitcoin uses Blockchain to store transaction data while Ethereum uses Blockchain to execute code on it. Bitcoin Blockchain keeps records of payments while Ethereum Blockchain keeps records of a computer program.
A consensus mechanism is a program used in blockchain systems to achieve distributed agreement about the ledger’s state. Bitcoin uses a consensus protocol called proof of work (PoW). This consensus mechanism uses a lot more energy to do verify one block as it uses randomly selected validators to confirm transactions and create new blocks.
Meanwhile, Ethereum started as a PoW protocol, but shifted to Proof-of-Stake (PoS) consensus in September 2022 through a software upgrade called, “The Merge”. This made the Ethereum network more scalable and secure. PoS also substitutes computational power with staking, making it less energy-intensive. With regards to block time, Ethereum is quicker than Bitcoin- an ether transaction is confirmed within seconds compared to minutes for Bitcoin.
For decades, the Bitcoin ecosystem was limited to storing and transferring value. Hence, developer activity on the world’s oldest blockchain network was minimal, to say the least. But things began to change with the emergence of various Bitcoin DeFi protocols such as Wrapped Bitcoin (WBTC), Stacks (STX), Rootstock (RBTC), etc.
Moreover, the utility of the Bitcoin network has been expanded even further with the arrival of the Ordinals Protocol. This latest innovation allows developers and artists to create and store digital artworks directly on the Bitcoin blockchain.These platforms have helped to create new use cases for the big daddy of cryptocurrencies.
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On the contrary, Ethereum takes the trophy for a much bigger ecosystem. The Ethereum ecosystem is growing by leaps and bounds, thanks to the surging popularity of its dApps in areas such as DeFi, NFTs, gaming, and technology.
With a large developer community, robust development tools, it provides developers with a vast array of options for building decentralized applications and smart contracts. It is home to some of the most innovative and successful Blockchain projects, including Uniswap, Compound, and MakerDAO.
Bitcoin (BTC) has a limited range of use cases such as remittances, quick international payments, and privacy-focused transactions, for those who want to keep their costs low and avoid high banking fees. It allows users to securely transfer money without the need to go through traditional financial institutions.
The decentralized nature of it also helps with eliminating fraud, double spending and other issues that can occur with online payments. In a nut shell, Bitcoin is an ideal solution for people looking to purchase goods or services without using their bank account.
Conversely, the most promising real-world use cases for Ethereum (ETH) is decentralized finance applications. It provides a decentralized storage facility while the blockchain can also be used to quickly and securely transport data between millions of servers while encrypting it.
With the increasing DeFi related activitiesthe uses cases of Ethereum has gone through the roof. It has also steadily trotted into the banking systems, particularly because of its decentralized nature making it nearly impossible for hackers to gain access to the network.
Banks and various financial institutions have started using Ethereum-based payment systems as a channel to make payments and remittances because of its security. The world’s second biggest cryptocuurency is also being used in the shipping industry to track cargo and prevent misplacement of goods.
To see how Bitcoin (BTC) and Ethereum (ETH) stack against security features, we need to check on their respective hashing algorithms. Hashing algorithms are how these systems can maintain their privacy and ensure security. Bitcoin uses a hashing algorithm known as SHA-256 and Ethereum uses a cryptographic algorithm called “Ethash”.
The most significant difference between Bitcoin and Ethereum is that the Ethash algorithm is memory intensive while the SHA-256 algorithm is not. However, Ethereum’s hash rate is generally much higher than Bitcoin’s, meaning that Ethereum is much more secure against cyber attacks.
In the context of cryptocurrencies, Decentralization refers to the shift of control and decision-making power from a central authority to a participatory network of peers. Bitcoin and Ethereum, without a doubt, sit on two different sides of the decentralization spectrum. However, Bitcoin is arguably more decentralized than Ethereum as the only way to alter the network is if more than 50% of the network voted in favor of a change.
However, with the successful transition to PoS, Ethereum decentralization has increased. It is estimated that since April 2022, Ethereum’s decentralization level has risen by 50%.
Comparative Table Ethereum vs Bitcoin
|Ethereum (ETH)||Bitcoin (BTC)|
|Launch Date||30 July 2015||3 January 2009|
|Max. Token Supply||Infinite||21 Million|
|Consensus Mechanism||Proof-of-Stake (PoS)||Proof-of-Work (PoW)|
|Transactions Fees||$2-$6 (depending on network traffic)||$0.77 – $1.95 per transaction|
|Transactions Per Second||30 transactions||7 transactions|
As the battle between the two giants heat up, we can say that fundamentally Bitcoin and Ethereum are both very different ideas: Bitcoin is considered as a store of value whereas Ethereum is considered as a decentralized platform to program other decentralized ideas. From an investment point of view both the cryptocurrency seem to have huge potential and have lots of reasons to grow further.
So, to the address the question, “Which one to buy, Ethereum or Bitcoin” there’s no clear answer. The fact is both the coins have individual uses, cases and great potential, along with having a reason and room to grow.
This article is for information purposes only. The data provided does not constitute investment advice. Before investing in cryptocurrencies, do your own research.