Ethereum vs Bitcoin: What are the key differences? In this article, all basic ingredients of both decentralized blockchain networks compared.
Bitcoin (BTC) and Ethereum (ETH) are the two largest cryptocurrencies in the market and are key players in the entire crypto industry. Although they seem competitors in terms of market value and adoption, they both are tackling different problems and issues.
In this guide, we will be sharing with you the main Ethereum vs Bitcoin difference. In particular key differences which are the features that they currently offer to users. Moreover, we will make a review of the way transactions work on each of these networks, how they operate in the market, why there are more ETH than BTC, and many other things.
Ethereum vs Bitcoin Key Differences
|concept||digital value||smart contracts|
|transaction||send from wallet-A to wallet-B||send from wallet-A to wallet-B if:|
– date = 01-01-2025
– balance wallet-A >= 5 ETH
|market cap||$176 billion(2020)||$26 billion(2020)|
|founder||Satoshi Nakamoto||Vitalik Buterin|
|release date||January 2009||July 2015|
|release method||early mining||presale raised $18 million in BTC|
How did it all get started?
Bitcoin was created as the first cryptocurrency back during the 2008-2009 financial crisis. The virtual currency started to operate first among a small group of enthusiasts to later become the dominant digital asset in the world. Indeed, Bitcoin solved the issue related to double-spending and trust in virtual money systems.
Ethereum, instead, was developed much later, in 2015, when Bitcoin was already operating as the main digital currency in the market. Vitalik Buterin and a great team of developers, including Joseph Lubin and Charles Hoskinson, aimed at adding new solutions to blockchain networks. Ethereum’s main feature is the capacity to support more complex smart contracts than Bitcoin.
While Bitcoin aimed at becoming a new financial system, Ethereum’s goal was different since the inception of the digital asset. Bitcoin’s main proposal is to become a digital gold and an independent financial asset. Moreover, an asset that would operate independently from the traditional financial system.
Ethereum wants to offer its blockchain network as a hub for projects, companies, and even governments to create smart contracts and launch their own decentralized applications (dApps). Nowadays, Ethereum is also becoming an increasingly popular blockchain network to run decentralized finance (DeFi) solutions.
When we analyze Ethereum vs Bitcoin differences, we must mention the fees users have to pay in order to process transactions. Transaction times are also different between these two crypto giants.
Bitcoin can process as much as 7 transactions per second (TPS), while Ethereum can increase the number of TPS to over 14. This makes Ethereum a much more efficient network than BTC. Furthermore, Bitcoin fees are larger than Ethereum’s fees, meaning it will be more expensive to perform and conduct a Bitcoin transaction rather than an ETH transfer. Nonetheless, one similarity between these two networks is related to the fact that fees increase and decrease according to the network activity. The larger the activity, the higher the fees will be to process a transaction.
Bitcoin fees are paid in satoshis, small units of BTC. Each Bitcoin is subdivided into 100,000,000 satoshis. Meanwhile, Ethereum’s fees are paid using gas, which is cheaper than BTC’s fees.
During the last bull run experienced by cryptocurrencies in 2017 and the beginning of 2018. It was so expensive to send a Bitcoin transaction that users preferred to use ETH to send and receive payments. A BTC transfer could cost as much as $50 dollars to be processed in the standard 10 minutes time. Ethereum was offering faster transfers for lower gas fees.
Ethereum vs Bitcoin Use Cases
There are more Ethereum vs Bitcoin differences, including the way in which they are currently used by the crypto and blockchain communities. As we have previously mentioned, Bitcoin is transacted and used as a store of value.
Ethereum, instead, is used not only as a currency that can be traded and exchange (similar to how Bitcoin works) but it can also be used to run decentralized applications and smart contracts.
Decentralized applications are networks and programs that run on top of Ethereum and that do not have a single point of failure. Indeed, they are controlled by the entire decentralized network rather than by just an entity.
Nowadays, the Ethereum network is supporting applications that are related to money management (such as decentralized finance apps), applications that include money but they are not only related to it, and finally, applications that make reference to governance and voting systems.
Bitcoin is now mainly used to process transactions, as a store of value and also to speculate with its price.
Another important Ethereum vs Bitcoin difference is related to the fact that Ethereum can handle smart contracts. These smart contracts are one of the cornerstones of decentralized applications and how they behave on top of Ethereum.
Smart contracts are computer programs that execute automatically and that allow users, companies, and organizations to enforce negotiations. This is certainly important because it is not necessary to use a trusted party. Additionally, this third-party is completely eliminated to perform certain operations on the network.
Transactions can be processed automatically once the requirements are met. This information can be acquired from data provided by Ethereum or even by data-oracles. In fact, these oracles are a very important part of the whole ecosystem.
Bitcoin can’t run Smart Contracts
Bitcoin is not used for smart contracts. Developers that are working in the blockchain market are using Ethereum and other networks. Thus, we can consider that this is one of the most important Ethereum vs Bitcoin difference.
Nevertheless, Bitcoin can run its own smart contracts as well, but they are not going to be as efficient as smart contracts run on top of Ethereum. One of the firms that are currently working with Bitcoin smart contracts is RSK.
As Ethereum works with smart contracts and it facilitates companies to deploy their own dApps, the ecosystem is certainly larger.
Ethash and SHA-256
In particular, Bitcoin and Ethereum are decentralized blockchain networks and therefore, thrive by being 100% secure. Also, one of the main ingredients of being secure is the hashing algorithm. Both blockchain networks uses this although they differ in hashing technology.
Bitcoin, for instance uses SHA-256 hashing and in general it works like this:
SHA-256 is a cryptographic hash function that takes an input of the random size and produces an output of a fixed size. Besides, this hashing mechanism is considered ‘one way’.
What this is means is, it is possible for anyone to use a hash function to produce an output when given an input; however, it is impossible to use the output of the hash function to reconstruct its given input. This one-way feature is used by modern hashing algorithms and is very powerful.
Ethereum miners favor Ethhash as Hashing algorithm
Both Bitcoin and Ethereum work with a Proof-of-Work (PoW) algorithm. For instance, it allows miners on the network to earn rewards for securing the blockchain. Each reward is paid in ETH or BTC – according to the network they are working on.
The Ethash has been created in order to be ASIC-resistant. The Bitcoin network is currently secured by large companies (miners) that operate on farms. Additionally, these farms are providing the necessary power to confirm transactions on the BTC network. This is something that the Bitcoin community has criticized because most of the hashing power is concentrated in China and in just a few miners.
Meanwhile, the Ethereum Ethash algorithm was created to avoid this mining centralization. This makes the network fairer and more accessible to normal users. In addition, users can mine at home or with a smaller number of rigs. In the future, Ethereum wants to become a fully Proof-of-Stake (PoS) network.
Final Thought: Bitcoin and Ethereum Complement Each Other
Although many users and enthusiasts in the space would consider that Ethereum vs Bitcoin differences are a weakness for one or another crypto, they are certainly something positive. Due to these differences between these two networks, it is possible for them to be complementary.
While Bitcoin can be used to store value, Ethereum can be used to process faster and cheaper transactions or running smart contracts. Due to the expansion of the crypto market, more interoperability between these two networks is needed in the future.
Moreover, each of these cryptocurrencies has its own audience and they offer solutions to a different sector of the industry. This is why both Bitcoin and Ethereum are great digital assets to hold on a diversified portfolio and to analyze as complements in many circumstances.
What do you see as a key difference between these two blockchain giants? Leave a comment below!
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