Bitcoin vs. Ethereum

By: Steven Hay | Last updated: 4/24/20

For the past few years, Bitcoin and Ethereum have been occupying the top two slots of the cryptocurrency charts. This post describes the differences between the two cryptocurrencies.

Bitcoin vs. Ethereum Summary

Bitcoin and Ethereum serve two very different purposes: Bitcoin is an alternative to fiat currency while Ethereum is a Do It Yourself platform for decentralized programs.

Through the years, Bitcoin has proved to be a better store of value, while Ether, Etheruem’s currency, is a faster payment method.

That’s Bitcoin vs. Ethereum in a nutshell. For a more detailed review keep on reading, here’s what I’ll cover:

1. Bitcoin in a Nutshell

Bitcoin is the world’s first decentralized digital currency. Bitcoin isn’t controlled by any government or bank. Its main goal is to supply an alternative to traditional fiat currencies (USD, EUR, etc.).

All Bitcoin transactions are documented on a virtual ledger called the blockchain, which is accessible for everyone to see. For a complete explanation about Bitcoin, watch our complete episode about it:

2. Ethereum in a Nutshell

Ethereum is a DIY platform for decentralized apps (or Dapps) that uses smart contracts. While Bitcoin aims to decentralize money, Ethereum allows the decentralization of every ledger based record, such as voting rights, house registration, medical records and so on.

Ether (ETH) is Ethereum network’s currency and it is used for running Dapps. When people compare Bitcoin to Ethereum they usually refer to Ether the currency.

For a complete explanation about Ethereum watch our complete episode about it:

3. The Difference Between Bitcoin and Ethereum

Even though the main use of the two currencies is inherently different, we can still compare Bitcoin and Ether, the currencies, on a technical level:

Main use

Bitcoin aims to provide an alternative for fiat currencies, providing a permissionless currency that isn’t regulated by any government or bank. It’s a sort of “digital gold”

Ethereum, on the other hand, is considered as a “world computer” that executes code (also known as smart contracts) in a decentralized manner.

In practice, however, matters are more complex. Given the extensibility of cryptocurrency, neither coin has a clearly defined sphere of operation. There is considerable overlap between their functions and markets, with nothing to prevent user migration.

For example, additional layers built upon Bitcoin allow smart contract functionality. Likewise, Ethereum has become a popular trading and investment instrument, infringing upon Bitcoin’s domain as “magic internet money.”

Supply

Bitcoin has a total supply of 21 million coins. Bitcoin’s issuance currently stands on 12.5 coins every 10 minutes and is halved every 4 years. Halving events, combined with coins lost through user error, will ultimately result in a deflationary currency.

Ethereum has an issuance rate of 18 million ETH annually. Ethereum issues currently stand on 2 ETH every 15 seconds.

Blockchain differences

Bitcoin has a Proof of Work blockchain which is currently composed of 1 megabyte blocks. These blocks are mined on average every 10 minutes by SHA-256 hashing. Bitcoin mining is primarily performed by ASIC devices. Bitcoin’s blockchain can process around 4.6 transactions per second.

Ethereum currently has a Proof of Work blockchain, although a proposed fork will switch it to Proof of Stake (PoS). The Ethereum blockchain is composed of blocks of variable sizes. Blocks are mined on average every 15 seconds by hashing a modified Dagger-Hashimoto algorithm.

This algorithm is designed to resist processing by ASIC devices; as a result, Ethereum mining is primarily performed by graphics cards. Ethereum’s blockchain can process around 25 transactions per second.

Initial Distribution

Bitcoin is thought to have been mined exclusively by Satoshi Nakomoto in its early phase. At that time, there was no barrier to the entry of other miners.

It’s estimated that Satoshi owns roughly 5% of total supply. As Satoshi’s coins have yet to move, some speculate they may be inaccessible.

Ethereum was distributed in the form of an ICO (Initial Coin Offering), whereby 31,529 BTC were traded for 60,102,216 ETH in advance of the Ethereum blockchain’s launch.

Approximately $14m USD was raised in this fashion by the Ethereum Foundation, which awarded itself 12m ETH; roughly 14% of the current total supply.

Scripting Language

Bitcoin’s scripting language is intentionally limited to transactional processing, known as turing incomplete. In other words, it’s a simple language that known only how to do one thing – send money from A to B.

Ethereum’s primary innovation was to expand on Bitcoin’s basic instructions into a fully-featured programming language (also known as Turing-complete). Ethereum is a much more sophisticated language which also leaves more room for error.

Development

Bitcoin has a codebase that benefits from 99 Core contributors and several alternative implementations. With over $150b in assets on the line, they take a conservative approach to development.

All proposed improvements must undergo peer review and rigorous testing prior to being merged. The perceived slow pace of this process, at least in terms of scaling, led to a heated block size debate and the creation of Bitcoin Cash.

Ethereum is the brainchild of Vitalik Buterin, who handled its initial development along with 3 other skilled developers. They were able to pick and choose ideas from the development of Bitcoin and altcoins and introduce new ideas of their own.

Unlike Bitcoin, literally anyone can code a smart contract which runs on top of Ethereum. Herein lays both opportunity and danger. Certain estimates put the number of bugs per line of contract code at 1 in 10.

As seen with the draining of The DAO and numerous minor incidents, investing in such contracts without proper code review can lead to serious loss. More work is required to secure smart contracts before they can reliably underwrite new ways of doing business.

4. Frequently Asked Questions

Will Ethereum Overtake Bitcoin?

Many Ethereum proponents believe Ethereum’s market cap will surpass Bitcoin’s market cap. This event is known as the flippening, since the #1 and #2 spots of the cryptocurrency chart “flip”.

Back in June 2017 Ethereum’s market cap indeed reached over 80% of Bitcoin’s market cap. This was mainly due to the ICO hype which was funded through Ether, increasing its demand. Today, Ethereum’s market cap is around 10% of Bitcoin’s total market cap.

Why Ethereum is Faster than Bitcoin?

Ethereum allows for uncle blocks to be included into the blockchain. In Bitcoin, an uncle block, also known as an orphan block, will be invalidated. Therefore, Bitcoin uses a harsher difficulty adjustment to reduce the likelihood of having two blocks mined at the same time.

For a more detailed explanation read this post.

5. Conclusion – Which is Better? Bitcoin or Ethereum?

Bitcoin has proved to be a better store of value over time while Ether proved to be a faster payment method. Both have had their issues in the past and are still facing future uncertainties.

Comparing Bitcoin to Ethereum is a bit like comparing oranges to apples. While they are both cryptocurrencies, they serve inherently different purposes.

Which do you prefer? Bitcoin or Ethereum? Let me know in the comment section below.