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Bitcoin VS Ethereum

Bitcoin vs. Ethereum is the Ali vs. Frazier of the crypto space. Even though these two are the most significant projects in the space, their primary purposes are entirely different.

In this guide, we are going to take a look at the differences and similarities between these project.

Bitcoin at a Glance

Key Highlights

October 31, 2008: Bitcoin whitepaper published.

January 3, 2009: The Genesis Block is mined.

January 12, 2009: The first Bitcoin transaction

December 16, 2009: Version 0.2 is released.

November 6, 2010: Market cap exceeds $1 million USD.

October 2011: Bitcoin forks for the first time to create Litecoin

June 3, 2012: Block 181919 created with 1322 transactions. It is the largest block to-date.

June 2012: Coinbase launches.

September 27, 2012: Bitcoin Foundation is formed.

February 7, 2014: Mt. Gox hack.

June 2015: BitLicense gets established. This is one of the most significant cryptocurrency regulations.

August 1, 2017: Bitcoin forks again to form Bitcoin Cash.

August 23, 2017: SegWit gets activated.

September 2017: China bans BTC trading.

December 2017: First bitcoin futures contracts were launched by CBOE Global Markets (CBOE) and the Chicago Mercantile Exchange (CME).

September 2018: Cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the Dot-com bubble’s 78% collapse.

November 15, 2018: Bitcoin’s market cap fell below $100 billion for the first time since October 2017.

October 31, 2018: 10-year anniversary of Bitcoin.

Ethereum at a Glance

Key Highlights

November 2013: Vitalik Buterin publishes the Ethereum whitepaper.

January 2014: The development of the Ethereum platform was publicly announced. The original Ethereum development team consisted of Vitalik Buterin, Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson.

August 2014: Ethereum ends their ICO and raises $18.4 million.

May 2015: “Olympic” the Ethereum testnet releases.

July 30, 2015: The first stage of Ethereum’s development, “Frontier” was released.

March 14, 2016: Homestead, the first “stable” Ethereum release, went out on block 1,150,000.

June 2016: The DAO hack happens and the $50 million worth of Ether, which was 15% of the total Ether in circulation back at the time.

October 25, 2016: Ethereum Classic forks away from the original Ethereum protocol.

October 16, 2017: The Metropolis Byzantium hardfork update happens.

February 28, 2019: The Metropolis Constantinople hardfork update happens.

Bitcoin vs Ethereum: A Comparison

Before we delve into the differences, let’s look at the similarities. Both Bitcoin and Ethereum are blockchain-based decentralized entities. Bitcoin and Ethereum are both fueled/powered by their native coin BTC and ETH. Both these coins can be used outside their ecosystem as an exchange of value.

Now, let’s talk about the differences between the two. We will be mainly focussing on the following categories:

Purpose

Price History

Mining

Gas vs Transaction Fees.

Block Size

Internal Economics.

#1 Bitcoin VS Ethereum: Purpose

One of the core differences between these two projects is the purpose for which they were created in the first place. Many people wrongly assume that Bitcoin and Ethereum have the same purpose. As we are going to find soon out, nothing could be further from the truth.

Bitcoin

Bitcoin came about after the 2008 financial crisis. Around that time, the public’s faith on banks and financial institutions were on an all-time low. An unknown programmer, going by Satoshi Nakamoto utilized cryptographic hash functions and public key cryptography to create Bitcoin.

Bitcoin’s purpose has never changed since the very beginning of its inception. Bitcoin wants to be a global decentralized financial system while empowering people to have full control over their finances. While Bitcoin does lack the scalability to be a traditional currency system, it has the capability of becoming a digital store-of-value.

Ethereum

Ethereum, on the other hand, is not a payment-only system. Ethereum founder Vitalik Buterin believes that the blockchain has more utility than just being a payment-service provider. Buterin thought that by leveraging the blockchain technology, developers can create real-world applications on top of it. The way they can do that is by creating smart contracts and executing them on top of Ethereum.

Smart Contract is a computer code running on top of a blockchain containing a set of rules under which the participants of the contract agree to interact with each other. There are certain features of smart contract interactions:

The participants of the smart contract can directly interact with each other without the need for a middleman or a third-party.

Each step of a smart contract can only be implemented after the execution of the immediate former step.

The smart contract acts as a blueprint for a decentralized application (DApp).

All the contents and data inside a DApp is not owned by one single entity.

#2 Bitcoin VS Ethereum Price History

Looking at the price charts can also help us gain an interesting perspective of each coin.

Bitcoin

The chart above is the all-time daily price chart. After achieving its all-time high in December 2017.

Bitcoin went from $10,000 to near $20,000 in a little over two weeks.

It took Bitcoin 50 days to crash from its all-time high to $6,875.

Currently, Bitcoin is on the road to recovery.

The chart above is the monthly Bitcoin price chart.

Between May 2018 to January 2019, Bitcoin observed six straight bearish months.

February 2019 onwards, Bitcoin has enjoyed four straight bullish months. The last time it managed to do so was between May 2017 – August 2017.

May 2019 has been the most bullish month since December 2018.

Ethereum

It took Ethereum one week to go from $750 to over $1300 (3rd January to 10th January 2018).

Quite like Bitcoin, Ethereum (and the crypto market in general) is on the road to recovery following the 2018 bear market.

From May 2018 to November 2018, Ethereum faced seven consecutive bearish months.

Ethereum has had five bullish sessions out of the last six.

May 2019 has been the most bullish month since April 2018.

#3 Bitcoin VS Ethereum Mining

Both Bitcoin and Ethereum are currently using the proof-of-work (POW) consensus mechanism. However, Ethereum plans to move on to proof-of-stake (POS) soon, using the Casper protocol. Let’s run through both POW and POS in this section.

Bitcoin and Ethereum – Proof of Work

The idea of POW is for miners to use their computational power to solve cryptographically hard puzzles. The miner who gets to solve the problem, adds a new block to the blockchain and receives a block reward in return. Bitcoin uses the SHA-256 hashing algorithm for its mining purposes. This how the process works:

A random string called the “nonce” is appended to the hash of the previous block.

The resultant string is hashed and then checked against the network difficulty.

If the hash satisfies the conditions, then the block is added to the chain.

If not, the process repeats until the desired result is achieved.

There are two essential things to note about POW:

The process of getting the required result to meet the difficulty conditions should be extremely hard, time-consuming, and resource heavy.

The process of checking whether the miner was successfully able to mine a block should be easy.

Before long, miners discovered that they could exponentially increase their mining power by joining together and forming mining pools via parallel processing.

In parallel processing, program instructions are divided among multiple processors. By doing this, the running time of that program decreases, and that is basically what the mining pools are doing.

The biggest asset of POW mechanism is the security it brings in to the system. Since mining on the Bitcoin chain is so expensive, the miners don’t have any incentive to work against the system, and mine on any parallel chains just to waste their money for no reason.

However, POW chains definitely do have a lot of flaws:

They are slow.

They tend to be centralized.

They waste a lot of energy.

This is why many new crypto projects are looking to use alternative consensus mechanisms like proof-of-stake.

Ethereum in the future – Proof of Stake

Ethereum currently uses POW consensus mechanism for mining, however, they are looking to move onto Proof-of-stake (POS) mechanism using Casper Protocol.

Proof of stake will make the entire mining process virtual and replace miners with validators.

This is how the process will work:

The validators will have to lock up some of their coins as stake.

After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.

If the block gets appended, then the validators will get a reward proportionate to their bets.

As you can see, the POS protocol is a lot more resource-friendly than POW. In POW, you NEED to waste a lot of resources to go along with the protocol, it is resource wastage for the sake of resource wastage.

Casper is the POS protocol that Ethereum has chosen to go with. Casper is a protocol that utilizes POS with a punishment mechanism. delves how POS under Casper would work:

The validators stake a portion of their Ethers as stake.

After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.

If the block gets appended, then the validators will get a reward proportionate to their bets.

However, if a validator acts maliciously and tries to do a “nothing at stake,” they will immediately be reprimanded, and their entire stake slashed.

As you can see, Casper is designed to work in a trustless system and be more Byzantine Fault Tolerant.

Anyone who acts in a malicious/Byzantine manner will get immediately punished by having their stake slashed off. This is where it differs from most other POS protocols. Malicious elements have something to lose so it is impossible for there to be nothing at stake.

Flawlessly implementing Casper and Proof Of Stake will be critical if Ethereum plans to scale up.

#4 Bitcoin VS Ethereum Transaction Fees vs Gas

All the transactions line up in a mempool. The miners can pick up the transactions and put them inside the blocks that they have mined. The moment the transaction is put inside the block, it gets fulfilled. Since miners are performing such a critical task, it is important to incentivize them correctly.

Miner incentivization works differently in Bitcoin and Ethereum. Before we take a look at that, check out the following graph. This is a graph of the average transaction fees of both Bitcoin and Ethereum between 21st to 25th May.

As you can see above, Ethereum’s average transaction fees are much lower when compared to Bitcoin. However, another reason for that maybe that the value of each average Bitcoin transaction is a lot more than an average Ethereum transaction (check it in the stats section below).

Bitcoin Transaction Fees

In Bitcoin, miners charge some transaction fees for each and every transaction. If you want your transactions to process faster, then you can attach larger fees to your transaction to incentivize miners. So, depending on how much fees you pay, you either get confirmation within one block or you may have to wait for two or three bocks. Here are some useful stats that you may find helpful via bitcoinfees.info:

Ethereum Gas

Ethereum, on the other hand, doesn’t use transaction fees, but a gas system. Gas is a unit that measures the amount of computational effort that it will take to execute certain operations.

All the smart contracts that run in the EVM are coded using solidity (Ethereum is planning to move on to Viper from Solidity in the future.) Each line of code in solidity requires a certain amount of gas to get computed.

The image below has been taken from the Ethereum Yellowpage and can be used to gain a rough idea of how much specific instructions cost gas-wise.

Image Courtesy: Ethereum Yellow Paper

To better understand how gas works in Ethereum, let’s use an analogy. Suppose you are going on a roadtrip. Before you do so you go through these steps:

You go to the gas station and specify how much gas you want to fill up in your car.

You get that gas filled up in your car.

You pay the gas station the amount of money you owe them for the gas.

Now, let’s draw parallels with Ethereum.

The car is the operation that you want to execute, like a gas or a smart contract.

The gas is well….gas.

The gas station is your miner.

The money that you paid them is the miner fees.

All the operations that users want to execute in ethereum must provide gas for the following:

To cover its data aka intrinsic gas.

To cover its entire computation.

#5 Bitcoin VS Ethereum Block Size

Now we broach one of the most controversial topics in the crypto space, the block size. These two words have pretty much split the Bitcoin community apart. So, without any further ado, let’s take a look.

Bitcoin block size

Satoshi Nakamoto initially hardcoded a 1 MB size limit to the Bitcoin blocks to prevent spam transactions. However, as Bitcoin got more popular, scalability became the need for the day. This when people started debating about the block size. There was a section of the community which wanted to increase the block size to 2 MB, while another section wanted to keep the block size at 1 MB and implement the SegWit mechanism. Here are the arguments presented by both the sections of the community:

Arguments against block size increase

Miners will lose incentive because transaction fees will decrease: Since the block sizes will increase transactions will be easily inserted, which will significantly lower the transaction fees. There are fears that this may deincentivize the miners and they may move on to greener pastures. If the number of miners decreases, then this will decrease the overall hashrate of bitcoin.

Bitcoins shouldn’t be used for everyday purposes: Some members of the community don’t want bitcoin to be used for regular everyday transactions. These people feel that bitcoins have a higher purpose than just being a regular everyday currency.

It will split the community: A block size increase will inevitably cause a fork in the system, which will make two parallel bitcoins and hence split the community in the process. This may destroy the harmony in the community.

It will cause increased centralization: Since the network size will increase, the amount of processing power required to mine will increase as well. This will take out all the small mining pools and give mining powers exclusively to the large scale pools. This will, in turn, increase centralization, which goes against the very essence of bitcoins.

SegWit or Segregated Witness will increase the size of the blocks without causing a hard fork. SegWit will put the signature data of the transactions on a side-chain.

Arguments for the block size increase

Block size increase works to the miner’s benefit: Increased block size will mean increase transactions per block which will, in turn, increase the amount of transaction fees that a miner may make from mining a block.

Bitcoin needs to grow more and be more accessible to the “common man.” If the block size doesn’t change then there is a very real possibility that the transactions fees will go higher and higher. When that happens, the common man will never be able to use it and it will be used exclusively only by the wealthy and big corporations. That has never been the purpose of bitcoin.

The changes won’t happen all at once, they will gradually occur over time. The biggest fear that people have when it comes to the block size change is that too many things are going to be affected at the same time and that will cause major disruption. However, people who are “pro block size increase,” think that that’s an unfounded fear as most of the changes will be dealt with over time.

SegWit will change Bitcoin’s architecture which will completely change Satoshi Nakamoto’s original vision.

Unfortunately, this debate split the community into Bitcoin and Bitcoin Cash. Bitcoin activated SegWit while Bitcoin Cash didn’t have SegWit and increased the block size to 8 MB.

Ethereum block size

Instead of size, Ethereum blocks are capped by the amount of gas each of them can store up. Ethereum is limited by 6.7 million gas limit on each block.

The miners can only add transactions whose gas requirements add up to something which is equal to or less than the gas limit of the block. A typical one-on-one transaction eats up 21,000 units of gas.

#6 Bitcoin VS Ethereum Internal Economics

In this section, we are going to be talking about one of the most basic concepts in economics – supply and demand. More the demand and lesser the supply more will be the price of the product. The supply-demand graph looks sorta like this:

The sweet spot where both the curves intersect is the equilibrium. The concept of supply-demand is simple:

If the demand for an asset goes up the price goes up.

If the demand for an asset goes down, then the price goes down.

If the supply goes up then the asset’s demand is going to go down which means the price is going to go down.

If the supply goes down then the asset’s demand goes up and the price goes up.

Bitcoin

Bitcoin has a hard limit of 21 million coins. By having a hard-cap, Bitcoin can utilize the supply-demand equation to regulate its price Earlier, it was easy for miners to mine these coins and they got a block reward of 50 BTC, every time they mined a block. This block reward gets halved every 210,000 blocks. Currently, it sits at 12.5 BTC. The next reward-halving event is on May 25, 2020.

Ethereum

Unlike Bitcoin and Litecoin, Ethereum doesn’t have market cap limit. Ethereum is trying to be a platform for decentralized services, which is why they didn’t keep a capped supply. Ethereum’s block reward has reduced from 3 ETH to 2 ETH as per Ethereum-Improvement-protocol (EIP) 1234. Since the block reward is so low as compared to Litecoin and Bitcoin, the total supply of Ethereum won’t go out of control.

Bitcoin vs Ethereum: Stat Check

Our data set will be between 21-25 May.

#1 Bitcoin VS Ethereum Price

Bitcoin Price

In our data set, the least price was achieved on 23rd May at $7,701.

The price exceeded $8,000-level on 25th May.

The average price of Bitcoin in our data set is $7,904.

Ethereum Price

Ethereum also achieved its lowest price on 23rd May at $240.89.

Ethereum crossed $250 multiple times (21st, 22nd, and 25th May).

Ethereum’s average price in the dataset is $249.66.

#2 Bitcoin VS Ethereum Number of Daily Transactions

Bitcoin transactions per day

So, in our dataset, Bitcoin has consistently managed more than 330,000 transactions per day.

Bitcoin had a low of 338,258 transactions on 25th May and a high of 394,720 on 22nd May.

In our dataset, an average of 375,326 transactions was achieved.

Ethereum transactions per day

Ethereum seems to have had a lot more transactions than Bitcoin. A minimum of 800,000 transactions was sent per day in our data set.

A low of 812,799 transactions was sent on 21st May. A maximum of 904.057 transactions was sent on 24th May,

An average of 855,383 transactions was sent per day in our dataset.

#3 Bitcoin VS Ethereum Average transaction value per day

Bitcoin average transaction value per day

The dataset shows that at least $18,000 worth of average transaction was sent per day.

The minimum transaction value of $18,773 was sent on 25th May and a maximum of $29,232 was sent on 24th May.

An average value of $23,557 was sent per day.

Ethereum average transaction value per day

25th May saw the least average transaction value with $557.53.

21st May saw the highest average transaction value with $883.55.

An average value of $768.12 was sent per day.

#4 Bitcoin VS Ethereum Hashrate per day

Bitcoin hashrate per day (in EHash/s)

Bitcoin reached peak hashrate on 23rd May with 56.35 EHash/s.

A low of 50.01 EHash/s was achieved on 21st May.

In our dataset, Bitcoin achieved an average hashrate of 52.07 EHash/s.

Ethereum hashrate per day (in THash/s)

A peak of 164.93 THash/s was achieved on 22nd May.

A low of 159.71 THash/s was achieved on 24th May.

In our dataset, Ethereum achieved an average hashrate of 162.47 THash/s.

Bitcoin vs Ethereum: Conclusion

Bitcoin and Ethereum are both extremely important and valuable projects. Even if you are not a serious crypto investor/trader, you won’t go wrong by buying BTC or ETH tokens. Both of them bring immense value to the crypto community.