As an educated crypto investor, it is crucial that you understand the differences between Bitcoin and Ethereum. Both coins are titans on the market, albeit for different reasons. Both coins are vital to the development of the market at this point. Here’s what makes these coins so different, but still so important in the market.
Bitcoin was the world’s first successful cryptocurrency. Satoshi Nakamoto changed the world when he unveiled his revolutionary protocol. His goal was to create a “peer-to-peer electronic cash system” that is both censorship-resistant and decentralized.
He successfully accomplished his mission when he officially launched Bitcoin in 2009. Since then, Bitcoin has seen tremendous growth both financially and technologically. In essence, however, it remains accessible to everyone. Bitcoin changed the world forever and inspired a new industry. For these reasons, you can think of Bitcoin as the first generation of cryptocurrencies.
It is noteworthy that Bitcoin is not stagnating and the protocol is constantly being developed. However, it was built to serve its special purpose. As a result, it’s not the best option for features like smart contracts or other next-generation blockchain functionalities. In particular, the introduction of second-layer protocols such as the Lightning Network significantly expands the functionality of Bitcoins.
The second generation – Bitcoin vs. Ethereum
Ethereum is a distributed, public blockchain. This decentralized network introduced the world to smart contract scripting functionality. These protocols allowed anyone to create decentralized applications and expand the use cases for cryptocurrencies. Today there are thousands of different crypto and blockchain projects. However, most use some forms of smart contracts to streamline network activities.
Not exactly a cryptocurrency
It is important that you understand that Ethereum is not a cryptocurrency. Ethereum is the platform on which the cryptocurrency Ether works. This network functions primarily as a programmable decentralized network for Dapp developers. In addition, Ether’s main job is to compensate miners for performing EVM (Ethereum Virtual Machine) calculations.
Ethereum was the first cryptocurrency network specifically designed to support Dapp development. Dapps are applications designed to run on decentralized networks. The first Dapps ran on decentralized networks such as Tor networks. Due to their decentralized nature, these networks are censorship-resistant.
Dapps running on blockchain networks are at the core of the blockchain revolution. In this way, Ethereum represented a fundamental change in the development and functionality of cryptocurrencies. For these reasons, Ethereum is considered a second generation cryptocurrency
To execute smart contracts, Ethereum introduces a unique protocol known as EVM – the Ethereum Virtual Machine. Each full Ethereum node executes an instant of these virtual stacks. The main advantage of EVMs is that they improve the process of building decentralized applications by improving the programmability and efficiency with which the network executes contract bytecode.
History of Ethereum
One of the early successors to Bitcoin was a computer developer named Vitalik Buterin. In 2013, this beneficial person decided to build a new cryptocurrency. This new project would share many technical characteristics with Bitcoin. For example, both coins use a Proof-of-Work (PoW) algorithm to validate the state of the network.
Bitcoin uses the SHA-256 algorithm. This math equation requires miners to prove their work through advanced calculations. The network automatically adjusts its difficulty level to ensure that blocks of transactions are only approved at ten-minute intervals. This approach ensures a forward-looking spending strategy until the last bitcoin is mined sometime in 2140.
Ethereum, like Bitcoin, currently uses a Proof-of-Work (PoW) consensus protocol. However, Ethereum uses the Ethash algorithm. Buterin chose this mechanism to reduce the benefit of specialized application specific integrated circuit (ASIC) mining rigs. ASIC mining rigs are built from the ground up to solve the SHA-256 algorithm that Bitcoin uses. Critics of the ASIC miners argue that these high-priced rigs cause centralization in the Bitcoin network.
When comparing transactions through the networks, Ethereum is way ahead of Bitcoin. Bitcoin approves blocks every 10 minutes. These blocks contain no more than 1 MB of data. As a result, Bitcoin is only capable of about 7 transactions per second. This low data rate has been built into Bitcoin’s core coding to ensure that everyone can use the network.
The Ethereum network is capable of about 15 transactions per second. These capabilities will improve significantly after the upcoming Ethereum 2.0 update. This upgrade would bring Ethereum’s capabilities closer to 100,000 transactions per second, according to developers.
Mining Rewards – Bitcoin vs. Ethereum
There are different mining rewards that are paid out to the nodes on each network. Bitcoin miners will receive a 6.5 BTC reward for being the node that first completes the SHA-256 equation and adds the next block to the blockchain. In comparison, Ethereum miners receive a reward of 2 ETH for their participation in the validation of transaction blocks.
Total offer – Bitcoin vs. Ethereum
Bitcoin limits its supply of 21,000,000 coins. This strategy ensures that Bitcoin remains scarce in the market. Conversely, there is no upper limit for the amount of ether (ETH). The network must continue to produce ETH indefinitely to cover the gas fees created by developers running EVMs. There are currently 114,467,625.91 ETH in circulation today.
Ethereum should go to PoS
Interestingly, Ethereum will be doing a major upgrade to Ethereum 2.0 this year. This hard fork would put ETH on a new blockchain that runs on a proof-of-stake (PoS) algorithm. PoS networks remove miners and rely on coin holders to stake out their tokens to check the health of the network.
PoS networks are far more energy efficient and cheaper to maintain. They also offer faster transaction times compared to PoW networks. The best part is that you don’t have to buy expensive mining equipment as all you need is a network wallet to place your coins on a PoS system.
The ETH ICO vs. Bitcoins Launch
Bitcoin had a quiet start that was only celebrated by a select few in the cypherpunk and developer community who took note of this monumental invention. Interestingly, Bitcoin’s journey officially began with the Genesis block. This is the first block of Bitcoin’s blockchain. While no one knows for sure how many Bitcoins Nakamoto has mined, estimates put its rewards at 1 million Bitcoin.
In comparison, Ethereum entered the market with a lot more fanfare. The Ethereum ICO (Initial Coin Offering) raised $ 18 million. Ethereum continued this dynamic with the introduction of the first DAO (Decentralized Autonomous Organization). This event took place in April 2016. The launch of the DAO has bolstered Ethereum’s status and helped the network secure $ 150 million in its public ICO. Back then, the DAO was the largest crowdfunding event in the blockchain industry.
Bitcoin vs Ethereum – apples vs oranges
Now that you better understand the differences between Bitcoin and Ethereum, it’s easy to see why both projects in the industry are long-lived. Therefore, most crypto investors keep these two coins in their portfolio.
Where to buy Bitcoin (BTC) & Ethereum (ETH)
These are two of the most popular cryptocurrencies in the world. The following exchanges allow the purchase of these two digital assets.
Binance – Best for Australia, Canada, Singapore, UK and most of the world. US residents are prohibited of many of the tokens on this platform. Use discount code: EE59L0QP for 10% cashback on all trading fees.
BitPanda – This is the one best option for European residents. Please note that they do not accept residents from outside this region.
Kraken – This is the one best option for US residents.
Paybis – The Easiest Platform, if you simply want to buy and hold XRP then this is one of the easiest ways to buy XRP. US residents are welcome excluding the states of Hawaii and New York.