Ethereum vs. Bitcoin: What’s the Difference?

In 2019, almost everyone has heard of Bitcoin, even if they don’t fully understand what it is. In simple terms, it is a digital currency that is beyond the control of a central authority such as a financial institution or government. In particular, it is a virtual asset that exists in computer code in a distributed and decentralized network of digital ledgers known as a “blockchain”.

Bitcoin is the first of the so-called “cryptocurrencies” and is currently the most popular. But it is far from the only one. There are many alternative cryptocurrencies, also known as altcoins, on the market.

Of these altcoins, Ethereum is the best known. In terms of market capitalization, it was always the second or third largest cryptocurrency after Bitcoin and occasionally switched with Ripple. To the uninitiated, Ethereum may seem identical to Bitcoin. They actually have their similarities. However, they differ greatly in how they work and their primary use case. This is important for investors as it affects their long-term market outlook.

Ethereum vs. Bitcoin: An Overview

Bitcoin (BTC)

BitcoinPhoto by MichaelWuensch on Pixabay

The origin of Bitcoin is a story not even a Hollywood screenwriter could make up. In 2008, an individual (or group) named Satoshi Nakamoto – whose true identity does not yet need to be confirmed – published a fascinating white paper on the internet. This paper described what Bitcoin would become. It immediately aroused the interest of many technical minds, especially after Nakamoto released software based on the whitepaper as open source in early 2009. Although it would take a few years for bitcoins to accumulate any real value, today the digital currency has entered the consciousness of the mainstream world.

In contrast to traditional currencies such as US dollars and euros – which are also known as “fiat currencies” – no government controls the delivery of bitcoin. Instead, Bitcoin transactions are validated by having participants solve a cryptographic “puzzle” with their computer. These participants, known as miners, receive Bitcoin as a reward for successfully cracking the code.

Unlike traditional currencies, Bitcoins do not exist in any physical form. They only exist in the form of computer addresses, which are a series of letters and numbers that their owners control through a private key.

The technology that enables Bitcoin transactions is called blockchain. This is a distributed and decentralized digital ledger that records all transactions made with the currency. Instead of having a single authority like a central bank, thousands of Bitcoin nodes on the internet verify every transaction through the use of cryptography. These transactions are immutable, which means that they cannot be changed in any way.

Benefits of Using Bitcoin

There are many advantages to using Bitcoin. First and foremost is its anonymity. In contrast to bank transactions, nobody knows who a particular Bitcoin belongs to. While some cryptocurrency exchanges like Coinbase require you to properly identify yourself before trading on the platform, it is possible to buy, sell and spend bitcoins while remaining completely anonymous.

Another great benefit of Bitcoin is the low transaction fees, although this fee largely depends on the value of the currency itself. The third advantage of Bitcoin is that its value is based entirely on supply and demand. Governments do not regulate its value as is common practice with fiat currencies. Also, no individual or group can control their value, no matter how much Bitcoin they own.

Ethereum (ETH)

etherPhoto by Peter Patel from Pixabay

In 2013, a Bitcoin programmer named Vitalik Buterin published his own fascinating white paper. He proposed a new digital currency that would support decentralized applications (dApps). This new cryptocurrency would be called Ethereum.

Ethereum is like Bitcoin in many ways. It leverages blockchain technology and uses a similar consensus algorithm to verify transactions. The software is actually based on Bitcoin’s software. But there is a huge difference between Ethereum and Bitcoin.

While Bitcoin has a limited ability to run scripts, Ethereum includes a fully functional virtual machine that can run complex applications. It is particularly useful in facilitating smart contracts, which are a binding agreement between two parties that does not require third party enforcement and that executes itself. This enables faster and more cost-effective contract processing. In order to run smart contracts on Ethereum, you need to pay for something called “gas,” which users pay for through ether tokens.

Strictly speaking, Ethereum refers to the blockchain platform itself, while Ether refers to the corresponding cryptocurrency that you can buy, sell or spend. But in reality, people use the terms interchangeably. So if you tell someone that you want to buy or sell Ethereum, they will know exactly what you mean.

Ethereum vs. Bitcoin: Use Cases

Ethereum vs. Bitcoin, use casesPhoto by WorldSpectrum from Pixabay

While Bitcoin and Ethereum use very similar technologies, their use cases are quite different. It is important to understand these differences for those considering investing in them.

Bitcoin is a general purpose cryptocurrency. Although it can run some limited scripts, it was meant to be a replacement for fiat currencies and performs the same functions as them. This means that you can use Bitcoin as a store of value just like any traditional currency. You can use it as an investment too, with the added benefit of no one knowing how much you own. You can still use Bitcoin to make payments. It is particularly suitable for cross-border payments. Unlike traditional financial services like Western Union, Bitcoin lets you transfer money from one country to another while paying a small fee. It also allows you to send money to people in countries whose financial systems are tightly controlled by authoritarian governments.

Ethereum, on the other hand, was specially developed for the operation of decentralized applications. While you can certainly use it as a store of value, investment, and payment method, it is much more than that. It enables businesses to build basic crypto applications and execute smart contracts that offer tangible value beyond transactions. Its inherently flexible nature has also enabled it to become the foundation of many other cryptocurrencies.

In short, if Bitcoin went away tomorrow, a lot of people would lose significant sums of money and this would cause some hardship. But if Ethereum went away, it would affect the world far more negatively.

Ethereum vs. Bitcoin: Other Important Differences

Ethereum vs. Bitcoin, key differencesPhoto by Tumisu from Pixabay

There are many technical differences between Bitcoin and Ethereum that the average person probably won’t care about, but there are some differences that will.

For example, because of the way Ethereum processes blocks of transactions, it can process transactions much faster than Bitcoin. While transaction fees for the two currencies are currently similar, this has not always been the case. When Bitcoin saw its price soar about two years ago, transaction fees also skyrocketed. But while Ethereum also saw a sharp rise in prices during this period, this had no impact on the transaction fees. This is because these fees are calculated differently. After all, while there will never be more than 21 million bitcoins, the supply of Ethereum is theoretically limitless. This could dramatically affect the value of the two currencies in the future.

Ethereum vs. Bitcoin: FAQs

Can you convert between Ethereum and Bitcoin?

Yes, most popular cryptocurrency exchanges not only allow you to trade between cryptocurrencies, but also fiat currencies. Converting between Ethereum and Bitcoin is a simple, common, and inexpensive process. If you want to know how much your Ethereum is worth in Bitcoin, many of these exchanges offer a real-time ETH to BTC converter.

How much can Ethereum rise in value?

As with any highly speculative investment, no one can say for sure what the price of Ethereum will ultimately be. But currency experts have expressed various degrees of upward trend.

At the lower end of the spectrum, Aayush Jindal, an analyst at Eth News, is forecasting an all-time high of $ 515. At the other end of the spectrum, Brian Shuster of Ark Capital LLC predicts a price of $ 100,000. Most other experts predict prices in the $ 1,000 to $ 7,000 range.

In particular, Jeff Reed, a well-known cryptocurrency writer and analyst, believes that the price of Ethereum will one day exceed Bitcoin. He says this because he believes Ethereum, with its smart contract functions, is more valuable.

Should I Buy Ethereum?

The question of whether or not to invest in Ethereum cannot simply be answered with a yes or no. It largely depends on your investment goals. As mentioned above, cryptocurrencies are a highly speculative investment and you should expect significant price fluctuations, at least in the short term. But if you’re willing (and able) to view your investment as a long-term commitment, the growth potential from investing in Ethereum is enormous.

So the question you should really ask yourself is not, “Is Ethereum worth buying?” But “Do I have the patience to ride the valleys in pursuit of the summit?”

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