What is the difference between Bitcoin and Ethereum? We will look at how the two most popular cryptocurrencies in the world diverge from each other.
How Bitcoin Works
Bitcoin is a digital currency whose purpose is:
- Decentralized (no organization controls the creation or flow of currency)
- Anonymous (the ability to make transactions is not tied to the individual)
- Transparent (all transactions can be viewed by anyone at any time)
All this is possible thanks to blockchain и ad hoc network.
Bitcoin blockchain is simply a file that keeps track of all ongoing bitcoin transactions. Every 10 minutes all new transactions are written together in block and then added to the end of the file. Hence the blockchain.
This means that some database value does not determine your current bitcoin balance. Instead, your current balance is simply a tracking of all past transactions up to the present. The currency is never actually traded by hands.
Bitcoin is not on the same server or server cluster. Rather, it is distributed across thousands and thousands of computers around the world (called nodes), and anyone can join this network whenever they want.
Whenever a transaction is executed, it is distributed across all nodes of the Bitcoin network, and each node exists to verify the correctness of the transaction. Here is what Bitcoin mining: You devote the computing power of your machine to help check the blockchain, and in return you can earn some Bitcoins.
To send or receive transactions you will need bitcoin wallet. Wallet is easy public key (the address that others use to send you bitcoins) and private key (basically a signature that authenticates transactions made from your wallet). Anyone can create a new wallet at any time, which makes Bitcoin an anonymous currency.
Since the blockchain is distributed across all nodes, it is completely open and transparent. Anyone can view the entire chain of blocks and see each transaction made.
How Ethereum Works
Ethereum is a huge worldwide network that is distributed among thousands of computers around the world in a peer-to-peer network. The Ethereum platform uses blockchain technology in much the same way as Bitcoin, but extends it in several ways.
A key component of Ethereum is the smart contract.
The Ethereum platform comes with its own special programming language called Solidity, which allows people to write Ethereum scripts, and these scripts are called smart contracts. Smart contracts are distributed over the network and, upon request, are executed on all Ethereum nodes.
Ethereum also uses a digital currency called Ether. Because smart contracts require computational resources, node owners are compensated with Ether. The more complex the intellectual contract, the more expensive it is to complete. If it costs too much, it will not be completed. This stimulates the creation of effective smart contracts.
The Ethereum blockchain is similar to the Bitcoin blockchain, but instead of containing only Ether transactions, it also contains the results of executed smart contracts.
Each node in the Ethereum network maintains a copy of the blockchain, as Bitcoin does, and the verification process is similarly called Ethereum mining. Miners spend computing resources checking the validity of each Ether transaction and the result of a smart contract. In exchange for their efforts, they earn Ether.
You can also directly send and receive airtime from wallet to wallet.
Ethereum is proof that the blockchain concept extends to areas that are not related to financial technology. Because of this, Ethereum is often called "programmable money." Yes, it is a digital currency, but money that can execute code.
Want to know more about Ethereum? Here are our articles and news on this cryptocurrency.
Bitcoin vs. Ethereum in a Nutshell
While Bitcoin is just a digital currency, Ethereum is much more than that.
Bitcoin and Ethereum have fundamental differences in their long-term goals, as well as differences in their core technologies, which affect their value and intended use in the wider world. For instance:
- The average Bitcoin block time is 10 minutes, while the average Ethereum block time is 15 seconds. Ethereum transactions can be confirmed much faster.
- The number of bitcoins that can be earned as a reward for mining is halved every four years. The total number of bitcoins suitable for bitcoins is 21 million. When miners reach this number, mining for a new bitcoin will stop. The amount of Ether extracted during production is limited to 18 million per year, therefore new Ether is always included in circulation.
- Bitcoin is best mined using ASIC, a specialized equipment that far surpasses conventional equipment. The need for specialized equipment pushes miners into large mining pools that consolidate mining power, while consolidating the bitcoin mining rewards in the “mining cartels” that dominate the market. Ethereum, however, is best developed using GPUs that are more affordable and possibly more equal, even with rising prices for GPUs due to Ethereum mining.
- Bitcoin is often called “digital gold” because it has a holding value, and many other cryptocurrencies are “tied” to the price of Bitcoin. Ethereum is more often referred to as a “digital currency" because it has cost costs and a lower entry point.
However, the main difference between the two cryptocurrencies is the simplicity of concluding programmable smart contracts on the Ethereum blockchain. Initially, the Bitcoin network could not process smart contracts. As Bitcoin and its blockchain evolved, support for smart contracts was added, although Bitcoin continues to play a secondary role after Ethereum in this regard.
However, the main difference between the two cryptocurrencies is the simplicity of concluding programmable smart contracts on the Ethereum blockchain. Initially, the Bitcoin network could not process smart contracts. As Bitcoin and its blockchain evolved, support for smart contracts was added, although Bitcoin continues to play a minor role in Ethereum in this regard.
Ethereum proponents point to this ease of use as one of the main reasons why Ethereum is the future of cryptocurrency. In addition, Bitcoin has traditionally been slow to introduce new changes and, according to many people, still exists because it was the first cryptocurrency.
Bitcoin and Ethereum are not the only cryptocurrencies
Although the cryptocurrency industry is in its infancy, there is no doubt that blockchain technology is slowly transforming the world. There are also thousands of tokens, each of which is trying to decentralize and violate the status quo in this industry (for example, a fully decentralized Internet).
But remember: not all cryptocurrencies are what they seem. Many of them are outright scams, as evidenced repeatedly. Need help making a decision? Check out our article on how to avoid cryptocurrency scams - it's a great starting point.