What are the similarities and differences between Bitcoin vs Ethereun? Bitcoin or BTC is similar to Ethereum or ETH in quite a few ways but the differences between the two seem to be more than the similarities.
Most users know very little about these facts which often lead to a confusion and dilemma while making a choice between Bitcoin and Ethereum. Well, after going through this article, you will not find any difficulty in that aspect.
Most people think that Bitcoin and Ethereum are the same, which, ideally, is not true. Check out Differences Between USDT and USDC.
Ideally, Bitcoin can be considered as digital gold but, on the other hand, Ethereum can be considered as a decentralized network though both of these are secured by using a decentralized network.
These are both powered by individual miners all across the globe as well. These miners are typically responsible to keep the network secure by playing their respective parts and getting paid for the same.
Though Bitcoin is considered to be revolutionary as compared to the US dollars, the creation of Ethereum was inspired typically by Bitcoin and took it to the next higher level.
This platform normally facilitates handling a large number of money and financial products and services in a much better way because it is typically a decentralized global computer system.
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Bitcoin vs Ethereum: The Similarities
In order to have a better understanding, first, take a look at the common factors between Bitcoin and Ethereum.
1. Features
When it comes to the fundamental features of Bitcoin and Ethereum, both are similar in the sense that these cryptocurrencies are both specific types of digital currencies that are issued non-centrally.
This means that there is no central authority or governing body that manages, controls, and regulates them.
2. Operation
Another significant similarity between Bitcoin and Ethereum is in their way of operation, which is typically based on blockchain technology.
Typically and fundamentally, both of them operate by using the Proof of Work or PoW consensus.
This means that the confirmation and verification of transactions in both the cases need an overall consensus of all the nodes across the network.
3. Speed
As compared to other types of crypto coins, especially the new ones, both Ethereum and Bitcoin are quite slow in processing a transaction.
However, this slow speed is the result of the aforementioned conditions.
4. Price Correlation
In terms of prices, it is Bitcoin that happens to be the major parameter that helps in defining the picture of the entire crypto market.
This means that the price of Ethereum crypto is correlated to Bitcoin. It has a positive correlation. This means that when the price of Bitcoin rises or falls, the same effect is seen on Ethereum.
However, as it is seen currently, Ethereum is not following the fluctuations in the price of Bitcoin as closely as it used to before.
This is an important divergence which the crypto critics and market experts believe will become a more apparent and significant differentiating aspect in the future.
Bitcoin vs Ethereum: The Differences
Now that you know about the similarities, it is time to delve deeper and take a look at the significant differences between Bitcoin and Ethereum.
As said earlier, the differences between them are much more than the similarities.
5. Creation
Bitcoin was created by an anonymous person and was launched in January 2009, though people say that it was created by Satoshi Nakamoto.
Not much about the creator is known even today but what is known is that it has a fixed supply of 21 million coins only. Out of this, more than 18.7 million have been mined already.
On the other hand, Ethereum is not as mysterious as Bitcoin in terms of its creator. It is known that it was created by Vitalik Buterin, or Vitaly Dmitriyevich Buterin, a programmer and writer of Russian-Canadian origin, at the age of 21! It was launched in July 2015. According to the reports, there are only 116 million Ether coins in circulation as of now.
6. Popularity
Bitcoin is a very popular type of crypto coin which has undergone significant developments in the past decade or so. It is now used for making different types of payments and is considered as a legal tender by the merchants in several countries, even in El Salvador.
Ethereum, on the other hand, is the second largest currency in terms of popularity and market cap. It has a long way to go to compete with Bitcoin, shoulder to shoulder, though it is also being developed continually to achieve it soon.
7. Processing Speed
When compared with each other, the processing speed of Ethereum is a little faster as compared to that of Bitcoin, at least based on the current version of Ethereum.
Statistically, Ethereum can normally process about 10 to 15 transactions per second. However, this is expected to change and be much, much better when the upcoming 2.0 version of Ethereum hits the market.
On the other hand, Bitcoin in comparison can process only about 3 to 5 transactions in a second making the wait time of the users annoyingly long.
8. Smart Contracts
One of the most significant points on which Bitcoin and Ethereum can be easily differentiated is the smart contracts. These are digital contracts that have a diverse range of applications.
This is a term that is in fact very closely related to Ethereum blockchain. These smart contracts are created by using Solidity, the programming language of Ethereum.
Bitcoin, on the other hand, unfortunately, does not offer any support for complex things like the smart contracts in spite of it being the biggest and most commonly used crypto coin by far.
9. Cost Factor
If you consider the cost, the cost of executing a transaction on the Ethereum blockchain is comparatively less than the cost of it on the Bitcoin network. This may be due to the reason that the Ethereum network supports smart contracts which makes the entire process simpler.
On the other hand, the cost of executing a transaction on the Bitcoin blockchain is much too high in comparison. This is in spite of the fact that it only supports simple contracts. In fact, more often than not, even these simple contracts are cumbersome to design while executing a trade.
10. Stability in Price
When it comes to price stability, Bitcoin surely has a distinct edge over Ethereum. Bitcoin seems to be more stable than Ethereum. The primary reason behind it is that the market capitalization of Bitcoin is more or less four times higher as compared to Ethereum.
On the other hand, Ethereum is less stable in price action as compared to Bitcoin. This is because, as said earlier, Bitcoin price rules the entire cryptocurrency market.
11. Trading Volume
If you consider the trading volumes of these two types of crypto assets, you will see that Bitcoin has a much larger trading volume as compared to Ethereum.
Statistically speaking, if you consider the figures of December last year you will observe that the trading volume of BTC/USD was 47.5%. This is primarily due to the reason that Bitcoin became too pricey to support trading strategies and it is also quite risky as well. This specific factor influences the psychological trait of the users.
On the other hand, if you consider the trading volume of ETH/USD for the same period it was just 20%. However, this is highly likely to increase this year because, as said earlier, the price fluctuations of Bitcoin now have less effect on the price actions of Ethereum.
12. Energy Consumption
In terms of energy consumption, it seems to be a serious downside of Bitcoin which may affect its worldwide acceptance and adoption eventually. When it comes to Bitcoin mining, this energy-intensive process typically consumes an absurd amount of computing power.
According to a recent study conducted by the University of Cambridge, this amount is in fact much more than the total energy consumed by the entire country of Venezuela. Quite naturally, such a high amount of energy consumption of Bitcoin has caused serious concerns among the investors as well as the regulators.
In fact, Tesla has announced that it will stop accepting Bitcoin as a mode of payment simply due to the reason that it is costing them a lot of money in the forms of energy consumption.
On the other hand, Ethereum, being an open-source technology, benefits a lot in terms of energy consumption. More so, the developers are trying to update the Ethereum blockchain in order to make it much more energy efficient.
As mentioned earlier, the new version and technology that is slated to be released later this year is supposed to consume 99.95% less energy as compared to the energy consumed by the current technology.
Moreover, the fact that the network supports smart contracts will also expedite the process thereby reducing time, money, and most importantly, energy consumption by a significant extent.
With all these features, the Ethereum platform will surely revolutionize a number of different industries which gives it a significant edge over Bitcoin and its other competitors.
13. Few Other Notable Differences
Here are a few smaller yet important differences between Bitcoin and Ethereum for you to know.
When the term ‘Bitcoin’ is used, it usually means a crypto coin but the term ‘Ethereum’ usually refers to the platform.
In fact, Ether is the native coin of the Ethereum blockchain and every user needs to pay gas fees in the form of Ether to use the Ethereum platform. This also proves the point that the term Ethereum refers to the platform or network and not a crypto coin.
When it comes to transactions, Bitcoin transactions are mainly monetary. On the other hand, Ethereum transactions in comparison can also be an executable code.
Ethereum is mostly considered as a blockchain used for general purposes but Bitcoin, on the other hand, acts as a medium of exchange and a store of value primarily.
The creation of Ethereum was not as a competition to Bitcoin but rather as a complement to it mainly. And, as for Bitcoin, it was initially not created with the intention to be used as a cryptocurrency but simply to keep the transactions anonymous and remove the involvement of any third parties from them.
When it comes to the market capitalization of the two, Bitcoin has a much higher market cap which is nearly $600 billion as of July 2021. In comparison, the market cap of Ethereum, or Ether to be precise, is just about $250 billion, which is about 1/3 of the market cap of Bitcoin.
In terms of the rise in the price of the two coins, your investment decision may also vary. According to the recent reports it is seen that over the past year or so, the price of Bitcoin has increased by more than 300%.
However, in comparison, the prices of Ether have risen by as much as 900% which is three times the rise in the price of Bitcoin. This is in spite of the massive downturn the economy has experienced due to the Coronavirus pandemic.
In terms of flexibility, Ethereum is a much more flexible platform. It allows users to hold Bitcoin on this platform rather than on the Bitcoin blockchain.
This is why these are also called ‘wrapped bitcoin.’ On the other hand, you cannot store Ether on the Bitcoin blockchain which is more commonly accepted as a cash replacement.
While considering the issuance time for the new tokens, as for Bitcoin it is about 10 minutes, and as for Ether new tokens are issued after every 10 to 20 seconds.
Which is Better to Invest – Bitcoin or Ethereum?
Though choosing between Bitcoin and Ethereum is a decision that is entirely up to you, it is good to consider the different aspects of it before you really go ahead with it.
Since it is about making an investment, it will mainly depend on your risk tolerance.
There is literally very little that can be compared between Bitcoin and Ethereum and both have all the potential and prospects to be well accepted and become mainstream.
However, if you consider the fundamentals of Bitcoin and Ethereum, both essentially run on blockchain technology.
However, Ethereum is much faster than Bitcoin due to the particular software that powers it.
In addition to that, as said earlier, this specific software also allows the platform to perform as a smart platform.
This means that the developers can use this specific platform for creating Decentralized Applications or dApps and even other types of crypto coins.
Another important differentiating factor that can influence your choice is the supply of the different coins.
Bitcoin typically has a finite supply and once that mark is reached there will be no more of these coins created.
This is why as an investor you should consider it to be your hedge against inflation since it has a store of value.
On the other hand, unlike Bitcoin, Ethereum typically does not come with such limitations in its supply.
This means that this specific coin will ideally not have any deflationary effect and the critics corroborate it.
Ethereum seems to cope up with the popularity and extensive usage of Bitcoin with some developments made in its network.
One of the most significant ones is its upcoming 2.0 version of which both the users as well as the company have high expectations, especially in terms of transaction speeds, among other things.
Talking about this new version of Ethereum just on the superficial level, the features of it are all upgraded and are supposed to use the Proof of Stake or PoS consensus algorithm instead of the traditional PoW or Proof of Work algorithm.
This means that it will make use of the tokens rather than the usual computational power while processing the transactions.
One of the upgraded features of the new Ethereum blockchain is the Beacon Chain. This employs smaller groups of nodes called shard chains.
These nodes process their own segment of transactions simultaneously and for that, there is no need to get a consensus across the whole network.
This, in fact, will also improve the scalability of Ethereum in the future and at the same time enhance the output rate significantly.
Some of the experts of the crypto market believe that when it happens, the rate of transaction processing of Ethereum will be as high as 15,000 transactions per second.
This means that, in terms of the speed of processing a transaction, Ethereum 2.0 will be able to match easily with any given centralized payment system.
As of now, Bitcoin is more favored and has gained a lot of traction from institutional investors.
Though there are lots of good reasons behind it, the main reason is that more and more businesses are finding accepting Bitcoin to be a comfortable form of payment being more stable among the two.
Ethereum, on the other hand, is considered to be a more utility-based crypto coin and a platform that offers a lot of benefits.
The most significant attribute of it is that it is one of the first networks to support smart contracts. Over time, it is expected to see further developments.
Therefore, considering all of the above facts and looking at the future of Bitcoin and Ethereum, both are likely to play a big role in the finance sector as well as in all other sectors including construction and the judiciary.
However, if you look at things in a concise manner, it is Bitcoin that carries less risk as compared to Ethereum.
This is simply due to its longer track record than Ethereum and higher name recognition. But then, as for Ethereum, it can be said that it will offer more opportunities and growth potential over time.
As a result, it will prove to be more productive, logical, and prudent to diversify your investments. Keep a close eye on the new trends since both these are poised to do quite well over time.
However, make sure that you do your own research and due diligence as well as consult with an expert and professional financial advisor before you go ahead with your investment.
This research aspect is quite an important aspect because at this point both Bitcoin and Ethereum are highly speculative, just like any other type of cryptocurrency.
This means that there is no guarantee that any of the two will be readily and widely adopted.
As for Ethereum, it is even more difficult because, as said earlier, it is comparatively young and does not even have much recognition as Bitcoin as of now.
Therefore, it can be safely said that even if merchants accept one type of crypto coin as a form of payment, it is highly likely that it will be Bitcoin rather than Ether, the native coin of Ethereum.
Another significant risk in accepting either one or both of these two types of crypto coins as a mode of payment is the blockchain technology itself.
Innovative and useful as it may be, it is hard to tell whether this technology will still remain as revolutionary as it is today when it will become mainstream down the road.
There are no promises made and in fact, most of the people believe that blockchain will not pan out and therefore both Bitcoin and Ethereum will take the hit but it is Ethereum that will be affected the most in comparison.
Conclusion
Learning the similarities and differences between Bitcoin and Ethereum will eventually help you to know which among the two is better in their own respect. This, ideally, was the main intention of this article.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.
