In our previous blogs, we have written about What are Cryptocurrencies, How to Invest in Cryptocurrency, Bitcoin vs Dogecoin, and Bitcoin vs Litecoin. Now moving forward and diving deeper into the magnificent world of Cryptocurrency, here in this blog we will explore Bitcoin (BTC) and Ethereum (ETH). Sometimes people view Bitcoinand Ethereum to be the Coke and Pepsi of the crypto. In terms of total market cap and public reputation, they are believed to be No. 1 and No. 2, however. As we dive deep into their details, one can realize the fact that these two concepts serve entirely different purposes. It's like making a comparison of a Coke versus a vending machine when speaking about these two seminal platforms.
Thus, gaining knowledge about the differences between Bitcoin and Ethereum will indeed assist in leading you down on a deeper path of technological advancement, where people are going as a culture. Nowadays Bitcoin and Ethereum are experiencing substantial price growth, which is attracting infinite new investors all around the globe to the crypto industry. Although these two cryptocurrencies are getting a huge amount of interest, many still ponder that whether they should invest in Bitcoin or Ethereum.
Not all investors especially new ones have an understanding on what is the difference between the two, hence, Fintra is here to enhance your knowledge. The topics we will talk about are:
Bitcoin is known to be the biggest and oldest coin in the crypto world. Since it's well-known globally, this coin has been leading the market for the past decade. For example, it was the leader in most of the price rallies, and also the one to which everyone turned to when the prices start falling. Over the years, Bitcoin has experienced several major surges, and each time it has broken records, touching new all-time highs. In fact, during 2017, Bitcoin's price skyrocketed so high, followed by the altcoin market. Due to this, it enabled the crypto industry to leave the shadows and gain its own identity. Later on, a massive correction took place where the BTC dropped so low it caused many to term it as a bubble, and a failed asset. Some predicted the crypto industry would come to an end. However, three years later, Bitcoin again returned to its high value and in fact surpassed it, doubling in value and reaching a new all-time high in 2021.
As for Ethereum, it reached a record price of around $1,440 in the early days of 2018. Although over the next few years, it followed Bitcoin in its correction, the coin once again regained its value, but it didn't touch a new all-time high. Ethereum's value didn't reach as high as Bitcoin because it didn't have that much strength to make the final step and hit a new milestone.
These days, because institutional investors are actively purchasing Bitcoin, it has increased the scarcity and price of it, while on the other hand, Ethereum has begun a process that could significantly improve its efficiency, speed, security, and bring various other benefits, which is why it still has the potential to grow. From the above details, we can comprehend that when it comes to price improvements, Ethereum and Bitcoin have similar timing, but they each have their own reasons for being termed as good investments.
A mysterious person named Satoshi Nakamoto executed an idea that he had laid out in a white paper in January 2009: It was a peer-to-peer electronic cash system that would operate securely without a central authority. With Bitcoin, the concept of cryptocurrency, or in other words the funds without any physical form, was born.
Bitcoin wasn't the first time that people thought of a decentralized, nonphysical form of money, but it was the idea that for the first time caught on. In general, the value of all other cryptocurrencies including Ether moves in tandem with Bitcoin, and more than any other coin Bitcoin is still traded immensely.
Bitcoin's primary purpose was to establish itself as a viable option to traditional fiat currencies that are backed by countries. It is essentially seen as a store of value and a medium of exchange.
Vitalik Buterin, a computer developer, was one of Bitcoin’s early follower. In 2013, this daring and adventurous individual was determined to build a new cryptocurrency that would share several technical characteristics with Bitcoin. For example, both the coins employ a Proof-of-Work (PoW) algorithm to validate the state of the network.
Ethereum is a decentralized software platform that enables to build and run the Smart Contracts and Decentralized Applications (DApps) without any downtime, fraud, control, and/or interference from any third party. The vital goal behind Ethereum is to form a decentralized suite of financial products that allows anyone to have free access to them regardless of their nationality, ethnicity, or faith. This aspect gives the implications for those countries more compelling because those without state infrastructure and state identifications can gain access to loans, insurance, bank accounts, or a variety of other financial products.
The applications on Ethereum run on its platform-specific cryptographic token known as ether. In other words, we can say that Ether acts as a vehicle moving around on the Ethereum platform and is explored by developers seeking to develop and run applications inside Ethereum, and now even investors are using it to make purchases of other digital currencies using ether. Although lagging behind the dominant cryptocurrency by a significant margin, Ether, which was launched in 2015, currently is the second-largest digital currency by market cap after Bitcoin.
It was observed that as of January 2021, ether's market cap was roughly 19% of Bitcoin's size. Ethereum in 2014 launched a pre-sale for ether and it received an overwhelming response. This assisted to usher in the age of the initial coin offering (ICO). According to Ethereum, it may be used to decentralize, codify, secure and trade anything you desire. Moreover, in 2016, due to the attack on the DAO, Ethereum got split into Ethereum (ETH) and Ethereum Classic (ETC). In 2021 Ethereum is planning to change its consensus algorithm from proof-of-work to proof-of-stake. By making this move, it will enable Ethereum's network to run itself with far less energy and improve its transaction speed. Proof-of-stake permits network participants to “stake” their ether to the network. This process enables to secure the network and process the transactions that transpire. Individuals who do this get rewarded ether similar to an interest account. This act is similar to Bitcoin’s proof-of-work mechanism where miners get rewarded more Bitcoin for processing transactions.
Bitcoin and Ethereum are both decentralized, they don’t issue stores of value through any government and/or other central authority. They are developed on distributed ledger blockchain, which's ideally tamper-proof (the tech experts who have outrageously expensive gear can work around the platform protections). Moreover, if any individual is working within a reputable, established, crypto trading platform, it can trade Bitcoin and Ether. Both these currencies are so popular that very often they're singled out for use in fiat-crypto exchanges to the elimination of smaller coins. Ether and Bitcoin are also similar in one vital aspect- Both of them are digital currencies that can be traded via online exchanges and stored in various types of cryptocurrency wallets.
The distinction between Bitcoin and Ethereum is that Bitcoin is simply a currency, while Ethereum is a ledger technology that is used by businesses to build new programs. Bitcoin and Ethereum are both based on the "blockchain" technology, but Ethereum is very powerful. Though Bitcoin excels in being a peer-to-peer payment system, Ethereum shines when it comes to developing smart contracts and distributed applications. Though Bitcoin and Ethereum networks get powered by the principle of distributed ledgers and cryptography, they technically differ in various other ways as well. For example, transactions on the Ethereum network can sometimes contain executable code, while the data affixed to the Bitcoin network transactions are only for storing notes. Both the cryptocurrencies also differ in their algorithms on which they function, Ethereum uses ethash and Bitcoin uses SHA-256.
With regards to block time, Ethereum is quicker than Bitcoin- an ether transaction is confirmed within seconds compared to minutes for Bitcoin. Even other cryptocurrencies, or tokens, can get created on the Ethereum network by using the same protocol as Ether, but distributed on varied blockchains, which can be private or public. In terms of their general goals, Bitcoin and Ethereum networks are distinct: Bitcoin was formed as a substitute for national currencies and for this reason it aspires to be a medium of exchange along with being a store of value. On the other hand, Ethereum was intended as a platform to facilitate irreversible, programmatic contracts, and applications via its own currency.
On each cryptocurrency's network, there are different mining rewards paid out to nodes. Bitcoin miners obtain a reward of 6.5 BTC when they are the node that completes the SHA-256 equation first and adds the next block to its blockchain. Comparingly, Ethereum miners obtain the reward of 2 ETH for participating in validating blocks of transactions.
With regards to total supply, Bitcoin caps its supply of 21,000,000 coins. Bitcoin's this strategy ensures that it preserves scarcity in the market. On the other hand, there is no cap on the amount of Ether (ETH). The network has to continue to produce new ETH indefinitely to cover gas fees produced by developers executing EVMs. Currently, there are about 114,467,625.91 ETH in circulation.
From the information provided above, we can say that researching Bitcoin vs Ethereum, has led to a deeper thought of which blockchain technology can improve every aspect of our lives. However, it's crucial to understand that fundamentally Bitcoin and Ethereum are both very different ideas: Bitcoin is considered as a store of value whereas Ethereum is considered as a decentralized platform to program other decentralized ideas. Moreover, the currency that runs Ethereum is called Ether. Along with these vital facts, it is also vital to understand the idea of the blockchain which makes Bitcoin and Ethereum possible. We now aren't required to give anyone our precious data to conduct transactions because blockchain gives us the ability to create a trustless, immutable way to do business.
If you're pondering which to choose in 2023, Bitcoin or Ethereum, the answer is a little tricky because both coins do seem to have huge potential and have lots of reasons to grow further. For example, Bitcoin is well-known for enjoying massive price hikes after halving event, the process which cuts its block rewards for miners in half. Moreover, the third halving occurred on May 11, 2020, and, so far, the surge hasn’t disappointed. Although, it did come much earlier than expected, where everyone began to believe that it might not be caused by the halving but by institutional interest. The incident might have happened due to both having an equal hand in the price growth.
However, experts still predict Bitcoin hasn’t reached its full potential and its desire to grow is still strong. Hence, the coin might go much higher in 2023. Speaking about Ethereum, it's in the process of developing a new invention that will lead to a major overhaul of the project known as Ethereum 2.0. This new element is believed to bring massive improvements to the speed and scalability of Ethereum. This will likely attract back all those individuals who used it but left due to slow network or high fees. As soon as they return, the coin's price will surely surge.
So, to the question, "Which one to buy, Ethereum or Bitcoin" there’s no clear answer. There's the misconception that there is a rivalry between both the cryptocurrencies, and that BTC vs ETH fight will result in one project's demise. However, do bear in mind that both are in entirely different lanes, having different goals and purposes. The fact is both the coins have individual uses, cases and great potential, along with having a reason and room to grow.