Understanding the Differences Between Bitcoin and Ethereum

2021/05/28 02:19:20

Several cryptocurrencies use blockchain technology – a type of distributed ledger technology implemented using distributed computer networks. What distinguishes cryptocurrencies is the fact that no central authority controls them. This makes it resistant to government exploitation or interventions.

If you are planning to delve into the world of blockchain and cryptocurrency, then you must understand the fundamental differences between the two largest cryptocurrencies by market capitalization, Bitcoin and Ethereum. As such, this article covers all you need to know about these Decentralized systems.

What is Bitcoin?

Early January 2009, a mysterious figure, Satoshi Nakamoto, effectuated a concept they previously outlined in the whitepaper – a p2p electronic cash system that could function without any centralized authority while maintaining the security of the assets. This innovation is called Bitcoin, and with it, the concept of cryptocurrency or non-physical cash came to life.

Satoshi wasn't the first person to think of an idea that suggests decentralization in the financial system or the concept of non-physical cash. However, they were the first to bring the idea into reality. And since then, numerous other cryptocurrencies have been created. Bitcoin is still the highest valued digital currency, and one that dictates all market movements.

The primary aim of creating Bitcoin was to create a viable alternative to the traditional financial ecosystem and fiat currencies backed by countries. In essence, Bitcoin stores value and serves as a medium of exchange.

What is Ethereum?

Ethereum is a blockchain-based, open-source and decentralized software platform. In summary, it is a global computing platform with its native cryptocurrency called ether, or simply ETH.

Ethereum uses Solidity as its programming language, and with this, it enables programmers to create smart contracts which can be deployed on the chain. Due to its high level of decentralization, most developers choose to build their applications on the Ethereum blockchain. The p2p apps on the Ethereum blockchain are called Decentralized apps (DApps). These apps provide trustless services and products. Ether, as the native currency of Ethereum, is the fuel that enables the usage of DApps.

Launched in 2015, this innovation aims to serve as an upgrade to the supposed downsides of Bitcoin. Its use cases offer more alternatives and options for developers to develop new apps; hence, it ultimately became a distinct and entirely separate entity. Ethereum is arguably currently the most active and developed blockchain project worldwide.

What are the Differences Between Bitcoin and Ethereum?

The essence of creating Bitcoin was to serve one main purpose – offering a way for people to transfer value anonymously from an asset to another without the need for central authorities. On the other hand, Etheruem focuses more on the idea of using blockchain to develop different decentralized use cases. Thus, Ethereum can function in diverse ways, rather than just a platform that transfers or holds value.

Although ether can operate as a digital currency, that isn't its fundamental aim. The essential purpose of creating the Ethereum platform is to monetize the operations of DApps, as well as the creation of smart contracts. The influence of Ethereum was well received by crypto enthusiasts that its use cases now extend over its core function.

At the beginning of 2020, Bitcoin had a market cap of roughly $150 billion, whereas Ethereum had about a tenth of that value, standing at approximately $16 billion. However, as of the beginning of May 2021, Bitcoin’s market cap stood at about $1.1 trillion. Ethereum’s market cap is less than half of that size, coming in at about $450 billion, which is a significant improvement over time.

Ethereum is a flexible platform - so flexible that most individuals now hold their bitcoin on its chain instead of the Bitcoin blockchain. This idea is known as a tokenized bitcoin, or wrapped bitcoin. You cannot hold ether on the bitcoin blockchain; however, bitcoin is still the most widely accepted crypto for cash replacement. A simple search on Google will even reveal hundreds of businesses willing to sell their services and products to you in exchange for bitcoin.

But, is There Really any Comparison?

No, there isn't. Several pieces of research about Ethereum vs. Bitcoin have only led to deeper discussions of how far blockchain technology can work to improve several aspects of our lives. If, by chance, you could see the future of everything ranging from the judiciary, construction to education and finance, Ethereum and Bitcoin will both surely be an integral part of it.

However, it is essential to understand that primarily, Etherum and Bitcoin are different concepts and ideas. Bitcoin acts as a means to store value. On the other hand, Ethereum is a decentralized platform that serves as a base for other ideas, and ether is the fuel that drives Etheruem. With this, there's really nothing to compare – they aren't competitors; instead, they focus on different ideas.

With these two innovations in place, we no longer have to rely on giving third parties our precious data before carrying out transactions. These innovations work together to offer us the power to create a trustless, secure, and reliable approach to conducting business.

Should you Buy Ether or Bitcoin?

Well, this is not a financial advice-centric guide, and as such, will not suggest where to put your cash. However, there are some facts you should note if you are speculating about crypto investments.

In the long term, cryptocurrency growth relies on finding practical applications for it. If bitcoin becomes even more accepted as a form of currency, as we’ve been witnessing over the years, or the Ethereum platform keeps gaining traction as an established standard for distributed computing, then we are likely to see a surge in their values, respectively.