The cryptocurrency world is just a little over 10 years old, but it has already revolutionized the world of finance and brought with it many new and fantastic opportunities. While Bitcoin has taken the online community by storm, another cryptocurrency, Ethereum, has quietly established itself as one of the most influential cryptocurrencies to date, making this Ethereum vs Bitcoin comparison so vital.
Many aspects contribute to why Bitcoin and Ethereum have become so popular among investors, developers, and even average people who want to learn more about this exciting technology.
In this post, we will be looking at the main differences and similarities between Ethereum and Bitcoin, how their technology has evolved, how they differ today, and the extent of their economic and social impact.
Ethereum vs Bitcoin: Side-by-Side Comparison
|Vitalik Buterin, Gavin Wood, Mihai Alisie et al.
|Genesis Blocked Mined
Ethereum vs Bitcoin: What’s the Difference?
Ethereum and Bitcoin both use blockchain technology to provide a secure, decentralized, and transparent payment system. However, the way they achieve that is completely different.
While Bitcoin uses PoW for security, Ethereum uses PoS. Additionally, their transaction processing speed and transaction fees are also completely different. Here are some more key differences between the two.
Bitcoin is a cryptocurrency, which means it is secured by cryptography. Bitcoin’s security relies on the Proof-of-Work (PoW) algorithm to secure the blockchain. When using PoW, miners must continuously solve complex mathematical equations to maintain the blockchain network and prevent double spending of coins.
While PoW has proven to be very secure, it is an expensive and energy-intensive way to maintain the blockchain. As such, there will be fewer miners in the future as the difficulty increases, and only about 10 million Bitcoin exist today.
Ethereum uses a Proof-of-Stake (PoS) algorithm that requires more computing power to verify consensus on the chain. As a result, it is always easier to generate new blocks on the Ethereum blockchain than on the Bitcoin blockchain.
By contrast, Ethereum’s security relies on the Stake algorithm, which requires voters to stake a certain amount of Ethers in order for them to be able to validate transactions and maintain consensus on the chain. Because PoS is less computationally intensive, there are more nodes in the network than miners in the Bitcoin network today.
Transaction Speed and Fees
Bitcoin’s transaction speed is fast. Within 10 minutes, the transaction will be confirmed on the blockchain. However, its transaction fees are high. Bitcoin was initially designed to have a transaction speed of 3 transactions per second (TPS).
However, its security increased dramatically, resulting in a slower block time and, therefore, fewer transactions being processed every second. Additionally, only 21 million Bitcoin are available today, which has also resulted in a sharp increase in transaction fees.
Ethereum transactions are just as fast as Bitcoin’s. Within 10 minutes, Ethereum transactions can also be confirmed on the blockchain. However, unlike Bitcoin’s high transaction fees, Ethereum has low ones Currently, the average transaction fee per transaction is less than $1 USD on average, while the median is around $0.27 USD.
Block Size Limit
Bitcoin has a set block size limit of 1 MB, which means that a block can only hold a maximum of 1 MB worth of transactions. This limit was set to prevent spam from congesting the blockchain and overtaking the Bitcoin network, which could allow attackers to carry out a 51% attack on the network.
However, other solutions in place do not require a block size limit, like SegWit and Replace-By-Fee (RBF). With SegWit, the block size can technically be increased as well. But it has not been activated yet, and there is no set limit to how large the block size can be.
Ethereum has no set limit on its block size. However, there are some self-imposed restrictions on the maximum transaction amount per block, which means that it could also change in the future.
Transaction Confirmation Time
Miners confirm Bitcoin transactions through a process called mining. Miners are required to follow a Proof-of-Work (PoW) algorithm to validate transactions and maintain the blockchain network.
As a result, Bitcoin’s transaction speed is slow. Currently, miners can mine more than 50 new blocks per hour, but this is still too slow for average users who use Bitcoin as a payment method on multiple platforms throughout the day. After each block is mined, it takes an average of 10 minutes to get your transaction confirmed on the blockchain.
Ethereum transactions are confirmed quickly, usually within 10 minutes. Currently, mining is not possible on the Ethereum blockchain, which means that when a transaction is made, it will be instantly broadcasted to all other nodes in the network and confirmed within seconds.
Bitcoin has a scalability issue. Its transaction fee is high, making it hard to use it as a payment method on multiple daily platforms. Moreover, its average slow transaction speed of 10 minutes makes it difficult to use Bitcoin as a payment method.
Bitcoin is also facing a lot of network congestion issues which may result in higher transaction fees and slower transaction time. In comparison to other cryptocurrencies, Bitcoin’s blockchain is not scalable at all. Its hard-coded block size limit is 1 MB per block, and there technically isn’t any other way to increase the block size limit.
Ethereum’s scalability is another story altogether. Its blockchain has multiple layers which allow for the usage of new technologies called sidechains and off-chain transactions.
These technologies allow the network to scale differently, making it more scalable than Bitcoin. For instance, Ethereum can handle 30 transactions per second, while Bitcoin can only handle around seven transactions per second.
The Evolution of Bitcoin
Bitcoin was released in 2009 as the first and original cryptocurrency. A group of anonymous developers, who called themselves Satoshi Nakamoto, released it as an experimental blockchain technology.
Bitcoin was created because the developers felt there were severe limitations to the traditional payment method in the current banking system. It’s centralized, intermediated, and doesn’t offer much protection against inflation or fraud.
The concept of Bitcoin is quite simple: it is a peer-to-peer electronic cash system that enables online transactions without any fees, bank charges, or restrictions. You can send any money from one person to another without going through a third party or a central authority. The transactions are recorded on a public ledger, and fraud, censorship, or third-party interference is not possible.
Having been created with an open-source protocol, Bitcoin is completely decentralized. Because any specific entity does not own it, no one can control Bitcoin’s core code, nor can anyone edit the Bitcoin Blockchain.
However, because it is open source, Bitcoin allows anyone to take part in the mining process. Anyone can use their computer to confirm transactions, regardless if they are “miners” or not.
Bitcoin was quite successful when it was initially released. Many people started using it, and most of the top online casinos began accepting it as a means of payment. However, a few years after its initial release, Bitcoin price took a dive and entered a bear market.
History of Ethereum
Ethereum was launched in 2015 by a group of developers from all across the world, primarily from Canada and the United States. Vitalik Buterin, the most prominent developer, is now widely regarded as one of the world’s most influential investors and programmers.
Ethereum is based on Bitcoin’s technology but is completely different in a number of fundamental ways. Bitcoin is a blockchain-based cryptocurrency, whereas Ethereum is a platform with its own blockchain on which different decentralized applications (Dapps) can be built.
Ethereum’s blockchain uses one of the most advanced cryptographic technologies that exist in the world today. It has two layers: a “front-end” layer and a “back-end” layer. The front-end layer can be compared to an operating system, while the back-end layer is responsible for processing, which means it does all the work.
Ethereum’s blockchain is much different from Bitcoin’s because it does not store the balance of every user. Instead, it stores just a sum total of all balances and transactions, which means that no one can access individual balances until they use their Ethereum-based tokens to make a transaction.
Ethereum vs Bitcoin: Pros and Cons
|Pros of Bitcoin
|Cons of Bitcoin
|Fluctuating price, making it a risky investment
|Blockchain is a secure and advanced digital ledger
|Mining is a slow process
|Decentralized and fully encrypted
|No central issuing body (risk of Bitcoin inflation and devaluation)
|Pros of Ethereum
|Cons of Ethereum
|Smart contract programming language
|Operates in a highly competitive market
|No possibility of downtime, fraud, censorship, or third-party interference
|Smart contracts in Ethereum have not yet been shown to be 100% secure from hackers
|Ethereum Virtual Machine allows for the creation of smart contracts
|Miners have to pay a mining fee that is calculated based on the complexity of the smart contract and its associated gas
Ethereum vs Bitcoin: 10 Must-Know Facts
- Bitcoin was introduced to the world by Satoshi Nakamoto, who released Bitcoin in early 2009.
- Ethereum was introduced to the world via a white paper, which Vlad Zamfir and Vitalik Buterin released in July 2015.
- Bitcoin is a cryptocurrency that allows online payments to be sent directly from one user to another without going through a centralized system, such as a bank.
- Ethereum is a blockchain-based distributed computing platform that allows users to carry out blockchain-based decentralized applications (dApps) on the Ethereum network.
- Bitcoin uses a Proof-of-Work (PoW) algorithm to secure its network, while Ethereum uses a Proof-of-Stake (PoS) algorithm.
- Bitcoin has a set limit of 21 million coins, while Ethereum has no set limit.
- Ethereum is more volatile than Bitcoin.
- Bitcoin is a deflationary currency, which means its price decreases over time. Ethereum’s price decreases in the opposite direction, as its inflation schedule is negative.
- Ethereum has a shorter block time, meaning more blocks are added to the blockchain every minute.
- While Bitcoin has four developers per every 1,000 users on average, Ethereum has 10 developers per every 1,000 users on average.
Ethereum vs Bitcoin: Which Is Best?
When comparing these two cryptocurrencies, Bitcoin is the clear winner when it comes to popularity and market cap. However, when looking at them as investment opportunities, Ethereum is an up-and-coming coin that could be worth your investment dollars.
They both have their own unique advantages and disadvantages. It’s important to understand if the advantages outweigh the disadvantages in order to choose which cryptocurrency you should invest in successfully.
The image featured at the top of this post is ©Photo by Art Rachen on Unsplash.