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Ethereum vs Bitcoin: What New Crypto Investors Should Know
Bitcoin acts as a digital currency, while Ethereum focuses on providing a platform for decentralized apps, or dApps. Bitcoin uses a proof of work process to reach consensus, which typically requires more processing power and energy, while Ethereum features a proof of stake process that makes mining more accessible for participants. Ethereum transactions are built on smart contracts while Bitcoin will implement these in late 2021. Bitcoin and Ethereum are both decentralized projects that work on traceable blockchains. They both feature pseudonymous transactions, which means participants can track transactions but they won’t have the names involved in each deal.
Ethereum and Bitcoin are the two most talked about cryptocurrencies in the media. They have both played a major role in the industry, drawing in the most trading volume on the crypto market. However, they operate differently from one another and were created with different purposes. In this brief guide, we’ll take a closer look at the differences and similarities between the two currencies.
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How Does ETH Work?
Ethereum is a platform that supports decentralized apps and smart contracts. Developers can create applications and then run the programs on smart contracts.
Ethereum produces a token called Ether, which powers the decentralized apps on the Ethereum blockchain.
Ether can also be used as a currency like Bitcoin, although the demand for the Ether token is not as substantial. People mainly use Ether to manage and develop dApps. There are no limits to how many tokens people can produce during its lifetime, however the blockchain has a cap of 18 million per year. The value of Ethereum would vary surrounding its operations and the demand for tokens on different dApps.
How Does BTC Work?
The number one coin by market cap, Bitcoin has held the top spot since its inception. As a digital currency, Bitcoin has no physical form and many tout it as an alternative to traditional fiat currencies.
Each coin or token for Bitcoin is a store of value. Similar to cash, users can exchange Bitcoin for various goods and services. All transactions appear on a blockchain ledger that lists the parties and amounts involved.
Users mine Bitcoin tokens through a decentralized process. Computers or nodes that run the Bitcoin network will process transactions and collect new tokens in exchange for their work.However, rewards only go to one of the nodes running the Bitcoin network. The miners with more powerful rigs have a significantly higher chance of receiving rewards.
Bitcoin’s value is also dictated by its perceived scarcity, with a hard cap of 21 million Bitcoin tokens. Based on current mining capabilities and reward output, it will likely take until the year 2140 to mine all Bitcoin tokens.
The mining process also becomes harder as fewer tokens become available and rewards are reduced in value. This process also helps boost the value of Bitcoin as an investment.
What Makes Ethereum and Bitcoin Different?
The price history is the most apparent difference between Bitcoin and Ethereum. In late August 2021, Bitcoin was valued at$48,000 with a market cap of around $900 billion—nearly half of the total crypto market cap. In recent years, the value has seen a substantial rise, crossing the $10,000 mark in mid-2020 and remaining above $30,000 since June 2021.
As of late August 2021, Ethereum was valued at $3,200 with a market cap of around $385 billion—making it the world’s second-largest cryptocurrency. In fact, it’s four times larger than the third-largest cryptocurrency. Similar to Bitcoin, Ethereum has also seen a strong rise in its value, consistently remaining above the $2,000 mark since April 2021.
Mining Proof
Miners use a proof of work process to collect Bitcoin rewards. Proof of work states that a miner must solve a mathematical puzzle to receive their tokens. The user will solve the puzzle by validating transactions on the Bitcoin blockchain. The miners that record the most information will receive the corresponding amount of rewards. Ethereum used to utilize proof of work for mining, but it switched to proof of stake. Proof of stake grants more mining power to users with larger holdings.
Mining Security
It’s possible for someone to monopolize the Bitcoin mining effort by using more than half the total amount of mining power on the chain. On the other hand, Ethereum provides more mining power to users with more tokens. Since tokens are spread out among more people, it’s a lot harder for anyone to control the mining process.
Bitcoin miners receive rewards when they successfully complete puzzles, while. Ethereum miners earn commission from Ether transaction fees.
What Makes Ethereum and Bitcoin Similar?
Subject to Regulations
Both currencies are subject to various governmental regulations. Currencies are often open for trading in many countries, but there may be some limits on what a person can acquire. Some countries will classify crypto investment profits as taxable income.
Both currencies are decentralized and rely on a blockchain run by multiple nodes, making it impossible for a central authority like the government to control them.
Proper Validation
All transactions on the blockchain must be validated before anything can go forward. Bitcoin and Ethereum both use a blockchain to record transactions and ensure nothing disappears in the process.
Bitcoin and Ethereum both feature pseudonymous transactions. While each transaction can be traced and identified, the identifying info entails the public keys for both the sender and recipient. No names are revealed but all parties must still ensure their private keys are kept secure to protect their info from the public.
Side-by-Side Comparison of Ethereum and Bitcoin
There’s no answer to this question, as both of these currencies are worthwhile investment options. Bitcoin is a valuable cryptocurrency, while Ethereum can help manage dApps and productivity. Each option is useful in many ways, so look at them both to see what fits your investment desires.
General Purpose
Platform that supports smart contracts and dApps
Digital currency
Transaction Function
Send only when the smart contract rules are met
Send without rules
How Is the Currency Used?
Monetize smart contracts and dApps on the Ethereum blockchain
Buy and sell goods or services
What Influences the Value?
The demand for dApps, regulatory standards
How many tokens are available, regulatory standards
Maximum Available Supply
No limit, although you can only mine 18 million a year
21 million
Mining Standard
Proof of stake
Proof of work
Mining Reward
Transaction fees
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