Bitcoin Vs Ethereum: The Key Differences Between These Coins?
Bitcoin vs Ethereum is one of the biggest questions asked in the crypto industry.
Bitcoin and Ethereum are the two biggest forms of cryptocurrency currently in circulation.
These currencies have laid the foundation for the modern crypto markets and are largely responsible for the huge growth both in terms of base value and functional implementation that digital currencies have experienced in recent years.
With that in mind, it’s crucial to understand these two currencies.
In this article, we’ll be taking a look at the key differences between Bitcoin vs Ethereum, as well as the advantages and disadvantages that each of these currencies has.
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What is Bitcoin?
Bitcoin was the first cryptocurrency to be released that is decentralised and not controlled by a central body. Satoshi Nakamoto, the pseudonymous developer of Bitcoin, mined the first block of data on the blockchain, known as the genesis block, in January 2009. Bitcoin’s adoption has been gradually increasing since then. Bitcoin was designed as a peer-to-peer (P2P) electronic cash system, meaning that transactions can be carried out without the involvement of a central authority.
In 2008, Nakamoto published a white paper that sparked the establishment of the Bitcoin blockchain. Bitcoin empowers consumers to control their own money, independent of any government, bank, or financial institution. Instead, it relies on a decentralised network of users that use the Bitcoin blockchain software and agree to a set of rules. The software determines how transactions function, the time it takes for transactions to settle, the supply cap of 21 million BTC, and more.
Bitcoin was the first cryptocurrency to use the blockchain, a type of decentralised ledger technology. The Byzantine Generals Problem, which explains the difficulty decentralised systems have in agreeing on a single truth, was overcome by blockchain technology. Bitcoin uses a proof-of-work (Pow) technique and a blockchain to solve the Byzantine Generals Problem. The challenge is solved by the many miners, each of whom serves as a general. Each node makes an effort to verify transactions that are identical to general communications.
The Bitcoin blockchain is open to the public and stores the history of every transaction ever made on it. It is dispersed across multiple nodes to avoid tampering. Tampering occurs when a different version of the blockchain is detected and rejected by other network participants.
Tampering is detected via hashes, which are long strings of integers that must be identical for each node. The SHA-256 hash function, which processes data to transform it into extremely long strings of numbers, is used by the Bitcoin network to process sets of data and turn them into hashes. When a valid hash is discovered, it is broadcast to the network and recorded in a new block.
Miners on the Bitcoin blockchain use a PoW mechanism to construct and broadcast these blocks, in which machines use massive amounts of computational power to perform hashing functions. Participants in the network establish an agreement through proof-of-work.
Malicious actors entities cannot change other users’ balances or spend their assets twice thanks to Bitcoin’s mining and consensus mechanisms, which keep the network up and operating with very little downtime. Bitcoin’s popularity has grown thanks to its positioning as a tamper-proof cryptocurrency that may be traded at any moment without the intervention of intermediaries or central banks.
While Bitcoin began as a platform for exchange, allowing for the purchase of goods and services, it has since evolved into a store of wealth and a very lucrative field of investment.
What is Ethereum?
While Bitcoin employs blockchain technology for monetary transactions, allowing nodes and messages to be attached to each transaction, Ethereum looks to take this principle to another level.
Ethereum is a decentralised open-source and distributed blockchain network backed by its own cryptocurrency, Ether (ETH). This currency is used to make transactions and interact with Ethereum-based apps. Vitalik Buterin, Ethereum’s co-founder, presented a white paper in 2013 outlining the usage of smart contracts, which are code-based self-executing agreements; this has become one of the major uses for Ethereum in the mainstream.
Smart contracts enable the creation of decentralised applications, or DApps, which operate without the involvement of a central authority. Buterin and the other Ethereum co-founders sold Ether in 2014 to raise funding for the project’s development.
Buterin, Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Iorio, and Amir Chetrit are among Ethereum’s recognised co-founders. The Ethereum Foundation, a non-profit organisation dedicated to promoting the Ethereum network, was also founded by the co-founders in Switzerland.
The Ethereum network, one of the most ambitious initiatives in the crypto realm, was founded in July 2015 with the objective of decentralising everything on the internet. Ethereum, like Bitcoin, is a decentralised platform with no central authority that uses PoW to prevent malevolent entities from tampering with the data that’s stored within the blockchain.
Solidity, Ethereum’s own programming language, is used to create smart contracts that operate on the blockchain. Due to the usage of smart contracts, Ethereum’s potential applications are almost limitless. Despite the clear benefits of both Ethereum and smart contracts, the primary use cases for the cryptocurrency are still in their early days of being discovered. On the Ethereum network, innovation is exploding, with decentralised applications providing financial services and smart contracts allowing developers to generate non-fungible tokens (NFTs), which have been one of the most common use cases for crypto so far.
Unlike Bitcoin, which is intended as a medium of exchange and a store of value, Ether is used to connect with Ethereum network apps. Users must pay fees in Ether to pay for transactions, create smart contracts, and use DApps. As Ether’s value increased, it began to be utilised as a store of value.
What are the differences in the Bitcoin vs Ethereum comparison?
So, what are the key differences between BTC and ETH?
To make this as clear as possible, we’ve split out the differences into subsections, explaining how each currency operates in relation to this category.
Bitcoin has been established for much longer than Ethereum, with BTC launching in the early months of 2009 and ETH being released far more recently in July 2015.
Functions as a currency
Bitcoin is designed to be an alternative to traditional fiat currencies; essentially, Bitcoin’s intended use is as a medium of exchange and payment first and foremost, with other functionality acting as a side-benefit.
On the other hand, exchange is not the primary function intended for ETH. Ethereum is designed to be a holistic platform and ecosystem filled with apps, contracts, and programmes that can be utilised by the user in a plethora of different ways, all rooted to the core Ether currency.
Level of supply
This is an area where there is a key difference between Bitcoin vs Ethereum.
One of Bitcoin’s defining features is its limited supply of 21 million which was set by Satoshi. This finite amount of units allowed to be minted promotes scarcity and like gold can help to hold its value. Once the upper supply limit has been achieved miners will look to revenue streams such as transaction fees once block rewards cease to become available.
Alternatively, Ethereum has no limits on its total amount but caps the yearly supply. While Buterin has hinted at introducing an overall limit, the network controls supply by ‘burning’ Ether to prevent miners gaming the system and to attempt to keep the currency deflationary over time.
This appears to solve some of the limitation issues that Bitcoin could face, but also means that the currency’s value could become more volatile as a result.
Which type of consensus algorithm is utilised?
Bitcoin utilises a proof-of-work algorithm to verify transactions, whereas Ethereum is looking to move away from this and instead utilise a proof-of-stake algorithm instead.
Proof of work is a mechanism aimed at preventing cyber-attacks such as a distributed denial-of-service attack (DDoS), which aims to deplete a computer system’s resources by sending repeated bogus requests.
Instead of miners, validators are used in POS. As a stake in the ecosystem, the validators store some of their Ether in the blockchain. The validators then wager on the blocks they believe will be added to the chain next. Validators receive a block reward according to their stake when the block is added The stake required to become a validator of 32 Ether can be taken away as a penalty in the event of intentional malpractice.
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