The Difference Between Bitcoin and Ethereum

James HeadshotAuthor: James Page
Last Updated: July 2020

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Bitcoin and Ethereum are the two most popular and most lucrative cryptocurrencies in the world.

The former emerged as the first digital coin on the market created by the anonymous Satoshi Nakamoto in 2008, while the latter is the brainchild of the Russian-Canadian programmer Vitalik Buterin, who was only 21 years old when he launched Ethereum in 2015.

Despite the initial similarities of both cryptocurrencies, they were designed to cater to the needs of different audiences. Bitcoin’s primary aim was to substitute an outdated financial system that relied on government-issued currencies. Ethereum, on the other hand, showed how this technology is expandable to other areas besides finances.

The differences go beyond their purpose and include technical differences, mining and block size, transaction schemes, policies, and practical applications to name a few.

Their dominant presence on the market makes it a must for anyone interested in crypto trading to be aware of what sets them apart.

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Despite the initial similarities of both cryptocurrencies, they were designed to cater to the needs of different audiences. Bitcoin’s primary aim was to substitute an outdated financial system that relied on government-issued currencies. Ethereum, on the other hand, showed how this technology is expandable to other areas besides finances.

The differences go beyond their purpose and include technical differences, mining and block size, transaction schemes, policies, and practical applications to name a few.

Their dominant presence on the market makes it a must for anyone interested in crypto trading to be aware of what sets them apart.

Bitcoin vs Ethereum: A Comparison

First of all, it’s important to understand what’s common for both Bitcoin and Ethereum before we focus on their differences.

Bitcoin and Ethereum use a blockchain-based peer-to-peer network, where users can trade their native tokens, bitcoin (BTC) or ether (ETC), without the interference of a third-party as a central authority with control over the money transfers.

They’re both decentralized, anonymous, and transparent. They’re decentralized because they emerged as the first non-trust based payment systems that rely on cryptographic proof instead. Bitcoin and Ethereum are anonymous, or rather pseudonymous, because their users’ personal identity is hidden behind an encrypted address known as a public key, but also transparent since anyone can see the transactions made on the blockchain.

Having said that, we can now move on to their differences.

Technical differences

  • Block time and block size.

From the beginning, Satoshi Nakamoto set the size of one Bitcoin block at 1 MB or 1,000,000 Bytes to prevent spam transactions. The average size of one Bitcoin transaction is around 495 Bytes, therefore, one block contains no more than 2,020 transactions. The Bitcoin blockchain is regulated in such a way that it always takes roughly 10 minutes to mine one block.

On Ethereum, blocks are capped by their gas limit which was recently increased to 10 million for each block. On average, one transaction requires 21,000 units of gas which means there will be a maximum of 476 transactions per block. However, it takes only 12 seconds for a new block to be mined on Ethereum.

When verifying transactions, they both use the proof of work consensus mechanism but apply different hash algorithms: ethash on Ethereum, SHA-256 on Bitcoin.

  • Mining reward.

Mining coins is a time-consuming process that requires miners to expend an incredible amount of computing power which is why both platforms reward their effort.

To prevent inflation, Nakamoto set the upper limit for Bitcoin at 21 million coins and set the initial mining reward at 50 BTC per block. From then on, this reward has been cut in half every four years (the current one is 12.5 BTC). Miners also earn transaction fees, so if you want them to validate your transaction more quickly, you can pay higher fees.

Ethereum, on the other hand, doesn’t have a supply limit. As for the mining reward, it’s currently set at 3 ETH per block.

  • Mining hardware.

Nowadays, mining bitcoins is unimaginable without the use of Application-Specific Integrated Circuits or ASIC miners for short. This type of hardware is specially designed for mining digital coins. Its advantages include greater speed and hash rate and an easy setup, but they consume a lot of energy and are quite expensive.

The practise has been for Bitcoin miners to get together and form mining pools where they combine their computing power and hardware for bigger rewards.

In comparison, the hash function of Ethereum is ASIC-resistant which means that it’s best mined using GPUs. The good thing is that they’re more affordable and easier to get, as opposed to ASICs for which there’s a long waiting list due to large demand.

Price History

A quick glance at their price charts can give us some insight into the development of Bitcoin and Ethereum alike. We should also have in mind that Bitcoin has been on the market for a lot longer, so it’s just natural to outperform Ethereum (at least for now).

On CoinMarketCap we get the following charts:

ethereum graphbitcoin chart

We can immediately see that 2017 was a remarkable year, especially for Bitcoin which reached its all-time high of $20,000. The following year, on the other hand, had the prices of both currencies decrease for 70%-90%.

As of January 18th, 2020, Bitcoin’s price is $8,908 and Ethereum’s price is $171. The differences in market cap are also evident: $161 billion for Bitcoin, $18 billion for Ethereum.

Purpose

Finally, we’ve come to the main difference between Bitcoin and Ethereum, and that is the purpose they serve or the reason why they were created in the first place.

As we know, Bitcoin was the first digital coin to be launched ever, and that was revolutionary enough to begin with. This virtual coin was suddenly seen as a threat, a currency that could throw our financial system off balance and empower its users to control their own finances.

When Vitalik was working on Ethereum, he didn’t have in mind competing with Bitcoin. What he wanted was to use the same blockchain technology for more than online payments. He applied it on his newly-created decentralized network where customers not only trade ether but use it to pay for services like smart contracts and dApps that are built and run on Ethereum.

DApps are blockchain-based decentralized applications that aren’t controlled by a single organization or individual. Smart contracts are online contracts or computer codes run and stored on a blockchain.

They include rules predetermined by the participants and allow them to interact without the interference of a third party. They’re cost-effective, irreversible, and secured with cryptography. Smart contracts can be used by insurance companies and supply chains, by hospitals to store their medical records, or by individuals to record and then retrieve property ownership.

Nowadays, you can also create these types of contracts on Bitcoin, but Ethereum is considered the preferred platform by the crypto community. It even has its own programming language called Solidity used in the creation of smart contracts.

About The Author

James Page

James Headshot

James is the main editor. With a passion for finance and anything blockchain, cryptocurrency is right up his alley. He's responsible for most of the content on the site, trying his best to keep everything up to date and as informative as possible.

Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.

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