Bitcoin vs. Ethereum: What Are the Differences?
January 4, 2024
Bitcoin and Ethereum are the two dominant cryptocurrency networks in the market. However, the two networks and their crypto assets are fundamentally different. This article discusses those differences in detail.
What Is Bitcoin?
Bitcoin is a decentralized open monetary network that enables anyone across the globe to send, receive, and store value in digital form.
Bitcoin is the brainchild of Satoshi Nakamoto, an unknown individual or group who, in late 2008, published the Bitcoin Whitepaper. In it, he described a peer-to-peer (P2P) version of electronic cash. Holders of this new kind of digital cash could use it for online payments/remittances over a distributed network.
The world’s first cryptocurrency, Bitcoin, also has a limited supply, which has helped to establish it as a gold-like store of value among investors.
Moreover, the Bitcoin ecosystem has evolved to embrace smart contracts and decentralized finance (DeFi), both on-chain and on Layer-2 protocols built on top of Bitcoin, which has repositioned Bitcoin as more than just digital money and a store of value to become an infrastructure for builders of decentralized solutions.
What Is Ethereum?
Ethereum is an open-source blockchain computing platform built for the development of smart contracts and decentralized applications.
Ethereum was founded by Vitalik Buterin, who envisioned it as a decentralized world computer powering decentralized products and services. He launched the platform through a 2014 crowdsale, making it a pioneering project to raise funds this way. ETH went live in July 2015 with an initial supply of 72 million tokens.
Ethereum sought to be more flexible and adaptable than Bitcoin, emphasizing the use of Turing-complete smart contracts. The platform supports the deployment of decentralized applications (DApps) powered by smart contracts, birthing entirely new innovations such as DeFi, NFTs, and GameFi.
Ethereum vs. Bitcoin: A Comparison
Bitcoin and Ethereum are similar in many ways. For instance, both are decentralized networks, meaning no single entity controls them. Additionally, they operate on the blockchain, ensuring that one can publicly view any transaction happening on these networks. Finally, they each have their cryptocurrencies, BTC and ETH, that one can use for trading or investments.
Despite their similarities, the two networks and their ecosystems function differently. The following table summarizes the fundamental differences between the two.
That was a sneak peek into the differences between the Bitcoin and Ethereum networks. Let’s now take a deeper dive into those.
Inventor
The first characteristic distinguishing Bitcoin from Ethereum is its inventors. Whereas the former owes its existence to the mysterious Satoshi Nakamoto, the latter is the brainchild of Vitalik Buterin.
History
Bitcoin is the world’s first decentralized digital currency. It is a product of Satoshi Nakamoto’s Bitcoin Whitepaper of December 2008 and went live in January 2009.
Ethereum was founded by Vitalik Buterin and launched in July 2015, following an initial coin offering in 2014.
Consensus Mechanism
A consensus mechanism is the foundation upon which users build trust and security within a decentralized network. At its core are rules determining how the nodes reach agreements on the distributed ledger’s state.
Bitcoin uses a Proof-of-Work (PoW) consensus mechanism. Here, miners compete to solve cryptographic algorithms to validate BTC transactions on a block. The first miner to solve the puzzle gets to propose the block to the other nodes for verification and earns the block reward paid in BTC. The process's steep computational requirements make it energy-intensive, requiring high levels of investment.
Conversely, Ethereum uses a Proof-of-Stake (PoS) consensus mechanism after shifting from PoW in late 2022 through its Ethereum 2.0 upgrade. In the setup, validators stake ETH for a chance to verify transactions. The nodes randomly pick one among themselves to validate given transactions, and their stakes act as security that they will act in good faith.
Native Cryptocurrency
Every blockchain project has its native crypto asset, which helps fund the platform's activities, thus sustaining it. Whereas the Bitcoin network has BTC, Ethereum has ETH.
Motivation
Another difference between the two networks is in their guiding principles and the motivation behind their creation.
Bitcoin’s foundation is upending the existing traditional monetary system by introducing a wholly decentralized transactions ecosystem. Thus, BTC is both a means of payment and a store of value. That said, the platform has now evolved to accommodate new developments in the crypto space, such as DeFi and NFTs.
In contrast, Ethereum's mission is to be the onboarding platform for smart contracts. Through these self-executing contracts, users can develop and use dApps, making the platform a vital player in the DeFi space.
Coin/Token Supply
oin/token supply refers to the total number of crypto assets a blockchain project will ever issue. Bitcoin has a lifetime supply of 21 million coins. That means it isn't possible to create any more BTC past the 21 millionth coin. This finite supply, compounded by other mechanisms like halving, makes BTC a disinflationary currency.
On the other hand, Ethereum is inflationary. That means the network supports an infinite supply of ETH. At the time of writing, there are slightly more than 120 million ETH in circulation, which will continue increasing with the network's expansion.
Block Time
The average time to create a block on a given network, block time measures how fast miners and validators take to verify and add transactions to the blockchain. Whereas Bitcoin’s block time is 10 minutes, Ethereum's stands at 15 seconds.This is a result of their differing architecture.
Transaction Throughput
Bitcoin and Ethereum also differ significantly in their transaction throughput, the number of transactions each network processes in a given period, typically a second.
Between the two, Bitcoin has the lowest throughput at seven transactions per second (TPS), while Ethereum manages 30 TPS. Both networks are working on increasing their outputs mainly through Layer 2 scaling solutions and network upgrades.
Market Capitalization
At the time of writing, BTC’s market cap is $844.81 billion. That is three times ETH’s capitalization of $268.93B. BTC’s larger cap is a testament to its stability, resilience, and first-move advantage.
Scripting Language
A scripting language is the programming language that a blockchain uses in writing and executing smart contracts. Bitcoin uses Bitcoin Script in contrast to Ethereum’s Solidity.
Hashing Function
A hashing function is an algorithm pivotal to ensuring the security and integrity of blockchain transactions. It converts an input of any length, such as a file or a transaction, into a fixed-length output - the hash - that is a unique identifier of the input.
The two networks have different hashing functions. On the one hand, Bitcoin uses the SHA-256 standard, while Ethereum employs Keccak-256. The former is the authoritative hashing function within the blockchain space, allowing for network interoperability.
Popularity
BTC is the most popular and visible digital asset in the market. Many also consider its performance a barometer of the overall crypto market health. ETH, on the other hand, is the second most popular cryptocurrency.
The Bottom Line
Bitcoin has established itself as the clear leader in the digital asset market, while Ethereum has managed to maintain its leading position among Turin-complete smart contract blockchains.
It’s unlikely that Bitcoin’s market dominance will be challenged anytime soon by Ethereum (or any other chain), especially now that much of what has been built on Ethereum is coming to Bitcoin with the introduction of Bitcoin Ordinals, on-chain token issuance, and smart contract-enabled Bitcoin layers.
Nonetheless, it will be exciting to follow developments in both the Bitcoin and Ethereum ecosystems to see in what direction the wide crypto asset industry will head next.
FAQs
What is the key difference between Bitcoin and Ethereum?
Bitcoin is an open monetary network created to enable anyone in the world to send, receive, and store value digitally. Conversely, Ethereum was created as a computing infrastructure for the development of decentralized applications.
What is better: Ethereum or Bitcoin?
Both Ethereum and Bitcoin have their strong points. Whereas Bitcoin thrives in peer-to-peer payments and as a store of value, Ethereum is arguably better at deploying smart contracts and dApps. Whether one is overall better than the other depends on intended usage.
What is the main advantage of Ethereum over Bitcoin?
Ethereum’s main advantage over Bitcoin is its versatility and programmability. On it, one can develop and deploy dApps and smart contracts with wide use cases, including finance, voting, data storage, etc.