What is the first thing that pops into one’s head when thinking about cryptocurrency? That would be Bitcoin, unsurprisingly. It is seen by many to be the quintessential digital currency and shaped what the general public recognizes as crypto. Bitcoin is not alone, though, as Ethereum is another popular cryptocurrency that has successfully risen in the ranks to be a constant subject of comparison to Bitcoin.
The best way to describe the relationship between these two is that Bitcoin is the Coca-Cola of the market, and Ethereum is the Pepsi. Some people will favor one over the other. So, Bitcoin vs Ethereum? How do you vote?
The question that is frequently raised is which of these cryptos is the better investment. It would be easy to answer this by simply looking up the current Bitcoin and Ethereum prices, but cryptocurrency is notorious for being volatile. Knowing the prices is not enough; there are more factors to take into consideration.
Bitcoin and Ethereum are among the most popular cryptocurrencies with huge market capitalization. Despite relying on blockchain technology, there are some stark differences between them regarding the application, consensus mechanism, future prospects, and more.
In this article, we will explore the key differences between Bitcoin and Ethereum and what makes each of them unique. We aim to help you determine which currency is better for you.
What is Bitcoin?
Bitcoin was the first cryptocurrency that received mainstream acclaim, and even to this day, it remains the most valuable cryptocurrency in the world by market capitalization. It was created in 2009 by an unidentified man with the alias Satoshi Nakamoto. Since it is a digital currency backed up by blockchain technology, all Bitcoin transactions get verification on a public ledger.
One of the key features of Bitcoin is its limited supply. Bitcoin’s maximum supply is capped at 21 million, a number hardcoded into its protocol. As of February 2023, around 18.7 million bitcoins have been mined. Hence, only a little over 2 million can still be mined on the Bitcoin network. This limited supply is one of the reasons why Bitcoin is often seen as a store of value, similar to gold.
To validate transactions and create new blocks on the Bitcoin blockchain, Bitcoin uses a process called proof-of-work (PoW). This requires miners to solve complex mathematical problems to add new blocks to the chain and are rewarded with newly created bitcoins. However, the PoW mechanism is very energy-intensive, which has led to criticism of Bitcoin’s environmental impact.
What is Ethereum?
Ethereum, on the other hand, was created in 2015 by programmer Vitalik Buterin. Like Bitcoin, Ethereum operates on a decentralized Ethereum network using blockchain technology.
However, the Ethereum network is designed to be more flexible and programmable than Bitcoin, allowing developers to build decentralized applications (dApps) on top of the network using smart contracts. These self-executing contracts depend on a pre-coded agreement between a buyer and a seller.
Since Ethereum smart contracts are stored on the blockchain, it is practically impossible to tamper with them. This allows dApps to be built on top of the Ethereum blockchain, allowing automation in various industries, especially in fin-tech and supply-chain management.
Future applications of the Ethereum smart contracts include verification of real-estate purchases, vehicle purchases, and other forms of ownership verification.
Another key difference between the Ethereum blockchain and Bitcoin is the consensus mechanism used to validate transactions. While Bitcoin uses PoW, Ethereum uses a different mechanism called proof-of-stake (PoS). With PoS, validators lock up a certain amount of cryptocurrency as collateral to validate transactions and create new blocks. The more cryptocurrency a validator holds, the greater their chances of being selected to validate the next block. PoS is considered less energy-intensive than PoW and is seen as a more environmentally-friendly alternative.
Key Differences between Bitcoin vs Ethereum
Bitcoin and Ether (Ethereum’s cryptocurrency) share quite a few similarities, with the obvious being that they are both digital currencies. They are tradeable through online exchanges and can be put into storage in an array of crypto wallets. Both tokens are decentralized, which means that a central bank or other authority does not issue or regulate them, and they frequently utilize blockchain technology.
However, for all their similarities, there are plenty of distinctions between the two that make them separate entities. Bitcoin is a peer-to-peer electronic cash system that operates securely without the involvement of a central figure of authority. It was not the first time that the concept of a decentralized form of money was contemplated, but it was the first time that the idea garnered some steam. The value of all other cryptos – like Ether – generally moves in tandem with Bitcoin, and Bitcoin is still traded much more than any other coin.
The key intent of Bitcoin was to establish itself as a worthwhile alternative to fiat currencies that are backed by countries. In other words, traditional currency. First and foremost, it is a medium of exchange and a store of value.
As insinuated earlier, Ethereum is not technically a cryptocurrency. In actuality, Ether is the cryptocurrency, and Ethereum is simply the platform that Ether is based on; it is a common misconception. The purpose of Ethereum’s launch in 2015 was to serve as an upgrade to the weaknesses of Bitcoin. Its use cases offer developers more opportunities to build new applications, and in doing so, it went on to become its own thing and a formidable rival to boot.
To sum up the differences, Bitcoin is a cryptocurrency, and Ethereum is a platform, with Ether being the actual cryptocurrency. Bitcoin transactions are mostly monetary, whereas Ethereum transactions are typically executable code. Transactions on the Ethereum network are considerably faster than on Bitcoin. For the most part, Bitcoin functions as a store of value and medium of exchange; Ethereum does not. Its creation was out of a desire to make a complement to Bitcoin, but it ironically went on to become a competitor.
Which Should You Choose: Bitcoin or Ethereum?
One of the biggest differences between Bitcoin and Ethereum is their intended use cases. Bitcoin is primarily seen as a store of value and a medium of exchange, while Ethereum is designed to be a platform for decentralized applications. This means that Bitcoin is focused on being a currency, while Ethereum is more focused on the technology that underpins it.
Another key difference is the level of decentralization on each network. While Bitcoin and Ethereum operate on decentralized networks, Bitcoin is often seen as more decentralized because it has a larger number of independent nodes. This is because the PoW mechanism used by Bitcoin allows anyone with a computer and an internet connection to participate in the network. In contrast, the PoS mechanism used by Ethereum requires validators to hold a certain amount of cryptocurrency, which can make it more difficult for smaller players to participate.
Regarding transaction speed and fees, Ethereum has an advantage over Bitcoin. While Bitcoin can only process a limited number of transactions per second, Ethereum is designed to be more scalable and can handle a much larger volume of transactions.
If an investor wants a cryptocurrency that they can buy and forget about, Bitcoin would be the better option, as it has proven itself to be a reliable store of value. However, if the intent is to acquire crypto that investors are likely to use, then Ethereum is the best choice.
Ethereum has the potential to give bigger gains. While Ethereum will close out a year with considerably less than Bitcoin, investors would quadruple their investment if it went back up to its all-time high. In the case of Bitcoin, if it reached its all-time high, investors would not even double their money.
Which Is the Better Choice Overall?
Most investors would agree that Bitcoin is here to stay since this currency was a pioneer of all mainstream digital currencies that we know about today. However, when it comes to applications and use cases, Ethereum takes the lead.
Unfortunately, high gas fees on the Ethereum network are seen as a major downside and can potentially limit its adoption. So, which currency is better overall? It is a never-ending debate. While some investors prefer to invest in Bitcoin as it is seen as more future-proof, others prefer Ethereum due to its widespread use cases in DeFi applications and NFTs.
In the end, there is a consensus among the more knowledgeable crypto investors, entrepreneurs, and experts on the subject matter. They believe that Bitcoin is a better buy than Ethereum. That being said, there are plenty of Ethereum supporters who argue that, while not as coveted as Bitcoin, Ethereum can work out just as well in the long run.
The decision is ultimately up to the investor. The pros and cons are there; it is up to them to decide which is better suited for them.
