Introduction
Since its debut more than a decade ago, cryptocurrencies have expanded by many folds. Bitcoin is often denoted as the first-ever blockchain currency of the internet. However, following the success and huge financial implications of Bitcoin, a massive number of other blockchain projects have come to life. Second to Bitcoin, in terms of its market cap and popularity, is the Ethereum network.
Where Bitcoin earned the title of digital gold, Ethereum has managed to cement its position as the digital silver currency. While Bitcoin and Ethereum both are blockchain projects, many key factors make each one unique in its own right.
The Origin of Bitcoin
Ever since the introduction of Bitcoin in 2009, its pseudonymous creator Satoshi Nakamoto has become a well-known personality in the tech and the financial world.
To date, no one has been able to find any evidence or real identity of Satoshi, who has decided to remain behind the shadows. Bitcoin was introduced at a time when companies like PayPal were working on creating a digital payment currency and network to support the medium.
Satoshi Nakamoto published a White Paper about Bitcoin introducing the blockchain as a distributed and decentralized network. The main intention of Bitcoin was to use as a digital currency. Bitcoin was also introduced as a solution to mitigate future incidents like the 2008 economic recession. In 2009 January, the first-ever Bitcoin block was mined successfully and was dubbed as Genesis block.
The Origin of Ethereum
Ethereum was created by a young developer hailing from Canada named Vitalik Buterin. Before introducing the Ethereum network, Buterin co-founded Bitcoin Magazine and studied the flagship blockchain for a while. However, he did not like the idea that Bitcoin was not compatible with new decentralized applications. Therefore, he decided to start a new blockchain project called Ethereum, taking inspiration from Bitcoin but adding more flexibility to its source code.
Ethereum network made its public debut in 2015; several other figures like Gavin Wood, Joseph Lubin, Charles Hoskinson, and Anthony Di Lorio joined the team as co-founders and created a non-profit organization called Ethereum Foundation. In July 2015, at the Frontier event, the Ethereum network was officially launched and created its first genesis block. Since its official debut, the Ethereum network has added 13 protocol upgrades.
Key Differences Between Bitcoin and Ethereum
Ethereum and Bitcoin are both two of the biggest cryptocurrencies on the international market. It is crucial to understand the key differences between the two giants to make better use of these digital entities. Many people do not realize that blockchain currencies are not only different by name, but they also serve a very varied set of functions. Here are some of the most prominent points of distinctions between Ethereum and Bitcoin networks:
History
The history of Bitcoin is very different from Ethereum. Bitcoin served as the building block for the entire cryptocurrency market. At the time when Bitcoin was introduced, it garnered a lot of criticism from the masses as a disruptive technology. However, some other developers have been trying to work on something similar to Bitcoin or digital currency.
However, Bitcoin gained popularity as the first-ever fully decentralized and trustless network. With Bitcoin, there was no need for a centralized authority to verify a transaction or issue regulations.
On the other hand, Ethereum was a result of Bitcoin’s presence in the market. Ethereum developers started by studying Bitcoin and moved on to introduce a new network with several changes.
Forks
Forks are branches of a blockchain network. Bitcoin has remained a truly decentralized network since the start of its introduction. Despite being an open-sourced project, the Bitcoin network has never been hacked reportedly.
Since there are no centralized authorities that are running the Bitcoin network, the Bitcoin network uses community consensus to incorporate updates on the network. It is worth noting that forking in a blockchain is a result of a lapse of consensus that compels the community to split into two or more forks.
On the other hand, the Ethereum network experienced a hack attack in 2016 when the core developers introduced a new DAO or Decentralized Autonomous Organization to raise $50 million that were reserved to support the new projects on Ethereum.
Consequently, Ethereum developers opted for a hardfork to recover the stolen funds and split them into two branched Ethereum Classic and Ethereum.
Coins
Bitcoin and Ethereum tokens, ETH and ETC, are widely different in design and utility. There is a total of 21 billion Bitcoins that cannot increase in volume. On the other hand, the Ethereum network has opted to keep its coin issuance as an infinite supply source. It is worth noting that the Ethereum network has issued an ERC-20 token standard which is a type of technical standardization.
There are several ERC-20 Bitcoin representations on the Ethereum network, such as tokens. These Bitcoin tokens are created to take advantage of the dApps features. Bitcoin is considered an ERC-20 compatible token project. The Bitcoin network is created using C++, while the Ethereum network source code is written in Solidity.
Utility
According to the Bitcoin White Paper, the main purpose of Bitcoin was to work as an internet medium of exchange or digital currency. On the other hand, the Ethereum network opted for creating a platform that can host decentralized applications and serve as a DeFi ecosystem for several blockchain projects. Since its inception, Bitcoin has gained notoriety among investors as a hedge against inflation and a store of value.
While Ethereum network has managed to host several decentralized exchange platforms such as Uniswap, DAOs, smart contract projects, NFTs, lending pools, staking pools, parachains, dApps, Web3 games, and several other decentralized projects.
Ethereum is ranked as a cross-platform operating system which means that it can work as part of several OS such as Windows, Linux, and macOS, and it is compatible with development frameworks like Kivy, Qt, Flutter, NativeScript, Xamarin, Ionic, and React native among others.
Technical
Bitcoin and Ethereum currencies and transactions are encrypted and use DDL or decentralized distributed ledger technology. The underlying source code for both blockchain networks has been written in C++ and Solidity, respectively. Bitcoin uses the Omni Layer to conduct transactions, whereas the Ethereum network employs the ERC-20 token standard.
Bitcoin is immutable, but the Ethereum network can add upgrades. Ethereum network can use smart contracts and dApps, while Bitcoin does not have these features. Bitcoin transactions can add messages using notes, while Ethereum transactions can carry executable code or smart contracts for autonomous contracts.
Ethereum network can host several different cryptocurrencies, including Bitcoin; however, the Bitcoin network does not accommodate any foreign currencies.
Both Bitcoin and Ethereum networks have integrated a PoW or Proof-of-Work consensus model. It means that the new tokens have to be mined using computing power to decrypt the code. Up until last year, China was the largest hash rate producer of Bitcoin.
However, after an embargo by the government regulators, Bitcoin miners in Chine lost their dominant position and went underground. Some of the largest Bitcoin mining operations in the world are Bitstamp, Pionex, Minedollars, Slush Pool, AntPool, and F2 Pool.
Last month, the Senate of New York passed a moratorium bill to ban all PoW mining currencies in the region that included both Bitcoin and Ethereum miners. In Europe, North Macedonia is the sole state that has banned Bitcoin and Ethereum mining and trading. Some of the biggest Ethereum mining pools are Ethermine, F2Pool, and Hiveon Pool, among others.
The United States contributes the most Ethereum mining hashrate in the world with a 46.72% percent contribution. The Ethereum network has plans to switch to the PoS consensus model in 2022, which will remove the mining requirement.
Until 2010, per-transaction fees on the Bitcoin network were set at 0.1 Bitcoins. However, following the massive price inflation of the Bitcoin currency, the gas fee was reduced in terms of Bitcoins and increased in terms of USD.
It is worth noting that the transaction fee on the Bitcoin network is separate from the exchange platforms and digital wallet services providers’ charges. Bitcoin creator SN added a Bitcoin network fee to discourage spam transactions on the network.
On the other hand, gas fees have always been an issue for the Ethereum network. Per transaction, gas fees are set at 0.000000001 ETH.
However, since the Ethereum network is often over-crowded on account of its massive ecosystem, fees often go higher to the point where it is not feasible for the investors anymore to use the network. It is worth noting that different projects on the Ethereum network charge a variable amount of gas fees, such as Curve, SushiSwap, Mooniswap, Uniswap V2, etc.
Upgrade
Since its conception, the Ethereum network has managed to incorporate around 13 different upgrades to the network, namely: Frontier, Ice Age, Homestead, DAO Fork, Tangerine Whistle, Spurious Dragon, Byzantium, St. Petersburg, Constantinople, Petersburg, Istanbul, Muir Glacier, Berlin, and London. Ethereum 2.0 is a planned hard fork that the core developers are working on to reunite Ethereum classic and Ethereum blockchain and move the network to the PoS consensus model.
Developers can incorporate forks from time to time in the Bitcoin network, but Bitcoin users are free to use any version of the blockchain they prefer. Thus far, noteworthy Bitcoin forks are BitcoinXT, Bitcoin Classic, Bitcoin Unlimited, SegWit, Bitcoin Cash, Bitcoin Gold, Bitcoin SV, Taproot, Bitcoin Diamond, Super Bitcoin, Bitcoin private, Bitcoin Atom, Bitcoin Zero, Bitcoin Post-Quantum, and Bitcore, among others.
However, a group of developers has introduced a layer two solution for Bitcoin that is called the Lighting network. LN is built by Square Inc., and it is working on improving the issues such as scalability and transaction speed for the Bitcoin network. Ethereum network also has several layer two solutions such as Polygon, Arbitrum, Loopring, Immutable X, and xDai Chain, among others.
Scalability
Scalability is the feature of a digital program that allows it to handle several transactions per second. The higher the scalability of a network, the better it can perform for the users. However, both Bitcoin and Ethereum networks suffer from low-end scalability issues. Bitcoin can process seven transactions per second; on the other hand, the Ethereum network can process around 30 transactions per second.
Considering that companies like VISA can process around 47,000 transactions per second, the scalability of Bitcoin and Ethereum networks needs to improve to support their global usage. Through community consensus, the Bitcoin network added a SegWit upgrade that made way for segregation of data to make more room for transactions on a single block. Both Ethereum and Bitcoin are using a second-layer solution to enhance their scalability issue.
Market Cap
The market cap of the Bitcoin and Ethereum network is calculated by multiplying the latest per-unit price of each digital currency with its total circulatory supply in the marketplace. Since its inception, Bitcoin has managed to retain the topmost digital currency in the world by market cap due to its popularity and adoption around the world.
Bitcoin market dominance has always contributed to more than 41% of the total cryptocurrency market cap. On the other hand, the Ethereum network has managed to remain one of the second-largest cryptocurrencies by market cap. Since the total supply of Ethereum is infinite, it also uses its current supply in the market to determine its market cap.
Decentralization
Bitcoin network is considered to be the closest to the concept of true decentralization since it is not affiliated with a particular group or individual. The nodes of the Bitcoin network run on several computers around the world.
Everyone is free to download, observe, and use the Bitcoin network source code. However, the Bitcoin network has also some limitations in terms of decentralization. The biggest financial enterprises in the world, like JP Morgan and Goldman Sachs, have invested heavily in Bitcoin.
On the other hand, there is a hypothetical scenario known as a 51% attack that postulates that the Bitcoin mining pool can form a secret cartel to control 51% of the global hashrate supply that can allow them to use Bitcoin currency twice. The Ethereum network also plans to work as a decentralized network, but it is controlled by the core developers and Ethereum Foundation.
Wallet Addresses
The wallet addresses on Bitcoin and Ethereum networks are different in appearance. The addresses on the Bitcoin network use 1, 3, or bc1 as initials, while the Ethereum network uses 0x.
It is worth noting that wallet addresses are a great way to measure the trading volume of a cryptocurrency such as Bitcoin or Ethereum. Both Bitcoin and Ethereum digital wallet addresses are made from a long string of alphanumeric values to increase their security quotient.
Speculation
Bitcoin first gained traction as a real currency when a guy hailing from Florida paid his $25 bill to Papa Jones for two Pizza deliveries. The Pizza buyer agreed to pay 10,000 Bitcoin units in exchange for a $25 bill in May 2010. The event has been marked as May 22 Pizza Day by the Bitcoin community.
Since then, Bitcoin has managed to gain traction among investors on account of endorsements from financial organizations, academics, social media influencers, and others.
With every new Bull Run for Bitcoin, cryptocurrency investors rushed to use Ethereum to diversify their cryptocurrency portfolio. The Ethereum network also gained a considerable number of new investors by becoming a host for several important decentralized projects on the network.
Commodity Status
Bitcoin is often dubbed the digital gold, while Ethereum has managed to inherit the title of digital silver. Since Bitcoin is the alpha or the flagship cryptocurrency, it has managed to become the top cryptocurrency in the market.
On the other hand, the Ethereum network is a secondary blockchain that managed to gather a considerable amount of attention from cryptocurrency users on account of its massive utility. Many investors treat cryptocurrencies as a digital alternative for stocks and bonds; however, intrinsically, the blockchain byproducts are closer to commodities.
Servers
In addition to having no centralized authority, the Bitcoin network also does not employ any centralized servers. The Bitcoin blockchain is present in the form of nodes. The full nodes of the Bitcoin blockchain are active on several thousand computers and operating systems around the world. There are around 11 thousand Bitcoin nodes active at present. Meanwhile, for Ethereum, there are around 7 thousand reported nodes that are active in remote locations globally.
Economic Reviews
According to Wikipedia, around 8 Nobel laureate Economists have criticized Bitcoin thus far. A survey by the Center for Economic Policy and Research suggests that around 21% of the economists out of 48 groups suggest that currencies like Bitcoin and Ethereum can bring about a global economic crisis.
On the other hand, 28% of the participants in the aforementioned survey disagreed with the notion. Europe Central Bank and Federal Reserve reports have made it clear that Bitcoin and Ethereum are not a danger to the existence of Central Banks for now. Where Bitcoin is often touted as a deflationary asset, Ethereum is often dubbed as inflationary.
Majority Holders
According to popular beliefs, Bitcoin creator Satoshi Nakamoto holds the majority of Bitcoin tokens, estimated to be between 75 thousand to 1.1 million BTC units. However, it seems that Nakamoto has refrained from touching his Bitcoin stash thus far.
On the other hand, organizations like MicroStrategy, Tesla, and Galaxy Digital, among others, hold a massive amount of Bitcoin. Around 12 companies hailing from the USA hold around 185,000 Bitcoins collectively.
Eth2 deposit contract is the largest Ethereum holder in the world, with 9.5 million. The second-largest ETH holder is another smart contract called Wrapped Ether, with 7.46 million. Ethereum co-founder Buterin has revealed that he holds around 195 ETH in total hosted in two different wallet addresses.
Meanwhile, companies like Galaxy Digital, Ether Capital Corporation, Coinbase, Meitu, Hive, BTCS, and BIGG Digital are some of the companies with the largest Ethereum holdings in the world.
Conclusion
Bitcoin and Ethereum are different blockchains and have unique digital currency characteristics by design. However, both digital currency projects have contributed a lot to the development of the DeFi and crypto sector. A digital currency investor or a technical buff has the option to use Bitcoin or Ethereum depending on its utility and features interchangeably.
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