They are the most visible and widely traded cryptocurrencies. Since the cryptocurrency market started taking shape, Bitcoin and Ethereum have literally been riding shoulder to shoulder. Bitcoin is the pioneer digital currency starting as far back as 2009. Its arch-rival Ethereum, on the other hand, has only been on the market for just three years.
However, in this short period, Ethereum has been giving the market leader a run for its money, consistently occupying the second spot. No doubt Bitcoin continues to control the market. With a market capitalisation of $139 billion, Bitcoin maintains a big lead over any other coin. This represents a market share of 40%.
Two Sides of a Coin
Ethereum on the hand has a market capitalisation of just 52.7 billion. Rapid gains in 2017 led some people to speculate ethereum as the next bitcoin. For perspective, Ethereum soared more than 12,000% in 2017 compared to Bitcoin’s 1000%. Because of the rate of appreciation, it was common to see investors buying ethereum with bitcoin.
Bitcoin and ethereum are both similar and unique cryptocurrencies in their own way. If you are planning to dabble in cryptocurrencies, you will certainly come across bitcoin or ethereum.
If you have been here for a while, then most likely you have found yourself having to buy bitcoin with ethereum or the other way round. Bitcoin ethereum conversions are one of the most common. It is just inevitable for anyone trading cryptocurrencies.
Especially during anxious times like much of the first quarter, many have had to hit the bitcoin to ethereum converter several times.
Today, we look at the four major differences between bitcoin and ethereum. These subtle differences between bitcoin and ethereum can help inform your decision on which coin to invest in or decide which one is best suited for your business. Once again this is a rapidly evolving and highly speculative market and you should be prepared to lose all your investment.
Differences Between Bitcoin and Ethereum
As pointed out earlier, Bitcoin has been around since 2009. Ethereum is a recent creation being first deployed only in 2015. The bitcoin ethereum nexus is an interesting one. They rise and fall together, like many other coins.
But they have also carved out their respective niches. Yet they also have their similarities. If you have found yourself asking questions like; What is ethereum bitcoin or is ethereum a bitcoin? you are not alone. As you immerse yourself in the world of cryptocurrencies you are more likely to buy ethereum with bitcoin, most likely more than once.
Ethereum is one of the more than 1500 coins described as alternative currencies. As you may have deciphered from the name, they try to improve on certain aspects of the original mover bitcoin. These could be in terms of speed or such aspects as anonymity. Of course, many of them are outright copycats.
Bitcoin, ethereum, ripple and other digital currencies are based on the blockchain technology and can be transferred instantly across borders without the need for third parties like banks. And at a minimal cost too.
Back to Ethereum vs bitcoin duel.
The differences between these coins range from the philosophical to the practical. One practical difference is the speed.
1. Bitcoin Vs Ethereum: Speed
One of the major complaints facing the bitcoin network especially during its peak in December and January is the slow transaction speeds. With the frenzy for cryptocurrencies and especially bitcoin, many users flooded the bitcoin network with a sheer volume of transactions.
Its inherent design problem did not help matters. While it takes Bitcoin 10 minutes to process a transaction, it takes the Ethereum network only 10 seconds. With a high volume of transactions, like its peak in December, bitcoin transaction times took more than one hour. Whether it was newcomers acquiring new bitcoins or traders converting bitcoin to ethereum or enthusiasts buying newer coins, the network was always kept busy.
It is one of the many issues that dim the possibility of Bitcoin ever being used as a day to day currency. No one wants to wait for one hour at the shopping mall to have their transaction processed. It is plainly impractical.
While this is the case, it might not stay so forever. Additional layers such as the Rootstock.io promise to make bitcoin as capable as ethereum in many areas. Added to its well-established security credentials, it might as well claw back on ethereum’s ground.
If you are one of those who had lost hope in the leading crypto, you might actually find yourself having to sell bitcoin for ethereum soon.
While many see it as a digital currency, Ethereum is more of a platform for distributed computing with its native currency called Ether.
2. Ethereum Vs Bitcoin; Scripting Language
While they both run on the back of the blockchain technology, Ethereum is more sophisticated, running on a Turing complete language which enable functionalities like smart contracts.
Bitcoin acts as a wallet, more or less limited to processing transactions. A few functionalities like locking coins for a specified period have been added. Largely, however, it remains as a store of value. That is why many traders have had to sell ethereum for bitcoin in the recent slump. Bitcoin remains a much safer bet.
For much of last year, however, it was not uncommon to trade bitcoin for ethereum. The simple fact is that ethereum soared at a much faster rate.
Prone to attack
Unlike bitcoin, ethereum is more complicated and makes it prone to attack. As per ethereum bitcointalk forum, the need for ethereum arose from the fact that innovations like smart contracts and identity registration, bitcoin ethereum exchange were often fragmented and required “an entire meta-protocol layer or even a specialized blockchain.”
These innovations can, however, be made easier with “a stronger foundational layer with a powerful scripting language for all of these protocols to build upon.” This is basically the foundational mission of ethereum.
As pointed out above, Ethereum uses a Turing complete scripting language. Bitcoin, on the other hand uses a stack based language.
3. Bitcoin Vs Ethereum: Blockchain and Mining
Like many coins, ethereum and bitcoin are put into circulation through a process called mining. Basically, it is the creation of coins by solving complex mathematical problems.
This is basically a proof-of-work system and is meant to guard against fraud and malicious activity since there is a cost involved. The process involves adding transaction records to the public ledger.
Miners are rewarded with Bitcoin for their CPU power. The proof-of-work system does help create security but it also comes with inherent challenges. Since there is no stake, malicious activity carries no consequence. It also requires a lot of energy to validate transactions which is a concern when it comes to environmental conservation.
Ethereum was built to allow for flexibility. One of them is the ability to run smart contracts without downtime, fraud, censorship or interference.
The Turing complete programming language incorporates seven languages which allows several types of languages to run. Bitcoin is written in C++.
Like Bitcoin, ethereum uses the proof-of-work system. Miners are rewarded with five ether per block. Unlike Bitcoin, this remains constant over time.
Backbone for many other cryptocurrencies
Perhaps Ethereum is better known for the creation of other cryptocurrencies. In fact much of its surge in 2017 was due to the fact that other decentralised projects were created here. Payment is through Ethereum meaning users first have to buy ethereum.
From Proof-of-work to proof-of-stake
Ethereum is, however, planning to switch to a proof-of-stake system. Essentially, validators, not miners will verify transactions.
There will be no complex mathematical problems to solve. Instead, validators will need to own Ether. By validating, they are essentially putting their own ether on the line. Validators earn transaction fees as rewards.
While it has its downsides like centralising mining, this method is more energy efficient, and faster compared to hashing.
Bitcoin mining requires a lot of electricity and specialised ASICs which are costly. As a result, it is highly centralised and mining overwhelmingly happens in China.
Bitcoin Vs Ethereum: Security
Bitcoin has a fairly robust infrastructure having reached a peak hashrate of 1.8 ExaHash compared to Ethereum’s relatively small 3 TeraHash.
The process however slight differs between bitcoin and ethereum.
4. Bitcoin, Ethereum Supply
Bitcoin’s supply is capped at 21 million. This is a good way of preventing inflation although this comes with its own challenges. Bitcoin’s supply halves every four years with the next one in 2020.
Ethereum’s supply on the hand is capped at an annual 18 million which represents an inflation rate of about 20% of the current supply. Such a high supply is bound to see its value decline over time.
To its advantage, this design makes it more suitable for transactions and eases the entry. It will certainly be cheaper and convenient to buy ethereum in future and for newcomers to adopt it for everyday transactions.
Bitcoin and ethereum will continue to dominate the market in the foreseeable future. Bitcoin has the first mover advantage and is well known for its security. Ethereum made steep gains mainly because of innovation. If faces challenges due to its complexity and suffers a few outages once in a while. Ethereum however has obvious advantages like faster transaction speeds and low fees. It will be interesting to see how these factors play out in the future.
Certainly, they both require some fine-tuning. That they will continue to be dominant is not in question. That is why ethereum vs bitcoin prices continues to receive a lot of analysis from traders.