Bitcoin and Ethereum are the 2 most widely adopted applications of blockchain technology in existence today. While many people think they are competitors, it isn't quite that simple. Bitcoin is digital gold, while Ethereum is a digital universe. Both cryptocurrencies use blockchain technology to create a value layer for the internet, but Bitcoin's technology is limited to payments and scarcity. Ethereum takes blockchain a step further by adding a computer to the value layer, replacing traditional financial functions like lending and trading with code.
Both systems are powered and secured by a decentralized network of individuals across the world (miners), who are paid to do their part in keeping the network's secure. Decentralization is the core principle of blockchain technologies that make Bitcoin revolutionary compared to the digital dollar, which is centrally controlled by the U.S. government. When centralized entities failed the world in 2008, Satoshi Nakamoto made bitcoin to decentralize control of money. Ethereum was inspired by Bitcoin, but it upgraded upon Bitcoin with the addition of smart contracts. Whereas Bitcoin serves 1 function as a store of value, Ethereum's flexibility gives its blockchain network limitless potential.
Learning the differences between Bitcoin and Ethereum will lead you down a much deeper path of technological advancement and where the future of the internet may be. You don’t have to fully understand blockchain, Bitcoin, or Ethereum to know that we are on the verge of something special. Let’s take a look at what makes these projects similar, different and ultimately great in their own respect.
Main Takeaways: Bitcoin vs. Ethereum
- Bitcoin is a cryptocurrency; Ethereum is a platform. Ether is the native token on Ethereum's blockchain.
- Bitcoin is the largest cryptocurrency by market capitalization, Ethereum is the second largest.
- Transactions are faster on the Ethereum network than on Bitcoin’s.
- Bitcoin is primarily a store of value and medium of exchange; Ethereum is seen as a general purpose blockchain.
- Ethereum was created as a complement to Bitcoin, not as competition.
What Is Bitcoin?
In January 2009, an enigmatic figure named Satoshi Nakamoto executed an idea that he had laid out in a white paper — a peer-to-peer electronic cash system that could operate securely without a central authority. With Bitcoin, the idea of the cryptocurrency, or money without any physical form, was born.
Bitcoin was not the 1st time that someone thought of a decentralized, nonphysical form of money, but it was the first time that the idea was implemented successfully. The value of all other cryptos (including Ether) generally moves in tandem with Bitcoin, and Bitcoin is still traded more than any other crypto.
The primary purpose of Bitcoin was to establish itself as a viable alternative to traditional fiat currencies backed by countries. It is primarily a store of value and often used as a medium of exchange (although Stellar Lumens and other payment-focused cryptocurrencies are much better for this purpose due to their high throughput and low transaction costs.) Today, Bitcoin is primary seen as a store of value, as it's high fees aren't ideal to be a true currency.
What Is Ethereum?
Ethereum is a global computing platform powered by its native cryptocurrency, Ether (ETH). As demand for computing power on the Ethereum blockchain increases, so will demand for ETH.
Solidity is Ethereum's programming language and used to create smart contracts that can be deployed on the blockchain. Developers chose to build their apps on Ethereum's blockchain because it highly decentralized, and therefore highly resistant to censorship and other forms of centralized malice. Peer-to-peer apps on Ethereum are known as decentralized apps (dApps), and are capable of providing trustless products and services. DApps built on Ethereum can be developed for a variety of purposes including finance, gaming and social media. As the native currency on the Ethereum platform, ETH is needed to run dApps on the global computer that is the Ethereum blockchain.
Ethereum was launched in 2015 as an upgrade to the perceived limits of Bitcoin. Its use cases provided more opportunities for developers to create new applications, so it eventually became a separate and competitive entity. Ethereum was created by Vitalik Buterin, and the foundation is currently the most actively developed blockchain project in the world.
Similarities Between Bitcoin and Ethereum
Both Bitcoin and Ethereum are powered by their respective blockchains using proof of work consensus to validate transactions. Once 51% of the network's nodes agree that a transaction is valid, it's permanently uploaded to the blockchain. Ether and Bitcoin are the cryptocurrencies that enable these decentralized networks, and both of these assets have a limited supply. However, Bitcoin's supply is finite, and no more than 21 million will ever be issued. Ether, on the other hand, has an inflation rate of 4% and a token burn mechanism in place to offset its issuance rate. Unlike Bitcoin, Ethereum’s token emission schedule wasn’t decided at launch.
Once Ethereum 2.0 launches, it's likely that the supply of Ether will become deflationary, that is, it will decrease over time. Ethereum 2.0 will decrease issuance from 4% annually to around 0.5%.
Another similarity between Bitcoin and Ethereum is network adoption. These networks have much more users than other cryptocurrencies, making them the 2 most valuable cryptocurrencies by market capitalization. While Bitcoin has more institutional adoption, Ethereum has a larger active user base and transacts far more volume than Bitcoin on a daily basis. Both cryptocurrencies have widespread adoption, so these networks should have strong staying power as the blockchain industry matures.
Differences Between Bitcoin and Ethereum
Bitcoin was built to do one thing well — provide a way for people to transfer value from one to another without a central bank. Ethereum was built as a general purpose blockchain, allowing for limitless functions through its smart contracts. As a result, Ethereum is able to do many things well instead of serving solely as a store of value.
Ether can be used as a digital currency, but that is not its primary purpose. The Ethereum platform was built primarily to monetize operations of Ethereum smart contracts and dApps.
Bitcoin's market cap in May 2022 is around $550 billion. The Ether market cap is about 1/2 of that size, coming in at around $240 billion.
Ethereum is such a flexible platform that some people are actually starting to hold their Bitcoin on the Ethereum chain instead of on the Bitcoin blockchain. This is known as a “wrapped bitcoin.” Ether cannot be held on the Bitcoin blockchain. However, Bitcoin is much more widely accepted as a cash replacement — there is even a Bitcoin search engine where you can find products to buy in Bitcoin.
Tips for Trading Bitcoin and Ethereum
One factor that any investor should consider when opening an account are the trading features offered by the trading platform. Also, it's important to keep in mind that when you trade cryptocurrency on an exchange, you're forced to trade solely on the order books that the exchange uses, whether that's Coinbase, eToro, Binance or others. If you want to get the best prices across all exchanges, you'll need to use an exchange aggregator. SwapZone is a great aggregator that compiles 15+ exchanges and 700+ digital assets into one easy-to-use platform. All trades on the platform are custody-free with no registration needed.
Best Cryptocurrency Exchanges for BTC and ETH
Thanks to the explosive growth of cryptocurrencies, there are plenty of places to purchase both Bitcoin and Ethereum. Some platforms, such as Webull and Robinhood, let investors buy both stocks and crypto all on one platform. Other exchanges, like Coinbase and eToro, offer dedicated cryptocurrency platforms with several altcoins and options to earn interest on your digital assets.
Ethereum and Bitcoin Aren't Competitors
Researching Bitcoin vs Ethereum leads to a deeper discussion of what blockchain technology can do to improve every aspect of our lives. If you want to know the future of everything from finance to the judiciary to construction, Bitcoin and Ethereum will likely be a big part of it.
It's essential to understand that Bitcoin and Ethereum are fundamentally different ideas. Bitcoin is a store of value. Ethereum is a decentralized platform to host decentralized applications. Ether is the currency and programmable value that runs Ethereum. The backbone of Ethereum and Bitcoin are the same, however, both of these cryptos run on blockchain technology to secure its network. No longer do we have to rely on giving others our precious data to make transactions — blockchain gives us the power to create a trustless, immutable way to do business.
There may be little to really comparison between Bitcoin and Ethereum, but there will be huge comparisons to life before and after their mainstream acceptance.
Frequently Asked Questions
Questions & Answers
Bitcoin is digital gold. Ethereum is a decentralized computing platform for creating other decentralized applications such as automated market makers, NFTs, exchanges, currencies and so much more. Bitcoin’s widespread adoption and resistance to change is its main selling point.
Ethereum can do everything that Bitcoin can, and so much more. Ethereum is a decentralized computing platform where a new era of automated financial applications are being built to connect the global economy on a trustless and decentralized blockchain.
Bitcoin is digital gold. Ethereum is a decentralized digital computer. Both blockchains can be used to store and transfer value, however Ethereum can be used to implement decentralized applications (dApps). Ethereum is a development platform/ global computer.
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