As much as it seems most likely that Bitcoin will remain the king of the cryptocurrencies for the foreseeable future, there is no guarantee of that. There are certain things Ethereum can do that Bitcoin can’t; yet Bitcoin is still the leader of the pack thanks to its maturity and fixed supply. To understand more about Bitcoin, start at our Bitcoin Hub for more in-depth information on the world’s first cryptocurrency.
Bitcoin is seen as a store of value or “digital gold,” while Ethereum is a platform for building decentralized applications and executing smart contracts. Their distinct value propositions allow them to cater to different segments of the blockchain and cryptocurrency markets. Two cryptocurrencies stand out as clear market leaders—bitcoin and ethereum. These digital currencies rank first and second by market capitalization and are both based on blockchain technology. But as cryptocurrencies, bitcoin and ethereum have some noteworthy differences.
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And Ethereum’s goal of becoming a decentralized, censorship-resistant world computer represents a desire to rewire global systems away from digital hegemonies, third-party regulatory bodies, and centralized internet service providers. The more crypto someone stakes, the greater their chances of being chosen to validate a block of transactions to a blockchain and earning a set amount of crypto. They compete for the chance to be chosen to validate a new batch of transactions and add them to the blockchain, earning a set amount of crypto in the process. A major criticism of proof of work is that it is highly energy-intensive because of the computational power required. Proof of stake substitutes computational power with staking (making it less energy-intensive) and replaces miners with validators, who stake their cryptocurrency holdings to activate the ability to create new blocks.
Please note the insights provided herein are for informational purposes only and should not be construed as financial advice. The next milestone on Ethereum’s roadmap is the full implementation of Danksharding, which is expected to consolidate and amplify the benefits of proto-danksharding, further boosting the network’s capacity and efficiency. This trajectory underscores Ethereum’s commitment to continuous improvement and innovation, aiming to fortify its position as a leading platform for decentralized applications and finance. Ethereum’s ability to support complex smart contracts and its pivotal role in the DeFi space underscore its position as a dynamic and influential platform in the blockchain community.
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Overall, Bitcoin focuses on being a digital currency and store of value, while Ethereum provides a robust platform for creating and executing transactions that facilitate the movement of value. Bitcoin uses a consensus protocol called proof of work (PoW), which includes a network-wide competition to solve a cryptographic problem before the network begins confirming and sealing transactions. In September 2022, Ethereum moved to proof of stake (PoS), a set of interconnected upgrades that made Ethereum more secure and sustainable. To address issues regarding scalability, part of the transition to proof of stake is danksharding, which will continue to be addressed through future updates.
Proof-of-work systems like Bitcoin have also drawn criticism for the amount of energy expended by the computer hardware involved. According to the Cambridge Center for Alternative Finance, Bitcoin’s electricity consumption exceeds Norway’s annual electricity consumption, at an annualized rate of 127 terawatt-hours (TWh). And with Ethereum’s native crypto now approved for its own set of spot ETFs, some analysts expect these tech advantages to trigger a bull run towards it. Last year, the SEC lost a lawsuit against Grayscale, which had sued the agency for trying to block the conversion of its popular Bitcoin trust into an ETF.
As a transactional medium
Ethereum and Bitcoin are two different networks that have made certain trade-offs. Bitcoin has chosen security, while Ethereum has chosen flexibility by design. With cross-chain interoperability solutions, decentralized applications will benefit from Ethereum’s flexibility and the unmatched security offered by Bitcoin. Bitcoin is the digital gold and is the only crypto asset that is getting widespread adoption from institutions such as Tesla, Grayscale Bitcoin Trust, MicroStrategy, and others. Bitcoin is now designated as a legal tender in El-Salvador, a small country in Central America.
- They are widely available on cryptocurrency exchanges, and many people still buy both for their perceived investment value rather than their current utility.
- For Ethereum, this action is known as ‘staking’, where stakers put up their own valuable capital in ETH in order to participate.
- It has built a reputation for decentralisation and security, but faces criticism over its energy-demanding PoW system.
- Proof of work systems, such as bitcoin, have drawn a lot of criticism for the amount of energy expended by the computer hardware involved.
Furthermore, the launch of Bitcoin Exchange-Traded Funds (ETFs) in the USA and the cryptocurrency’s surge to new all-time high price levels underscore its growing acceptance and maturation as a mainstream financial asset. Ethereum transaction fees are known as the ‘gas price’, and they tend to fluctuate more than Bitcoin’s. The gas price is directly related to the Foreign Exchange Vs Crypto computing power required to complete a transaction and can increase depending on network activity. Ethereum gives users the ability to prioritise a transaction to be completed more quickly at a higher fee. Generally, users pay the base gas fee — the minimum price — or they set a gas limit (the most they are willing to pay to have the transaction processed).
Best Cryptocurrency Exchanges for BTC and ETH
This novel network architecture has consequently paved the way for the complex blockchain ecosystem that we have today. Bitcoin primarily functions as a store of value and digital currency, whereas Ethereum operates as a decentralized computing platform facilitating smart contracts and decentralized applications (dApps). Ethereum boasts faster block times, approximately 15 seconds, compared to bitcoin’s 10 minutes, enabling quicker transaction confirmations.
Currently, this metric is roughly inline with where ethereum stood just before it hit a parabolic boom between 2020 and 2021. Though key technical differences will still remain between bitcoin and ethereum, she said, replicating its functionality could send bitcoin surging five times over in just a matter of years, Chen said. That puts bitcoin a step behind certain competing networks, especially Ethereum. On that platform, investors have been free to transact different cryptocurrencies, or gain exposure to non-fungible tokens and DeFi.
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Many companies accept Bitcoin as payment for the goods and services they offer. Bitcoin takes the ‘middleman’ out of transactions, allowing two parties to operate on a peer-to-peer (P2P) basis, much like a cash transaction in the physical world. Since everyone can see identical copies of the Bitcoin blockchain, nobody can copy and paste their digital money and spend it twice. Doctoring one transaction is hard enough, but you’d also have to change every subsequent transaction since each one references its forerunners. At the start of the cryptocurrency boom in 2017, Bitcoin’s market value accounted for close to 87% of the total cryptocurrency market. By late August 2022, Bitcoin’s market share had declined to 39.6%, but by May 2024, it had rebounded to more than 54%.
The more crypto someone stakes, the greater their chances of being chosen to validate a block of transactions to a blockchain and earning rewards. The system also discourages bad actors with financial penalties for malicious behaviour. Since everyone can see on their copies of the ledger that you’ve spent your BTC, any attempt to spend the same BTC again would be invalidated by the network. The consensus mechanism ensures that all participants agree on the validity of transactions. Bitcoin and Ethereum are systems, whereas BTC and ETH are the cryptocurrencies used by those systems.
When comparing the two ecosystems, we need to be clear whether we’re comparing the technology, the assets the technology produces or both. Participating in the Ethereum DeFi ecosystem offers various strategies like yield farming, liquid staking, and more for those looking to take a more active and risk-inclined approach. Investing in DeFi involves engaging with smart contracts to earn interest or rewards, often yielding higher returns than traditional investment avenues. However, this approach demands technical knowledge and a high tolerance for risk, as the DeFi space is known for its volatility and potential for loss. This section delves into comparative market analysis and investment trends for these leading digital currencies.
What’s the Difference Between Ethereum and Bitcoin?
Regardless, and as is the case with all cryptocurrencies, BTC and ETH are both volatile. Prices are unpredictable and prone to crashes, as we saw in May of this 2022 when the market capitalisation of crypto assets fell to around $US900 billion — down from $US3 trillion. Additionally, to succeed in such an attack, you’d need to control at least 51% of the network’s computing power to alter the blockchain and rewrite the transaction history in your favour.
