If they ask you to name any two cryptocurrencies, you are likely to mention ETH and BTC, the kings of the market. But, although these two seem to compete in the same field, they are very different in terms of goals and priorities. In this article, we will compare Ethereum vs Bitcoin to see their distinctive features.
Before we start talking about what makes these two cryptocurrencies different, let’s highlight their common features. In fact, BTC and ETH are similar in more than one way.
Now, let’s dig deeper into their biographies to see what they serve.
To help you better understand what ETH and BTC are about, we made a fact file for each of them.
Year of birth: 2009.
Father: Satoshi Nakamoto, the author of the Bitcoin White Paper. The real-life identity of Nakamoto is unknown. There are different versions of it.
Purpose: To solve the problems of the financial sector. BTC was a decentralized alternative to fiat currencies and banks.
For what it can be used: For sending and receiving money, paying for goods and services, and other financial purposes.
Liquidity: High liquidity level, meaning you can easily convert this currency into cash.
Transaction speed: It takes minutes to make a transaction in the Bitcoin network. It’s considered rather slow.
Year of birth: 2015.
Father: Vitalik Buterin, a Russian-Canadian software developer
Purpose: Ethereum was to provide a platform for smart contract dApps (decentralized applications).
For what it can be used: Ether, the in-house cryptocurrency, fuels the transactions made on the Ethereum platform. You can also use it as a means of payment, like any other currency.
Liquidity level: High
Transaction speed: It takes seconds to complete a transaction on the Ethereum blockchain.
Now, when you have a basic understanding of what is Ethereum and what is Bitcoin, we will explore their key differences in detail.
Ask a crypto user what he associates with Bitcoin and Ethereum. Most likely, they will say “cryptocurrency” and “smart contracts”. Here lies the main difference between the two cryptos.
The primary purpose of Bitcoin is to disrupt the centralized banking system by offering a faster and cheaper decentralized alternative. The Bitcoin network makes it possible to store digital money and move it freely around the world.
The Ethereum project was a fruit of Buterin’s discontent with this limited view. He thought blockchain was bigger than just payments. As a result, Vitalik and his team launched a platform for exchanging anything of value: money, property, rights, etc. As we have mentioned, this platform gives users an opportunity to create a smart contract that ‘tokenizes’ different values. It is the signature feature of Ethereum that makes it stand apart.
To see how Ethereum and Bitcoin transactions differ, let’s consider two simplified examples.
BTC transaction example:
Alice sends 1 BTC to Bob. If everything is ok, he receives it within several minutes. (If you want to know more about how a cryptocurrency transaction works, read this article).
Ethereum Transaction example:
Alice sends 100 ETH to Bob using a smart contract. It looks like this, more or less:
Send 100 ETH from Alice to Bob if Alice’s balance is 200 ETH and the date is 01.01.2020.
It means Bob will receive the money (100 ETH) on January 1st, 2020 if Alice has no less than 200 ETH in her account.
In the first case, you make the transaction manually and whenever you want. In the second, it’s automatic and linked to a fixed date. When certain conditions are met, the money goes to Bob.
The speed of transaction processing in any blockchain depends on how much time it takes to solve a block.
How long does it take to make a BTC transaction? It depends, but the average time to mine a block in this network is 10 min. But, due to the popularity of the currency, there may be too many users wanting to send money at the same time. Thus, you will be waiting much longer — from 30 min to several hours. If you have no time to waste, you can offer a bigger fee and miners will make your transaction a priority.
Ethereum transaction speed is much higher. The average time is between 15 seconds and 5 minutes.
Like in the case of BTC, this speed depends on how much ‘gas’ you pay and how busy the network is at the moment. Gas is a special payment unit the Ethereum network uses. The amount of a fee in a gas depends on how much work the system does to process your transaction. When you submit it, you indicate your ‘gas limit’ (i.e. how much you are ready to pay).
What is ETH vs BTC and how they are different?
In a nutshell, BTC is something like the digital EURO or USD. Unlike traditional currencies, it lacks regulation and well-established infrastructure. But basically — it’s money. You can buy it to store your savings, or you can invest your BTC in another blockchain project.
ETH can be bought and sold, too. You can use it to buy tokens of another blockchain startup through an ICO (they don’t accept anything but BTC or ETH).
The difference between ETH and BTC lies in the simple fact that Bitcoin is nothing more than digital money. While ETH is fuel for the innovative technology you can apply for building a smart contract you need.
BTC and ETH use the same Proof-of-Work protocol or PoW. In this case, miners use their computing power to solve extremely difficult math problems. Those who manage to find the solution, add a new block to the chain and get the reward (newly-issued coins).
PoW protocol ensures security, but it has some major drawbacks, too. The main con is that miners waste a lot of resources, time and money. You have to buy expensive mining hardware and cooling equipment. Besides, you need a place for it all and extra money to pay huge electricity bills. Often, it makes solo mining unprofitable, especially if you deal with an old and popular network.
Given all this, Ethereum has plans to switch to another protocol called Proof-of-Stake (PoS) later in 2020. A lot depends on if the switch goes smoothly.
Under this scheme, validators who keep a certain amount of their coins in the network, check and validate new blocks. The reward they get for it depends on their share.
As you can see, PoS is more environment-friendly and less time-consuming. In fact, you can see staking as a way to put your coins to good use.
The maximum coin supply of Bitcoin is 21,000,000 BTC. This supply is limited. This fact influences the demand for the coin and its value. At the time of writing, there are 18,229,187.5 BTC in circulation, with 2,770,812.5 left to mine. Every 10 minutes (the time it takes to solve a block) 12.5 BTC are released.
As for Ethereum, its maximum coin supply is not limited. The production of coins is in process, developers saying it will slow down with time. During the last 3 years, the network added over 35,000,000 ETH. Earlier, Vitalik Buterin estimated the supply of the coin would reach 97,000,000 by 2025, but the number is much bigger already.
Last but not the least, the coins are different in terms of market cap. (If you don’t know what this important metric means, we recommend reading this article).
BTC is the most popular cryptocurrency by far, and its market cap at the time of writing is $175 870 318 906. The market cap of Ethereum is $28 659 758 088.
As you understand, it’s hard to say. Both coins have their pros and cons.
For instance, BTC features a smaller coin supply, meaning higher liquidity and demand. (When something good is limited in number, more people want to possess it).
On the other hand, the Ethereum technology provides a wider range of opportunities. Therefore, the number of its use-cases is unlimited. In this sense, you may say that ETH beats Bitcoin.
People often compare these two coins — they are the market leaders and thus look like the main competitors. In fact, it would be more correct to juxtapose BTC versus the cryptocurrencies that serve the same purpose but use updated technologies and newer consensus protocols.