Batman v. Superman, Tom v. Jerry, Ali v. Foreman. The next iconic match-up? Bitcoin v. Ethereum.
When it comes to the world of crypto, you’re probably most familiar with these two coins. BTC and ETH have dominated thanks to their pioneering work in the field. But what’s the big difference between the two? Is one better than the other?
Ready to start? Let’s go! By the end of this quick guide, you’ll have the answers to all your questions.
What is Cryptocurrency?
Cryptocurrency is simply a digital currency. You can use it to sell or buy goods, keep accounts, or invest. Instead of a government or bank, the coin users decide how it should operate.
We can trust cryptocurrency payments because of the blockchain. This is a decentralized network of computers that records transactions of digital currency. The entire ledger is publicly available and secured with cryptography.
What is Bitcoin?
Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public ledger (the blockchain). Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoin was the first modern cryptocurrency. As a result, it has inspired all the coins that came after — including Ethereum.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts. These are applications that run exactly as programmed without any chance of fraud or third-party interference. Ethereum is powered by its native cryptocurrency, the Ether token. While Bitcoin is a payment system, Ethereum is a platform that allows developers to create applications. This is why the Ethereum platform is sometimes referred to as “Bitcoin 2.0.”
Bitcoin and Ethereum: Differences & Similarities
Bitcoin mainly serves as a system of payment or store of value. That’s why it’s so often referred to as digital gold. Ethereum is used to run programs: it’s a programmable blockchain. The decentralized applications built on Ethereum can interact and conduct P2P payments without a middle man. It’s one of the reasons why Ether is such a valuable asset.
These capabilities also allow Ethereum to handle NFTs, or non-fungible tokens. NFTs have various applications as crypto assets — art, gaming, and even real estate.
Bitcoin has a fixed supply of 21 million Bitcoins; Ethereum has no such limit. Ether can be created endlessly, which is one reason why its value has been rising so rapidly in recent months.
Both Ethereum and Bitcoin are built on blockchain networks. A blockchain is a distributed database that allows for a high level of security through cryptography. The blockchain is also transparent, meaning that anyone can see all the transactions that have taken place on it. This transparency is one of the reasons why Bitcoin and Ethereum are trustworthy currencies.
The two blockchains also use a Proof-of-Work algorithm, which allows them to be secure and tamper-proof. However, Ethereum will be moving towards a Proof of Stake model in 2022.
The Bitcoin and Ethereum networks differ greatly when it comes to block speed. Ethereum blocks are mined every 15 to 17 seconds, whereas Bitcoin has a 10 minute block time. The Ethereum network also has a transaction throughput of around 30 transactions per second. This is much higher than the Bitcoin network, which can do seven transactions per second.
One of the key similarities between Ethereum and Bitcoin is their codebase. Both are built on open-source blockchain technology that is “Turing complete.” Turing complete means that both blockchains can run any operations coded by a developer. That’s why they’re so flexible and programmable.
Pretty much anyone can be a miner on either the Bitcoin or Ethereum network. However, only developers with extensive coding knowledge can develop apps on top of either protocol. This makes it harder for bad actors to get into the system and exploit it. (They don’t have this sort of background knowledge).
Similarity: Fiat Currency Investments
Both Bitcoin and Ethereum are attractive investment options for people looking to invest with fiat currency. The value of both digital assets has been on the rise in recent months. We can thank the renewed interest in crypto applications.
Both of these digital assets are sure to fluctuate in the coming years. Despite this, they’ll likely continue to be strong investments.
Both Bitcoin and Ethereum are mined through PoW. This means that new coins are awarded for using computational power to solve complex algorithms. Both the Ethereum blockchain and the Bitcoin blockchain support mining pools too.
Similarity: P2P Transactions
Bitcoin also has its own version of smart contracts called payment channels. The Lightning Network is built on top of these payment channels. It allows for speedy transactions between people at lower costs than regular transactions would require.
You can store both coins in digital wallets and trade them online just like other assets, including gold! You’re not technically keeping “money” in a digital handbag. These wallets let you store your coins and trade them whenever you want.
Ethereum and Bitcoin are available on most, if not all, cryptocurrency exchanges. This is largely because they’re the two most popular coins on the market.
The capitalization of the two currencies also differs significantly. Bitcoin has a market cap of just under $1 trillion. Ethereum’s market cap is just under $500 billion. That means Bitcoin accounts for nearly twice as much value as Ethereum does.
Bitcoin vs. Ethereum: The Bottom Line
At the moment, Bitcoin and Ethereum are both valuable assets with a great deal of potential. However, Ethereum has the edge due to its superior functionality and its growing user base. On the other hand, Bitcoin is more widely accepted and has a longer track record. Bitcoin still has a larger market share, and a very limited supply, making it a more valuable asset in general.
If you’re trying to decide which one to add to your portfolio, the answer is YES. You should have both. You can learn strategies like this and more in Dan Hollings’ The Plan. After years of research and millions of dollars, Hollings has perfected a crypto grid trading strategy. The Plan can help you lower risk and make passive income off the markets.
Frequently Asked Questions
Is it better to buy Ethereum or Bitcoin?
Your choice depends on your investment philosophy. Ethereum supports more applications, but Bitcoin’s limited supply suggests value growth. Realistically, your crypto portfolio should include both.
Will Ethereum beat Bitcoin?
In terms of market cap, this will be difficult: Bitcoin’s market share is still very dominant for now. However, the Etherum network is becoming more efficient and widely applicable. It takes less time to validate transactions given similar requirements for computing power. As well, $ETH has seen more substantial returns than $BTC over the past months.
Is Ethereum more important than Bitcoin?
At the moment, Ethereum is more important than Bitcoin due to its broader functionality as a platform. Bitcoin still has the edge in terms of market share and general acceptance. However, Ethereum is snowballing and has the potential to overtake Bitcoin soon.