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Bitcoin vs. Ethereum — 1: Similarities

Let’s have a quick look at the similarities and differences between Bitcoin and Ethereum in these mini-series of two posts.

We have talked about what Bitcoin and Ethereum are and their philosophies in our earlier posts. To sum up, let’s quickly recap the similarities between these two systems in this post. We will talk about their differences in our next post.

They look so different?

There are many similarities between Bitcoin and Ethereum. We will look at just three of them in this post.

Image by Ben Fleeson from Pixabay

Ethereum is born out of Bitcoin

First and foremost, Ethereum is born out of the Bitcoin ecosystem. Vitalik Buterin and other key members of the Ethereum’s founding group are all coming from inside the Bitcoin community.

This is actually quite normal. After many trials of creating ‘a digital-native internet money’ (such as digicash, bit gold etc) Bitcoin emerged as the successful model in that area. We should note that those earlier attempts, even though they did not reach scale or even fail, did actually paved the way for Bitcoin’s success. They exhibited in real life, what would be the potential pitfalls for digital money system. Bitcoin’s founder Satoshi Nakamoto, has observed all those issues and managed to come up with a model that addresses them quite successfully.

In fact, Peter Thiel, an early investor on PayPal, recalls a gathering with E-gold (a digital gold company) on a beach in Angulla. Around 200 participants discussed a decentralized money concept in that meeting and Thiel believe Satoshi Nakamoto was present there (anonymously). He says “My sort of theory on Satoshi’s identity was that Satoshi was on that beach in Anguilla […] Bitcoin was the answer to E-Gold, and Satoshi learned that you had to be anonymous and you had to not have a company”.

Both are public systems

The other main similarity is, they are both public blockchains or in other words, they are permissionless blockchains. This is an important concept, so let’s spend a minute here:

Permissionless means, the system is open to everyone. Anyone can use the system, to perform whatever action the system permits. Along the same lines, anyone can become a part of the system, meaning to be one of the machines that maintains the system and initiate transactions. All you need is to have a computer and internet connection. You can then, download the software and connect to the system (obviously this requires a bit of technical skill but there is no technical barrier to do so). Additionally, anyone can actually help the development of the software as well. There are now thousands of developers, all around the world, that help writing, reviewing and testing codes for new development (which are called BIP — Bitcoin Improvement Protocol and EIP — Ethereum Improvement Protocol respectively).

Why is permissionless important? Well, there was a trend couple of years ago on permission blockchains. These blockchains are also called private blockchains. They did not let outside parties to be a part of their system. There are certain merits for these systems, such as fast action (as you do not need the consensus of the community, which takes long), security (ability to avoid attacks from outside world). However, such systems have one major piece missing. That is decentralization. This is a long topic that merits a whole post for itself, but essentially when you do not have decentralization, that means you do have a central intermediary (or intermediaries if more than one). Any central body means accumulation of power and that power has to be in the hands of people according to core Blockchain philosophy. When you keep the blockchain closed you essentially keep the power to yourself. If you go toward that path, then a centralized database would make much more sense economic-wise, so why use a private blockchain?

Same consensus mechanisms

We should note that many of Bitcoin’s main properties were used in Ethereum as well. Proof-of-Work is one of them. Proof-of-Work (PoW) is usually referred as a consensus mechanism, which means the mechanism that allows thousands of machines to work together and move forward. It should be noted that, PoW is actually a mechanism to protect the blockchain from an external attack. For simplicity reasons though, we can say, PoW is the mechanism that enables the blockchain system operate smoothly.

Conclusion

If you follow crypto media (or Twitter) you may witness many clashed between so-called Bitcoin maximalist and Ethereans. While, much of those discussions have some merit, we should not forget that both systems are coming from the same roots and have many similarities. There are differences as well, which we will glance over in our next post.

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