Bitcoin and Ethereum are the most valuable cryptocurrencies by market capitalization (at the moment of writing). Bitcoin market capitalization accounts for $122,7 billion, while the one of Ethereum is $16,8 billion (take into account that Ethereum was introduced in 2013 by Vitalik Buterin, roughly five years after Bitcoin Satoshi Nakamoto published the Bitcoin whitepaper). These two cryptocurrencies still hold the edge in popularity over other digital assets, attracting more and more attention from global communities. So, what makes them so appealing and what sets them apart? In this article, we will explain the key difference between Bitcoin and Ethereum in plain language.
Ethereum and Bitcoin are both digital currencies that use blockchain as an infrastructure. Therefore, they take advantage of distributed ledger technology, making it possible to:
- Conduct peer-to-peer online transactions (without the necessity of trusting any third party),
- Hide (in pseudo-anonymous mode) user’s personal information while owning, transferring and using an asset,
- Make sure your transactions are recorded within a blockchain and secured by complex encryption algorithms, hence, it is very complex to fake them.
Read more about cryptocurrencies and underlying blockchain technology here.
Both Bitcoin and Ethereum became attractive for plenty of investors and traders due to their benefits, utility, liquidity, and high volatility rate (opportunities to earn on speculations).
Furthermore, each of them uses its own blockchain as an infrastructure. It’s important to mention that both Bitcoin and Ethereum are:
(1) the names of decentralized networks (blockchains),
(2) the self-titled currencies that use their own blockchain as an infrastructure.
Anyway, with quite a lot of things in common, Ethereum and Bitcoin have some fundamental differences that lie in the technologies deployed within each network. Without diving into complex technical issues, the key difference is their primary purpose.
Bitcoin is a simple peer-to-peer digital payment system
Satoshi Nakamoto described Bitcoin as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” Thus, the major aim of Bitcoin is to facilitate and improve the payment process, solving some of the inefficiencies of traditional money by leveraging blockchain technology.
Means of payment. With all the benefits described, Bitcoin can be used as a way to conduct transactions without any third party, eliminating double-spending and other custody risks.
Store of value. Many investors believe in the Bitcoin idea as a payment system of the future and expect the price to increase in the long term. Therefore, they hold an asset not regarding middle and short term fluctuations. Are they right? Who knows. Nevertheless, a great illustration of the Bitcoin growing value is a story of Laszlo Hanycz who bought a couple of pizzas for 10000 Bitcoins in 2010. That time the purchase was about $41. Now it could be something more than two pizzas.
Trading opportunity. Furthermore, with a high volatility rate, BTC is considered to be a promising asset to speculate.
Thus, Bitcoin is the first international decentralized digital payment system. Then, what’s the mission of Ethereum?
Ethereum is an open-source platform for decentralized applications
Ethereum can be also used as a means of payment or an asset to trade and invest, however, its major purpose is to act not as an alternative monetary system, but as a platform to develop and run decentralized applications (DApps) without any counterparty interference and fraudulent activities.
To clarify, DApps, in contrast to centralized applications, have their backend code deployed into the blockchain, not on centralized servers. That is why, even providing the typical services (for example, marketplaces, gambling services for casinos, supply chain management, voting and many more), they do not require any intermediary (due to using blockchain as an infrastructure).
You may ask how is it possible, as applications are rather complicated than a single transaction. Indeed, it is so. However, Ethereum network makes it possible due to smart contracts deployment*. To simplify, smart contracts are computer protocols or, in other words, code that contains certain terms and conditions that should be met in order to conduct a particular transaction. Hence, it is a code that contains “if-then” and “if-then-else” statements. The protocol can be reviewed, making DApps operations transparent for the participants.
*Note that smart contracts mechanism was developed in 1995 by Nick Szabo. However, it could be stated that Ethereum network brought the idea to life, introducing it to a greater audience.
You may also ask what it is for. An obvious case of DApps value is online gambling. Unfortunately, centralized online casinos are notorious for the fraud from the part of those who house the gambling (operators, for instance). As for gambling DApps, they use transparent smart contracts with all the specifications coded and possible to be reviewed by participants to make sure the game is fair. The same works with other services, making them transparent, fair and in some cases swiffer.
Therefore, Ethereum is “…a global, open-source platform for decentralized applications. On Ethereum, you can write code that controls digital value, runs exactly as programmed, and is accessible anywhere in the world” (Ethereum official website).
So, the difference between Bitcoin and Ethereum is simple — Bitcoin is aimed at value transfer and storing value while Ethereum is focused on the implementation of business logic in a decentralized paradigm, introducing new types of services. One of the best examples is the rapidly growing Defi (decentralized finance) sector. By the way, Bizonex will list all major assets related to Defi applications soon!
Thus, being powered by different mechanisms, Bitcoin and Ethereum offer various use cases of blockchain technology. Is there a leader? Tricky question that might be answered with another question: are Bitcoin and Ethereum, having such different purposes, competing or not?
Stay tuned for updates!
Telegram Channel: https://t.me/bizonex_news
Telegram Chat (English): https://t.me/bizonex_eng
Telegram Chat (Russian): https://t-do.ru/bizonex_ru
Facebook: https://www.facebook.com/bizonex
Twitter: https://twitter.com/bizon_ex
Reddit: https://www.reddit.com/user/Bizonex
