3. Bitcoin & Ethereum

Virtual currencies are not backed by a Central Bank, nor by the treasury of any State, nor can they be falsified and exchanged directly between Internet users that they self-regulate. Some are limited in number, others are not. They operate for the most part under Blockchain, a decentralized technology that is considered the future cybernetic base.

Bitcoin is the cryptocurrency par excellence. Created in 2009, it is the best-known and most used virtual currency. Decentralized, without backing from any government or bank. Also the most valuable, and by far. But it is not the only one.

Ethereum has become the second most popular cryptocurrency, through ether, its units. Ethereum sees itself as “an enormously powerful shared global infrastructure” that, in addition to serving as a digital currency, executes special applications called “smart contracts”.

The name cryptocurrency can create confusion. Are they digital money, or do they work more like gold does? Are they a new way of paying for things online, or a form of deposit value?

Both bitcoin and Ethereum have utility as a currency. They can be used to pay, buy or as a store of value, despite the volatility. Both have similar structures, with the use of virtual portfolios.

According to Lex Solokin, an expert in cryptocurrencies, bitcoin is currency, but ethereum is technology. “Ethereum is the world’s computing platform”, with implications that go beyond the financial terrain thanks to the blockchain.

Each cryptocurrency uses security systems in the form of an algorithm. It is the way they have to maintain a strength at cryptographic levels. However, each of them uses a different system. In the case of bitcoin, it uses the SHA-256d algorithm, while Ethereum uses EtHash.

However, when you approach the issue between Ethereum vs Bitcoin, there are differences that are more than remarkable.

Deposit Value

The most successful cryptocurrency as a store of value continues to be Bitcoin. As the most valuable currency in the world by quite a margin — in addition to being the “mother” of the cryptocurrency revolution — Bitcoin has already proven its worth. It is much more recognized than any of its peers, and that makes it easier to buy, store and sell.

Part of this is due to the shortage incorporated in the Bitcoins. There is a strict limit on the final number of Bitcoins, with decreasing returns as it approaches the mythical mark of 21 million. There will come a day when no more Bitcoins will be created, and no matter how many are lost: no more will be made. Thanks to supply and demand, that means that Bitcoin should -in theory- grow in value -at least- when no more coins are created.

In comparison, Ethereum will continue to release the same amount of Ether on a regular basis and “forever”, so its supply will remain constantly expanding.

As a means of transaction

Although Bitcoin is better at storing value than Ethereum — at least for now — Ether has quickly become a preferred method of transferring wealth to and from people and entities.

Block generation time

The speed in which blocks are generated is another of the differences between these two virtual currencies. The processing of the blocks in Bitcoin and in Ethereum refers to the time needed by the miners for a block to be confirmed, validated and added to the block chain.

This time marks the frequency of coin issuance and the speed at which the network operates, when a new block is verified with the most recent transactions in that period of time. We could say that this time it takes to generate a block is the heartbeat frequency of Bitcoin and Ethereum respectively.

The complex processing of Bitcoin means that the generation of new blocks used to take place every 10 minutes. However, it takes 16 seconds for the generation of a new ethereum block and its confirmation, which makes it much more manageable to make large transactions. With the recent updates on both networks, time between each block has shortened.

Mining

The reward that the miners receive is always cryptocurrencies: bitcoin in Bitcoin and Ether in Ethereum. But the method of receiving them varies from one to the other.

Bitcoin is simple: miners are rewarded for validating blocks. For each validated block, the miner or group of miners who have validated it correctly in the shortest time will receive the relevant bitcoins.

At Ethereum, apart from rewarding miners for validating blocks, they will also receive Ether for validating each transaction and smart contract. The parties wishing to execute the transaction or the smart contract will pay a fee in Ether called ‘Gas price’.

This fee paid for the computational expense could be said to be a tip: an incentive to the miners for that transaction or that intelligent contract to be validated and added to the chain of blocks before other transactions. The miner will receive that reward for prioritizing that intelligent transaction or contract.

This makes the process much more energy efficient, based on bandwidth instead of hashrate (number of calculations per second).

Perhaps the most striking finding is that the process of verifying transactions and securing a chain of blocks from attacks, called mining, is not really as decentralized in any of the systems.

Decentralization

Some organizations dedicated to concentrating mining resources have been created. Researchers have discovered that Bitcoin’s four major mining operations had more than 53% of the system’s average mining capacity, which is measured every week. And mining for Ethereum was even more concentrated: three miners accounted for 61% of the system’s average weekly capacity.

They also found that 56% of the Bitcoin “nodes”, the computers around the world that run their software (although not all are dedicated to mining), are located in data centers, compared to 28% of Ethereum. That could indicate that Bitcoin is more corporate, says Gün Sirer. In general, the group concludes that no network “offers properties that are strictly better than the other”.

There is no perfect way to measure the decentralization of a cryptocurrency network, which is a complicated social and technical phenomenon. The way in which coins are distributed in a network can be very important

Programming language

Programming languages ​​are languages ​​designed to perform processes that can be carried out by machines. In other words, the language of machines. When we send a message to another person whatsapp or open an application, underneath all that there is a programming language that allows us to communicate with the mobile phone to perform these processes.

Bitcoin uses the C ++ programming language and works with less than 70 specific commands (programming instructions) that can be used. This limitation provides more security because it is much more difficult to hack the chain of blocks within the configured commands. The other side of the coin is that it is a simple and limited language, which also limits it as technology.

Ethereum has a rich and complex built-in programming language called ‘Turing complete’, which includes seven different programming languages, that allow coding, calculating and doing anything with it, it also allow rules to be written in any way that can be expressed by code and enables smart contracts.

Bitcoin, for example, is not Turing Complete as it only provides a very simple mechanism to distribute money.

This means that Ethereum has a broader base on which to build and a wider market to cover. It is not limited to being a book of transfer of values ​​like Bitcoin.

The negative point is that, being a complex programming language, it also means that learning is more complex and there are more opportunities to make mistakes.

Smart Contracts

Ethereum brings a new concept to virtual currencies, until then nonexistent. Smart contracts allow two people to sign contracts easily from anywhere in the country. These smart contracts mean that you can sign transactions without having to trust anyone, since they only fulfill the contracts when the previously agreed clauses are taken for granted, that is, the contracts do not perform a function until the agreed conditions are met.