A Brief Insight into Bitcoin and Ethereum
Simplifying the two blockchain giants
In today’s world, where we cannot imagine our lives without internet and everything has gone digital, privacy is a major concern. Most of us use the services of third-party organizations like banks and other central authorities acting as middlemen for our digital presence and trust them with our identities and information. These middlemen charge for their services and also have control over our data. This trust-based model is mostly convenient and works well. However, the need for trust should be eliminated to give users more control over their data and get rid of the middlemen.
Introduction to Bitcoin
Bitcoin is a digital currency based on a peer to peer network model, having no central authority. It allows users to transfer money directly using digital signatures without the need for any third-party organization. Although removing the middlemen provides with a lot of benefits, it sure comes with its challenges. Double-spending is a major challenge that Bitcoin offers to solve. Bitcoin maintains an immutable ledger of all the transactions, wherein blocks of transactions are chained together like a linked list. Bitcoin uses the proof of work consensus mechanism for the network to come to a single agreement and avoid double-spending.
Each block of transactions is added to the chain by solving a mathematical puzzle, requiring a huge amount of electricity and CPU cycles. This is referred to as the proof of work mechanism. It prevents hackers from re-doing the blocks in their favor by making it computationally expensive. The nodes who create the blocks are called miners and are incentivized for their work. The entire chain of blocks is distributed over all the nodes in the network, where privacy of each node is maintained by using pseudo-random public keys issued to each node.
A cryptocurrency is a digital asset that acts as a medium of exchange, operating independently of a central bank. It uses encryption techniques to secure financial transactions, verify the transfer of assets, and control the creation of additional units. Bitcoin is a very popular cryptocurrency, and also the first one out there making it more popular than the other cryptocurrencies. However, its power-hungry proof of work mechanism is no longer considered to be efficient and have many other alternatives.
Blockchain is a digital, decentralized, immutable ledger that keeps a record of all transactions that take place across a peer-to-peer network. Indeed Bitcoin is a blockchain and also the very first implementation of blockchain in the real world. Other than being a cryptocurrency, Bitcoin can also be used for developing decentralized applications. However, it is limited in its capabilities because its script programming language is turing-incomplete and lacks the functionalities of modern programming languages, such as loops.
Introduction to Ethereum
Ethereum is a global, decentralized, open-source, and distributed platform that enables developers to build and deploy decentralized applications. Decentralized applications run on a blockchain network, and are not governed by any central entity. Ethereum offers endless possibilities that require immutable data and agreements, all without the need for a middleman. Ethereum, released in 2015 is the brainchild of a Russian-Canadian programmer Vitalik Buterin, who believed in the potential use cases of Bitcoin’s underlying blockchain technology. It is the second most popular blockchain in the world, after Bitcoin.
Like Bitcoin, Ethereum is a distributed public blockchain network. However, both differ significantly in purpose and capability. Bitcoin provides only a particular application of blockchain technology, i.e. a peer to peer electronic cash system that enables to do online bitcoin payments and track ownership of the bitcoin cryptocurrency. Vitalik Buterin saw this as an opportunity for expansion and proposed a solution to customize the form of the data we could send and store using a blockchain network. The introduction of the Ethereum Virtual Machine and Solidity (programming language for developing smart contracts) made that possible.
Smart contracts are self-executing contracts with the terms, conditions, and the workflow being directly written into lines of code. They exist across a distributed, decentralized blockchain network and allow credible transactions without involving third parties. The Ethereum Virtual Machine (EVM) is a Turing complete software that runs on the Ethereum network. It allows anyone to run any program, given enough time and memory, making the process of creating blockchain applications much easier and efficient than ever before.
In the Ethereum blockchain, miners work to earn Ether, a type of crypto token that fuels the ethereum network. Ether is also used to pay for transaction fees and services on the Ethereum network. Every transaction made and every smart contract executed on Ethereum costs some amount of gas. This requirement keeps the network from unnecessarily wasting resources on huge transactions. Gas can be purchased using Ether. This also somehow negatively effects the overall experience of the application’s user base as they have to pay for almost anything they do on the application.
Conclusion
I would say that Bitcoin was the first cryptocurrency and a need of the hour. It sure does solve many challenges by eliminating the need to trust third party organizations and showed us a new world. However, it was not the end but just the beginning. Ethereum provided much more flexibility to people by allowing them to build all kinds of decentralized applications on top of the ethereum blockchain and hence led us towards a decentralized future.
The dream that Satoshi Nakamoto envisioned with Bitcoin will surely proceed to live on with Ethereum and many more efficient and promising blockchains out there.
Disclaimer: The views expressed by the author above do not necessarily represent the views of the Ethereum Foundation.
