So Bitcoin and Ethereum are two of the most popular cryptocurrencies out there. But have you taken the time to look at how they compare, how they’re similar and different in a variety of different aspects like their origin, monetary policy, scripting language, how they handle network upgrades and so forth?
So these 2 coins have been the top 2 coins by market cap for the majority of the past few years, many people like to compare these two projects, but although they have some similarities.
They have more differences and similarities.
It’s kind of like comparing apples to oranges.
A brief look at similarities
- First, a brief, look at their similarities both use Proof-of-Work consensus algorithms right now and what this means is that you have to invest energy and Hardware costs to secure the blockchain The Mining and hash power
- BTC and ETH can both be used for P2P transactions many software wallets support both of these popular coins.
- Both projects are also open source with large developer communities.
- They also have a large Global Network of independent. Notes and are generally deemed as decentralized.
But now let’s get to the differences starting with origin Bitcoins origin came in 2009 with Satoshi Nakamoto published the white paper.
No fundraising was done whatsoever and miners have to mine on the Bitcoin Network to receive the very first Bitcoins.
So told you himself mind around 1 million Bitcoin and this is supposed to be the largest amount for any single owner.
However, he never spent any and disappear from the internet without anyone knowing his identity
On the other hand. Its origin story happened in 2013 when the founder of Vitalik Buterin, The ethereum white paper, and ICO followed in 2014, in which a pre-mined quantity of Ethereum was distributed to investors who mainly invested with Bitcoin
Vitalik Buterin still actively involved with a deer in the project and has an influential role of leadership other early leaders include Charles Hoskinson, Joseph Lubin, Gavin Wood and so forth.
Bitcoin’s use case
It’s designed to be a peer-to-peer transfer of value and store value.
It’s optimized for that function. And nothing else, Bitcoin is also the native currency on the network that facilitates that function, the fee and Bitcoin is for making transactions.
And that’s just based on the data size of each transaction
Ethereum’s use case
Ethereum, on the other hand, its native code is called Ether or ETH.
Eh, it’s not designed to be a digital dollar per se like Bitcoin, but rather fuel for a wide range of transactions and functions, the function of Ethers more of like a utility you pay a fee to run the code on the network
Ethereum aims to be a centralized World computer that is distributed in nodes all across the network. And this is called the Ethereum Virtual Machine.
It can host smart contracts on which decentralized apps can use to function and also it enables tokens like ERC 20 tokens with a lot of different functionalities in their app.
Notable usages of dAPPs (decentralized apps) include to centralize finance and also gaming people have also been using Ether as a digital currency, even though that’s not its main purpose
Bitcoin’s scripting language
Now in terms of Scripting language Bitcoin keeps it simple. It uses the script language.
This keeps the code robust, but also less vulnerable to bugs that the more complex languages face, but on the other hand, this means it can only support simple smart contracts like multi-signature and escrow, more advanced more contracts on bitcoin is doable, but they need a second layer solution or sidechain solution.
Now projects are working on this nothing tangibly implemented yet.
But even though Bitcoin can’t handle powerful smart contracts.
That’s okay because its main focus and the whole Community think so as well is on the centralization censorship resistance and security.
These are of the utmost importance to the Bitcoin Community
Ethereum’s scripting language
Ethereum scripting languages design with its purpose in mind the Ethereum meant to be a smart contract and decentralized apps platform.
This means it needs to support more complex logic Turing-complete is the technical word for it. This means that there can be a more wide range of bugs and it’s code and harder to find in such an audit. For both the protocol layer and the apps layer.
Certain bugs have led to the loss of millions of dollars in Ether or Ethereum tokens.
So there is this inherent risk factor, right? But the expectation is that the additional benefits of this powerful logic outweigh the risks also, methods are being developed by the Etherium space to minimize these risks. So keep that in mind as well.
Bitcoin’s monetary policy
Now, let’s take a look at monetary policy.
The inflation rate of Bitcoin Supply is hard-coded into the protocol. There will never be more than 21 million Bitcoins in circulation.
Currently, over 17 million Bitcoins have already been mined and the emission rate is 12.5 Bitcoins per block and with roughly 10 minutes per block
This means 75 Bitcoin produced per hour roughly
Every 4 years, the rate is cut in half. This is called the halve or halving in a May 20-22 rate will be reduced to 6.25 Bitcoins per block
Bitcoins monetary policy is considered to be fixed and non-inflationary
Ethereum’s monetary policy
Ethereum, on the other hand, is different. And it has no Max cap set in stone at this moment, but it’s occasionally reduced during large Network upgrades or Forks
There was a recent reduction of 3 to 2 Ether rewards for block and at Ether in produces a block roughly every 15 seconds.
This equates to 480 Ethers per hour.
There’s no fixed maximum supply for Ethers. So is impotent in theory always going up but do know just a short discussion that’s in terms of block times. Why would you choose something less like a few seconds compared to bitcoin which is like 10 minutes? There are trade-offs between speed and also security and transaction finality.
So depending on the use case of your cryptocurrency, there’s an optimal line for that lever
Bitcoin’s consensus algorithm
Terms of consensus algorithm Bitcoins proof-of-work Algorithm is SHA-256.
This can be mined by ASICs, specific integrated circuits.
ASICs are meant to do one specific type of computational tasks. And that’s it.
That’s why they can dominate General-purpose chips like CPUs or GPUs and in the case of Bitcoin ASICs, they’re built for mining their algorithm better than anything else
ASICs provide a Bitcoin network with a ton of hash power. And this means the blockchain is extremely secure. It would take a lot a lot of resources for someone to a 51% attack.
However, there are some concerns that ASICs lead to centralization due to the concentration of mining power. However, this is debated in dispute within the community
Ethereum’s consensus algorithm
Ethereum on the other hand. Its proof-of-work algorithm is called Ethash and This is designed to make it hard for ASICs to mine.
They make it more accessible to GPUs what you have in your computer to run Graphics to participate in mining
This is a more decentralized approach for arguably less secure
Proof of Work does limit the scalability of the Ethereum, and if you think about it in the Ethereum virtual machine does the World supercomputer requires a heavy load of transactions and complex logic, right?
So the long-term Vision has always been to transition to proof of stake consensus algorithm. Mmm, this means you no longer need energy and heavy Hardware to maintain the network instead. The expense is virtually simulated by staking ether to get the right to solve blocks and get the block rewards.
Now a bad actor that produces false blocks will lose their stake similar to The proof-of-work Bad actors that waste electricity.
They lose the money that he spent on electricity by trying to produce false blocks.
There are pros and cons of proof of Work and proof of Stake outside the scope of this article, but Let me just say that for a theory of the trade-offs may be acceptable.
Bitcoin’s transaction speed
It has 4 transactions per second. And the on-chain transaction speed is very limited. This is due to the decentralization of the proof of work Network.
Now we, of course, need higher throughput to achieve Mass adoption, right? to compete with PayPal or credit card companies such as true peer-to-peer electronic cash. Now Bitcoin’s second layer lightning Network should enable millions of transactions per second and fit the bill.
Ethereum’s transaction speed
Ethereum the other hand is a little bit faster at 15 transactions per second, but it does have similar limitations to bitcoin at the end of the day.
They also have Solutions in the work like Sharding, proof of stake Raiden which is similar to Lightning and these should massively help increase in network throughput.
Bitcoin’s network upgrades (forks)
In terms of network upgrade or what we know better as Forks. Most Forks in the Bitcoin world are preferably Soft Forks.
This keeps backward compatibility. This means that notes do not have to upgrade the software and they will still work fine. And the network stays intact, but there are controversial upgrades that do lead to a Hard Fork.
Bitcoin Cash was one case, a split due to the block size and Segwit disagreements.
But these are indeed rare in the Bitcoin space. Keeping the protocol backward compatible is one aspect of remaining decentralized. And that is why it’s a focus and priority in the Bitcoin world.
Ethereum’s network upgrades (forks)
Now for Ethereum, the Ethereum often upgraded by Hard Fork and this could increase the risk of chain splits because these are not Backward Compatible and you have to upgrade. Notes that don’t upgrade won’t be part of the network. Now Ethereum does have more centralized leadership and developer Community coordination.
So there’s more agreement in terms of upgrade decisions. what this means is that hard Forks don’t usually lead to chain splits in terms of the Ethereum world.
Bitcoin’s UTXO model
Now in terms of transaction models, Bitcoin has one that’s called the Unspent Transactions Output model or UTXo which you might have seen in various articles around. Now, the Bitcoin blockchain does not Keep track of accounts. It only tracks transactions from address to address.
So the wallet and Note software kind of Aggregates to address is controlled by the same private key. Remember one private key can control a bunch of different addresses and show the total balance that you have
A wallet usually collects multiple addresses that contain an amount of unspent Bitcoin.
So when you make a transaction you spent the entire amount of those addresses. Now if spending that amount means that you sent higher than what you wanted to send then the Remainder is sent to a change address. You can think of this as pay 10 bucks in cash to buy 8 dollar items and receiving two dollars back and change. now that your UTXO method is built so that it increases the pseudonymous nature of Bitcoin transactions.
This means that you are known by your address, but you don’t have to give away any part of your identity to transact.
Now. This does not provide full privacy and anonymity though because of the Advent of chain analysis software which kind of pieces together do like data science.
Ethereum’s account model
Ethereum, on the other hand, uses an account model.
This is a much less complex account model and you get one Ethereum address that works similarly to any account. The user would use one address for everything. Now, of course, you can have two addresses or make a third one as well, but you can use them and continually use them for perpetuity.
Well, let’s do not create new addresses every time there’s a new transaction not for change not for spending and so forth. That stuff is in the Bitcoins UTXO process.
This simplified model. However, does equal less privacy and anonymity because the history of the entire user’s account is viewable, unlike Etherscan, for example, if the address is tied to use this identity.
Now, what are some final thoughts here. Ethereum, Bitcoin are more different than you might initially expect.
This does not mean that we think this is the superiority of one over the other. Most of them have to do with the different applications and use case scenarios
And the difference in design and development also reflecting their different goals. Bitcoin Ethereum are honestly not even trying to compete but rather attempting to serve different needs.
So as users investors, it’s important to familiarize yourself with our differences and implications.
So you can make a better decision as to your personal investment goals and what you want to use. If you do want to use cryptocurrency for various purposes.