Bitcoin vs Ethereum: What Are the Key Differences?

If you have any interest in crypto, you must have heard of Bitcoin and Ethereum, which are two of the biggest cryptocurrencies. What you may not know is the difference between the two.

Bitcoin is the largest cryptocurrency by market cap, followed by Ethereum. As far as investors are concerned, both of them are good assets to buy and hold for returns. To the non-tech person, there are no differences between them at all.

However, there are quite a few differences between these two blockchains that you should know about. Knowing these differences will even influence your choice of which to invest in, so let’s get into it.

What is Bitcoin?

Bitcoin is the largest cryptocurrency by market cap. It was also the first cryptocurrency to be created, making it naturally ahead of the pack. Bitcoin’s main purpose was for it to serve as peer-to-peer digital cash.

However, it came with a few shortcomings such as a small block size, which led to other problems such as slow and expensive transactions.

Bitcoin developers still claim this was done on purpose to ensure that Bitcoin’s security is unmatched by any other cryptocurrency.

Bitcoin uses a proof-of-work mechanism to verify transactions. This consensus mechanism uses special computers and consumes a lot of energy to maintain the network, and so has been condemned by some people.

In spite of this, Bitcoin has managed to remain the top crypto asset and there are no signs that this will change in the future.

What is Ethereum?

Ethereum is the second-largest crypto asset by market cap, and the biggest altcoin. Ethereum is quite a unique blockchain because it marks a significant deviation from Bitcoin, and has become the inspiration for the creation of many other altcoins

Things like smart contracts and decentralized applications are what set Ethereum apart. Many other crypto projects have also been built on the network, and they use ether, the native token to power the entire ecosystem.

Ethereum initially was a proof-of-work blockchain like Bitcoin, but it recently transitioned to a proof-of-stake blockchain. This made the blockchain more energy efficient according to the Ethereum team.

It was also expected to make the transaction fees on the network lower than it used to be when the network used proof-of-work. However, if the transaction fees have not significantly reduced, neither has the transaction speed.

The change to proof-of-stake only introduced staking, which allows Ethereum users to stake their etherin exchange for rewards. By staking, users become stakeholders and validators on the network. 

It has however been argued that Ethereum’s proof-of-stake network is more centralized than Bitcoin’s proof of work or even Ethereum’s proof-of-work blockchain. 

Differences Between Bitcoin and Ethereum

Bitcoin and Ethereum are two different cryptocurrencies with obvious differences. However, the following differences are the most noteworthy.

Bitcoin was created as peer-to-peer electronic cash, while Ethereum was created as a token to power the Ethereum smart contract ecosystem.

Bitcoin supply is capped at 21 million, while Ethereum has an infinite supply of tokens as long as there’s demand for the tokens.

Bitcoin uses a proof-of-work consensus algorithm, while Ethereum uses a proof-of-stake algorithm.

Both Bitcoin and Etherum are now used as investment assets, however Bitcoin is considered more as a store of value, while ether is used mainly as an ecosystem token for paying transaction fees for Ethereum and other projects built on the Ethereum blockchain.

Bitcoin has a block time of 10 minutes, while Etherum has a block time of 14-15 minutes, making Ethereum faster under normal circumstances.

The energy consumption for Bitcoin’s proof-of-work is much higher than the energy consumption for Ethereum’s proof-of-work.

Final Thoughts

Bitcoin and Ethereum are both top cryptocurrencies and have unique attributes such as their purpose, and technical differences like the block time, consensus mechanisms etc. 

Therefore which one you use at any time depends largely on what you intend to use the project for. If you’re looking for an investment, Bitcoin may be great but to build smart contracts and decentralized applications, Ethereum is the way.

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