Given that Bitcoin and Ethereum are number one and two in terms of cryptocurrencies by share of the entire market, comparisons between them are inevitable. They do, of course, share many characteristics in common. Both are digital currencies which dispense with centralized authorities (such as banks), instead using blockchain technology to be traded online and stored within digital wallets.
Having said that, there are a multitude of differences between the two cryptocurrency assets as well. We’ll investigate the main ways in which they vary below, equipping you with a basic introduction to the topic so as to better inform your investment strategy going forwards. Be mindful, however, that this article should not be regarded as a substitute for your own research or the advice of a trained professional and should not form the basis of important decisions.
Applications
While there are a variety of methods for how to earn crypto, all of which can apply to both Bitcoin and Ethereum, the applications of those currencies once obtained are somewhat different. For example, Bitcoin is generally designed to be used as a store of wealth (similar to investing in gold bullion) or as a decentralized method of exchange (an alternative to fiat currencies).
Ethereum, on the other hand, does have its own native currency (Ether), which functions in a similar manner to Bitcoin. However, Ethereum has grander designs in mind. It also serves as a programmable language in which transactions can contain executable code. In this sense, it can facilitate smart contracts, decentralized apps (or dApps) and non-fungible tokens (NFTs).
Proof-of-work vs proof-of-stake
Another glaring difference between the two is the means via which transactions on each network are approved. Bitcoin is the original cryptocurrency and still relies on proof-of-work, in which vast amounts of computing power are required to solve complex mathematical problems. Through doing so, coins are “mined”, and transactions approved.
Though Ethereum did originally rely on the same system, earlier this year it transitioned to a proof-of-stake concept during its much-touted “Merge” evolution. Instead of mining coins to approve transactions, other users will stake a certain amount of their own crypto wealth. This makes it far more environmentally friendly than Bitcoin. Indeed, one of the main criticisms leveled against Bitcoin in particular and cryptocurrencies in general is their outsized impact on the planet.
History and future
As the original cryptocurrency which has stood the test of time for well over a decade now, Bitcoin carries with it a feeling of legitimacy which has seen various influential figures and organizations embrace it. For example, Elon Musk has long been an outspoken supporter of Bitcoin, while the governments of El Salvador and the Central African Republic recently adopted it as their official currency.
By contrast, Ethereum is less well-established – but it’s growing in popularity and prestige all the time. Meanwhile, last year’s Merge move means that Ethereum is now capable of processing transactions in a matter of seconds (compared to Bitcoin’s minutes) and plans are in the pipeline to increase its scalability significantly in the coming 12 months. As such, Bitcoin might still be top dog for now, but Ethereum’s ability to evolve, adapt and attract new interest in the process makes it a strong contender going forwards.
While Bitcoin and Ethereum share a raft of similarities, there are a number of crucial differences between them that will likely influence how they develop in the future.