Bitcoin vs Ethereum: Key differences between BTC and ETH

Karuna Deora / Cryptocurrency exchange  / Bitcoin vs Ethereum: Key differences between BTC and ETH

Bitcoin vs Ethereum: Key differences between BTC and ETH

Bitcoin vs. Ethereum

Ethereum is such a flexible platform that some people are actually starting to hold their Bitcoin on the Ethereum chain instead of on the Bitcoin blockchain. This is known as a “wrapped bitcoin.” Ether cannot be held on the Bitcoin blockchain. However, Bitcoin is much more widely accepted as a cash replacement — there is even a Bitcoin search engine where you can find products to buy in Bitcoin. Ethereum was launched in 2015 as an upgrade to the perceived limits of Bitcoin.

Each digital currency is traded on online exchanges and stored in cryptocurrency wallets. Both are decentralized, meaning they are not issued or regulated by a central bank or other authority, and both use blockchain technology. Ethereum is compared with digital silver because it is the second-largest cryptocurrency by market cap and, like the precious metal, has a wide variety of applications. Ethereum, on the other hand, was designed to be a distributed computing platform. The designers of Ethereum built the platform to provide a foundation for running decentralized software programs, which have become known as smart contracts and distributed apps (dApps). Proof of stake stacks the deck in favor of people with more money but protects against people adding fraudulent records to the blockchain.

Bitcoin vs. Ethereum: What’s the Difference?

But as cryptocurrencies, bitcoin and ethereum have some noteworthy differences. But beyond their use of blockchain technology, bitcoin and ethereum have many fundamental differences. Investors should learn about the risks of cryptocurrency and how bitcoin and ethereum differ before making any digital asset purchases.

Bitcoin vs. Ethereum

This means it’s used to pay for transactions on its blockchain, which runs a growing number of applications and platforms. The ERC-20 standard defines a list of rules for the tokens on the network. The ERC-20 standard includes several functions developers have to implement before launching their tokens. These functions include providing information about the token’s total Bitcoin vs. Ethereum supply, providing account balances on users’ addresses and allowing funds to be moved between addresses. While BTC started as a medium of exchange, meaning it can facilitate the purchase of goods and services, it was also adopted as a store of value. Tampering is detected through long strings of numbers known as hashes, which must be exactly the same for every node.

Mining and environmental impact of Bitcoin vs. Ethereum

To take advantage of DApps, a tokenized version of Bitcoin was created and launched on Ethereum. The Ethereum platform can process a transaction in about 5 minutes, whereas 40 minutes is the time typically required to process a Bitcoin transaction. If you’re sending funds to family abroad, then waiting 40 minutes may not be problematic. But you probably don’t want to wait even 5 minutes when checking out at the grocery store or buying lunch at a sandwich shop.

Every transaction is encrypted, creating a high degree of resistance to tampering and fraud. The distributed and immutable nature of the Blockchain further solidifies the security of the network, making it extremely challenging to alter transaction records. This algorithm is designed to resist processing by ASIC devices; as a result, Ethereum mining is primarily performed by graphics cards. Bitcoin has a Proof of Work blockchain which is currently composed of 1 megabyte blocks. These blocks are mined on average every 10 minutes by SHA-256 hashing.

Invest Smarter with The Motley Fool

Without the need for powerful computer hardware, proof of stake is considered a more environmentally friendly consensus mechanism than proof of work. Bitcoin’s consensus mechanism blockchain was designed to solve the double spend problem. It employs validators to ensure that each crypto unit can only be spent once, and to record each transaction on a distributed ledger for all of the world to see. Another key difference is that Bitcoin uses a proof-of-work (PoW) consensus mechanism while Ethereum uses a proof-of-stake (PoS) consensus mechanism. PoW uses randomly selected validators to confirm transactions and create new blocks.

  • The reason why use of Ethereum’s blockchain boosts its value is that the cryptoasset is needed to pay transactions fees.
  • Many crypto investors hold both bitcoin and ethereum and have different investment cases for each.
  • It’s therefore worth spending some time comparing the two currencies, as the differences between them can tell us a great deal about the various altcoin out there.
  • According to the Cambridge Center for Alternative Finance, Bitcoin’s electricity consumption exceeds Norway’s annual electricity consumption, at an annualized rate of 127 terawatt-hours (TWh).

Both Bitcoin and Ethereum have healthy developer counts and activity, but Ethereum is the clear winner here. Ethereum has far more developers than Bitcoin, because of what smart contracts allow one to do. With a shift towards Proof of Stake, Ethereum will only become more decentralized as everyday users will be responsible for the security of the network with staking pools.

Interestingly, Ethereum is set to do a major upgrade this year to Ethereum 2.0. This hard fork would place ETH on a new blockchain that runs on a Proof-of-Stake (PoS) algorithm. PoS networks remove miners and rely on coin holders staking their tokens to validate the network’s state. Exchanges shouldn’t just be compared based on the price they offer, but on their security features and broader reputation. If you’re trading large volumes of crypto, then investing in an offline wallet will safeguard your coins. Ethereum is changing, with a phased introduction of what’s called Eth2.

Bitcoin vs. Ethereum

Leave a Reply