8 Differences Between Ethereum and Bitcoin
Even if you’re only vaguely familiar with the crypto market, you likely have heard about Ethereum. Also known by its symbol ETH, Ether is the second-largest cryptocurrency in the market these days, falling only behind the crypto giant Bitcoin.
Ethereum is formally the term that describes the open-source platform in which Ether, its actual cryptocurrency, runs on. But in practice, the terms Ethereum and Ether are often used interchangeably, with Ethereum being used to describe both the platform and the cryptocurrency itself. So, if you’ve wanted to buy and sell Ethereum in Canada, you may see it under both of these terms.
Before diving into the main differences of these most popular digital tokens, let’s discuss the many ways in which Ethereum and Bitcoin are similar.
- Ether and Bitcoin are both decentralized digital currencies. This means that they’re not subjected to the control of central banks, states, or other authorities.
- Ether and Bitcoin can be traded online and are kept in crypto wallets.
- Both make use of the distributed ledger technology known as blockchain.
Key Differences Between Ethereum and Bitcoin
While having the said similarities, these top crypto currencies also have characteristics that set them apart.
- Purpose. Bitcoin was created in 2009 to become an alternative monetary system, while Ethereum was launched in 2015 to enable programmatic contracts and applications though its own currency, Ether. This is the main reason why Ether’s popularity has increased exponentially, pushing it to compete with all other crypto currencies.
- Price. Being the longer-existing and stronger currency, Bitcoin is priced at over $51K, while Ether is pegged at more than $1,800, as of the writing of this article. Thus, investing in Bitcoin takes more reserves in your digital wallet.
- Movements. True to its name, Bitcoin’s market behavior is somewhat similar to gold. ETH, on the other hand, facilitates smart contracts from its technology. Simply put, Ethereum is a ledger technology that firms are utilizing to create new programs.
- Limitations. Unlike Bitcoin, Ether doesn’t have a coin limit. Bitcoin has a ceiling of 21 million, and once that is expended then investors will no longer have standing supply of this currency.
- Mining conditions. In Bitcoin, a miner who adds a block to the blockchain earns 12.5 bitcoins. But these points are halved for every 210,000 blocks, reducing the reward 12.5 bitcoins to 6.25 bitcoins per aggregated block. On the other hand, a miner or validator in Ethereum receives a value of three ether(s) every time a block is added to the blockchain, and there are no reductions attached.
- Market capitalization. Even if it’s the second most popular crypto currency, Ethereum’s market capitalization stands at an estimated $16 billion—way lower than Bitcoin’s $147 billion—according to industry estimates.
- Algorithms. Algorithms are established so that crypto systems can maintain privacy and security. Bitcoin uses the SHA-256 algorithm while Ethereum uses the Ethash algorithm. Transactions on the Ethereum network may contain executable code, while data attached to Bitcoin transactions are merely for keeping notes.
- Block time. Block time is the amount of time required to validate the existence of a new batch of cryptocurrency and create a new block in a blockchain network. The time required for Ethereum is only 12 seconds while Bitcoin take 10 minutes.
The Basics of Bitcoin
Launched in in 2009, Bitcoin was made as an alternate currency that’s free from being controlled by a governing central bank or any authority, unlike state-issued currencies.
As a digital token, all Bitcoins are secured through a public ledger otherwise known as blockchain technology. The entire Bitcoin network relies on the said technology, which also contains all confirmed transactions. The public yet secure ledger allows Bitcoin digital wallets to calculate their spendable balance and fresh transactions are validated so it becomes secure and solely owned by the spender. Its worldwide success has since birthed so many other digital currencies, which, according to Statista, has totaled to over 4,500 in 2021.
The Basics of Ethereum
Ethereum, on the other hand, is considered the second most successful crypto currency after Bitcoin—although, technically, it is an open-source decentralized software platform.
As a groundbreaking technology, Ethereum enables the deployment and operation of smart contracts and decentralized applications free from anomalies, intervention, and with almost no downtime. Ethereum also runs on blockchain technology and has its own programming language, allowing developers to build and run other applications on top of it.
Hence, an investor or trader may buy and sell Ether and, at the same time, use the Ethereum network to run applications.
The crypto market is highly unpredictable and it remains to be seen whether Ether can overcome Bitcoin as the main digital currency in the coming years. If you’re on the fence about investing in either, consider the amount of money you’re willing to risk and the other key considerations between these most popular cryptocurrencies, as discussed in this article.