Ethereum vs Bitcoin: What’s the Difference?
According to NBC News, as of 2022, approximately 21% of American adults have owned a cryptocurrency. Investing in cryptocurrency is unlike anything else. It is not like investing in real estate, the stock market, or accounts those traditional financial institutions offer, like an IRA.
However, there are many types of crypto, all with variations of their own.
The two most popular that people talk of, and compare, are Ethereum vs Bitcoin, but how do you compare the two? They have significant differences.
You cannot interchange the two, Ethereum and Bitcoin. Keep reading to discover why.
Table of Contents
Types of Crypto
The most popular digital token is BTC. BTC stands for Bitcoin.
The second most popular is ETH, which stands for Ether. Of the Ethereum network, ETH is the native cryptocurrency.
Being that they are the largest in cryptocurrency by market cap, it is only natural that people compare the two. Plus, in many ways, they are similar.
Both Bitcoin and Ethereum are digital currencies. You can trade them with an online exchange. Further, you can store both in a cryptocurrency wallet.
While there are overarching similarities, they differ in many ways. The biggest difference is that the design of Bitcoin is to store value and use it as currency. Meanwhile, the network of Ethereum has a different intention, one for decentralized applications and complex smart contracts.
What Is Bitcoin?
During the time of the Great Recession, cryptocurrency was born. Launched in January 2009, Bitcoin was a novel idea from Satoshi Nakamoto, who set out the concept of Bitcoin in a white paper, offering a big promise. It is an online currency that does not have security from a central authority, which is much different from currencies issued by the government.
You cannot hold Bitcoin in your hand. There is nothing physical to buy. Rather, you get a balance with a secured public ledger cryptographically.
Bitcoin is not the first attempt at the creation of an online currency. However, it is the most successful. Therefore, for all cryptocurrencies that have come forth in the last decade, Bitcoin has a reputation as its predecessor.
A World With Bitcoin
Regulators and government bodies are now accepting a virtual, decentralized currency concept. It took time to gain their confidence. Still, Bitcoin is not formally recognized as a store of value or a medium of payment.
Rather, cryptocurrency is building a niche for itself. It can co-exist with the traditional financial system, even though experts still debate and scrutinize it.
Click here for more information on trading Bitcoin.
What Is Ethereum?
Blockchain technology is developing. Now, it also creates applications beyond digital currency. Hence, Ethereum was launched in July 2015.
This is the most well-established and the largest open-ended decentralized software platform. With Ethereum, users can build and deploy smart contracts. Users can also use dApps, or decentralized applications without fear of downtime, interference, control, or fraud from a third party.
To achieve this, Ethereum runs on the blockchain but comes with its own programming language. A native cryptographic token powers it. The potential for Ethereum is vast.
The Purpose of Ether
It has mainly four aims. One is that you can trade Ether on exchanges as a digital currency. Another aim is that you can hold Ether as an investment.
Ether can purchase goods and services. Finally, a user can pay transaction fees on the Ethereum network.
Key Differences
The principle of how to power Bitcoin and Ethereum is the same, using cryptography and distributed ledgers. However, technically, the two are different.
To begin, Ethereum network transactions can contain executable code. Meanwhile, Bitcoin network transactions have data that is affixed only as a record of the transaction.
Another difference is in block time. A transaction for ETH confirms in seconds, while Bitcoin takes minutes.
Both have different consensus algorithms too. Ethereum uses LMDGhost. Bitcoin uses SHA-256.
Proof of Stake Versus Proof of Work
PoW, or proof of work, is a consensus protocol that Bitcoin uses. It allows network nodes to agree with the information recorded. It also prevents certain types of network attacks.
Ethereum began using PoS, or proof of stake, in September 2022. This is a set of interconnected upgrades, making Ethereum more sustainable and secure.
Some people criticize proof of work, saying it is highly energy intensive. It requires computational power.
Proof of stake is less energy intensive, as it substitutes staking for computational power. It also replaces miners with validators. They stake their cryptocurrency holdings to trigger the ability to create new blocks.
The Difference in Purpose: Bitcoin vs Ethereum
While they are both digital currencies, Ethereum does not have the purpose of serving as an alternative monetary system. Rather, it wishes to monetize and facilitate the operation of dApps, smart contracts, and various other blockchain solutions.
The future is dazzling for Ethereum, as it surges in popularity and develops quickly.
Ethereum vs Bitcoin: In Conclusion
To better understand the differences between Ethereum vs Bitcoin, you simply need to look at their technical applications. This provides tremendous clarity, separating the two cryptocurrencies.
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