Bitcoin and Ethereum are both blockchain protocols. Bitcoin was initially thought to solve the money use case, where the blockchain is used as a trustless entity that enables two parties to transact without an intermediary. Ethreum was thought of as a modular and programmable blockchain, enabling the development of decentralized apps on top of that. So, where Bitcoin looks more like digital gold. Etehreum looks more like the Internet protocol.
Aspect
Ethereum
Bitcoin
Introduction
Ethereum is a blockchain platform and cryptocurrency created by Vitalik Buterin in 2015. It is designed to support decentralized applications (DApps) and smart contracts, making it a versatile platform for various use cases.
Bitcoin, created by an anonymous entity known as Satoshi Nakamoto in 2009, is the first and most well-known cryptocurrency. It was primarily designed as a digital currency and a store of value.
Purpose and Functionality
– Ethereum’s primary purpose is to serve as a decentralized platform for creating and executing smart contracts and DApps. It allows developers to build decentralized applications on its blockchain. – Ether (ETH) is the native cryptocurrency of Ethereum and is used for various purposes within the network, including transaction fees and as collateral for decentralized finance (DeFi) applications.
– Bitcoin’s primary purpose is to serve as a decentralized digital currency. It allows for peer-to-peer transactions without the need for intermediaries like banks. – Bitcoin (BTC) is the native cryptocurrency of the Bitcoin network and is used as a digital currency for transferring value and storing wealth.
Blockchain Technology
– Ethereum uses a blockchain with a native cryptocurrency, Ether (ETH). – It employs a consensus mechanism known as Proof of Stake (PoS) for Ethereum 2.0, which aims to improve scalability and reduce energy consumption. – Ethereum’s blockchain supports Turing-complete programming, enabling the creation of complex smart contracts.
– Bitcoin uses a blockchain with a native cryptocurrency, Bitcoin (BTC). – It employs a consensus mechanism known as Proof of Work (PoW), which relies on miners solving complex mathematical puzzles to validate transactions and add new blocks to the blockchain. – Bitcoin’s blockchain is primarily designed for transactions and is not Turing-complete, meaning it has limited scripting capabilities.
Smart Contracts
– Ethereum is known for its robust smart contract capabilities. Smart contracts are self-executing agreements with the terms of the contract written directly into code. They can automate various processes, from financial transactions to supply chain management. – Decentralized applications (DApps) are built using smart contracts on the Ethereum platform.
– Bitcoin does not have native support for complex smart contracts like Ethereum. While simple scripting is possible on the Bitcoin network, it is primarily used for transactions and not for executing advanced programmable contracts.
Supply Cap
– Ethereum does not have a fixed supply cap like Bitcoin. Instead, it has an annual issuance rate based on the network’s consensus rules. – Ethereum’s transition to Ethereum 2.0 involves a move to a Proof of Stake (PoS) consensus mechanism, which aims to reduce new issuance and secure the network through staking.
– Bitcoin has a fixed supply cap of 21 million coins. This limited supply is often cited as one of its key features, promoting scarcity and potentially affecting its long-term value. – Bitcoin’s issuance rate decreases over time through a process known as halving, which occurs approximately every four years.
Speed and Scalability
– Ethereum has faced challenges related to scalability and transaction speed, particularly during periods of high demand. The network has been working on solutions like Ethereum 2.0 to address these issues by transitioning to PoS and implementing sharding. – Transaction times and fees on Ethereum can vary widely depending on network congestion.
– Bitcoin also faces scalability challenges, with limited transaction throughput and potential delays during periods of high activity. – The Lightning Network, a layer-2 scaling solution, aims to address Bitcoin’s scalability issues by enabling faster and cheaper off-chain transactions.
Use Cases
– Ethereum is known for its wide range of use cases beyond digital currency. It is used for DeFi applications, NFTs (non-fungible tokens), supply chain management, decentralized identity, and more. – The Ethereum ecosystem has a vibrant developer community that continuously explores innovative applications.
– Bitcoin’s primary use case is as a digital store of value and medium of exchange. It is often likened to “digital gold” and is considered a hedge against inflation and economic uncertainty. – While some use cases involve micropayments and remittances, Bitcoin’s primary value proposition remains its role as a decentralized currency.
Development Community
– Ethereum has a large and active development community. It benefits from ongoing research, upgrades, and contributions from developers and organizations worldwide. – Ethereum Improvement Proposals (EIPs) guide network upgrades and changes.
– Bitcoin also has a dedicated and active development community. However, it is generally more focused on maintaining the network’s security and stability rather than frequent protocol upgrades. – Bitcoin Improvement Proposals (BIPs) guide any changes or improvements to the Bitcoin protocol.
Regulatory Considerations
– Ethereum has faced regulatory scrutiny, particularly regarding its initial coin offerings (ICOs) and DeFi projects. – Its regulatory status varies by jurisdiction, with some countries treating Ether (ETH) as a commodity or security.
– Bitcoin has been subject to regulatory scrutiny worldwide. Its status varies by country, with some recognizing it as a legal form of payment or asset, while others impose restrictions or bans on its use. – Regulatory developments can significantly impact the adoption and use of Bitcoin.
Market Capitalization
– Ethereum is the second-largest cryptocurrency by market capitalization, after Bitcoin. Its market value is driven by its role as a platform for DeFi, NFTs, and other applications.
– Bitcoin is the largest cryptocurrency by market capitalization and is often considered the flagship cryptocurrency. Its market value is largely driven by its role as a store of value and digital gold.
Innovation and Development
– Ethereum is known for its innovation in blockchain technology, particularly in the areas of smart contracts and decentralized applications. – Ethereum 2.0 represents a major upgrade aimed at improving scalability and sustainability.
– Bitcoin is often seen as a more conservative cryptocurrency, with a primary focus on security and maintaining its status as digital gold. – While there have been discussions about potential improvements (e.g., Taproot upgrade), the emphasis is on maintaining the core principles of Bitcoin.
Long-Term Outlook
– Ethereum’s long-term outlook is optimistic, with ongoing development efforts focused on addressing scalability and sustainability issues. The transition to Ethereum 2.0 aims to secure its role as a leading blockchain platform.
– Bitcoin’s long-term outlook is also positive, with its role as a digital store of value becoming more widely accepted. Its limited supply and decentralized nature contribute to its appeal as a long-term investment.
Interoperability and Integration
– Ethereum has seen integration with various blockchain projects and platforms, facilitating interoperability between different blockchain ecosystems. – Ethereum’s ERC-20 standard has become a widely adopted token standard for creating fungible tokens.
– Bitcoin has limited built-in interoperability features, primarily focusing on its role as a digital currency. While solutions like atomic swaps enable cross-chain compatibility, Bitcoin’s primary use remains as a store of value and medium of exchange.
Environmental Impact
– Ethereum has been transitioning from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism as part of Ethereum 2.0. This transition is expected to significantly reduce its energy consumption and environmental impact.
– Bitcoin’s energy consumption and environmental impact have been subjects of debate. Its PoW consensus mechanism requires substantial computational power, leading to concerns about its carbon footprint. – Some initiatives, such as green mining practices and renewable energy usage, aim to mitigate its environmental impact.
Table of Contents
Understanding the key differences between Bitcoin and Ethereum
Bitcoin was the first digitalized and decentralized cryptocurrency, released as open-source software in 2009. It uses an underlying technology called Blockchain, which works as a digital, distributed ledger that can be used to disintermediate trust in transactions.
Ethereum is a cryptocurrency currently ranking at number two in market capitalization after Bitcoin, which is at the top. However, in terms of being used actively, Ethereum is ahead of Bitcoin. While Bitcoin is sent, received, and held only in a singular form, Ethereum allows entities to create different ledgers. These can even be used to create additional cryptocurrencies. The use and transactions using Ethereum have grown consistently over the years ever since it began operations half a decade ago.
To understand the key difference in how Bitcoin and Ethereum work, let’s look at two consensus mechanisms:
A Proof of Work is a consensus algorithm to achieve agreement across a distributed network. It is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
A Proof of Stake (PoS) is a consensus algorithm to achieve agreement across a distributed network. It is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
Where Ethereum has born as a proof of work blockchain, it has transitioned more toward proof of stake with what has been called The Merge.
This has been a process of transition from proof of work to proof of stake, which took years to implement from the core of Ethereum’s development team.
Indeed, Ethereum, by transitioning toward Ethereum 2 integrates mechanisms like proof of stake and sharding that enable it to become more scalable than Bitcoin’s protocol.
Blockchain companies use sharding to partition databases and increase scalability, allowing them to process more transactions per second. Sharding is a key mechanism underneath the Ethereum Blockchain and one of its critical components. Indeed, sharding enables Blockchain protocols to overcome the Scalability Trilemma (as a Blockchain grows, it stays scalable, secure, and decentralized). An imaginary flywheel of the development of a crypto ecosystem, and more, in particular, the Ethereum ecosystem. As developers join in and the community strengthens, more use cases are built, which attract more and more users. As users grow exponentially, businesses become interested in the underlying ecosystem, thus investing more in it. These resources are invested back in the protocol to make it more scalable, thus reducing gas fees for developers and users, facilitating the adoption of the whole business platform.
Web3 describes a version of the internet where data will be interconnected in a decentralized way. Web3 is an umbrella that comprises various fields like semantic web, AR/VR, AI at scale, blockchain technologies, and decentralization. The core idea of Web3 moves along the lines of enabling decentralized ownership on the web.
A blockchain protocol is a set of underlying rules that define how a blockchain will work. Based on the underlying rules of the protocol it’s possible to build a business ecosystem. Usually, protocol’s rules comprise everything from how tokens can be issued, how value is created, and how interactions happen on top of the protocol.
In software engineering, a fork consists of a “split” of a project, as developers take the source code to start independently developing on it. Software protocols (the set of rules underlying the software) usually fork as a group decision-making process. All developers have to agree on the new course and direction of the software protocol. A fork can be “soft” when an alteration to the software protocol keeps it backward compatible or “hard” where a divergence of the new chain is permanent. Forks are critical to the development and evolution of Blockchain protocols.
A Merkle tree is a data structure encoding blockchain data more efficiently and securely. The Merkle tree is one of the foundational components of a Blockchain protocol.
The nothing-at-stake problem argues that validators on a blockchain with a financial incentive to mine on each fork are disruptive to consensus. Potentially, this makes the system more vulnerable to attack. This is a key problem that makes possible underlying blockchain protocols, based on core mechanisms like a proof-of-stake consensus, a key consensus system, that together the proof-of-work make up key protocols like Bitcoin and Ethereum.
A 51% Attack is an attack on the blockchain network by an entity or organization. The primary goal of such an attack is the exclusion or modification of blockchain transactions. A 51% attack is carried out by a miner or group of miners endeavoring to control more than half of a network’s mining power, hash rate, or computing power. For this reason, it is sometimes called a majority attack. This can corrupt a blockchain protocol that malicious attackers would take over.
A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions) and as a result they get rewarded in coins.
An Application Binary Interface (ABI) is the interface between two binary program modules that work together. An ABI is a contract between pieces of binary code defining the mechanisms by which functions are invoked and how parameters are passed between the caller and callee. ABIs have become critical in the development of applications leveraging smart contracts, on Blockchain protocols like Ethereum.
A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like the Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
Proof-of-Activity (PoA) is a blockchain consensus algorithm that facilitates genuine transactions and consensus amongst miners. That is a consensus algorithm combining proof-of-work and proof-of-stake. This consensus algorithm is designed to prevent attacks on the underlying Blockchain.
According to Joel Monegro, a former analyst at USV (a venture capital firm) the blockchain implies value creation in its protocols. Where the web has allowed the value to be captured at the applications layer (take Facebook, Twitter, Google, and many others). In a Blockchain Economy, this value might be captured by the protocols at the base of the blockchain (for instance Bitcoin and Ethereum).
A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
Blockchain companies use sharding to partition databases and increase scalability, allowing them to process more transactions per second. Sharding is a key mechanism underneath the Ethereum Blockchain and one of its critical components. Indeed, sharding enables Blockchain protocols to overcome the Scalability Trilemma (as a Blockchain grows, it stays scalable, secure, and decentralized).
A decentralized autonomous organization (DAO) operates autonomously on blockchain protocol under rules governed by smart contracts. DAO is among the most important innovations that Blockchain has brought to the business world, which can create “super entities” or large entities that do not have a central authority but are instead managed in a decentralized manner.
Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.
Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.
Decentralized finance (DeFi) refers to an ecosystem of financial products that do not rely on traditional financial intermediaries such as banks and exchanges. Central to the success of decentralized finance is smart contracts, which are deployed on Ethereum (contracts that two parties can deploy without an intermediary). DeFi also gave rise to dApps (decentralized apps), giving developers the ability to build applications on top of the Ethereum blockchain.
The history of Bitcoin starts before the 2008 White Paper by Satoshi Nakamoto. In 1989 first and 1991, David Chaum created DigiCash, and various cryptographers tried to solve the “double spending” problem. By 1998 Nick Szabo began working on a decentralized digital currency called “bit gold.” By 2008 the Bitcoin White Paper got published. And from there, by 2014, the Blockchain 2.0 (beyond the money use case) sprouted out.
An altcoin is a general term describing any cryptocurrency other than Bitcoin. Indeed, as Bitcoin started to evolve since its inception, back in 2009, many other cryptocurrencies sprouted due to philosophical differences with the Bitcoin protocol but also to cover wider use cases that the Bitcoin protocol could enable.
Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.
An imaginary flywheel of the development of a crypto ecosystem, and more, in particular, the Ethereum ecosystem. As developers join in and the community strengthens, more use cases are built, which attract more and more users. As users grow exponentially, businesses become interested in the underlying ecosystem, thus investing more in it. These resources are invested back in the protocol to make it more scalable, thus reducing gas fees for developers and users, facilitating the adoption of the whole business platform.
Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.
In essence, Polkadot is a cryptocurrency project created as an effort to transform and power a decentralized internet, Web 3.0, in the future. Polkadot is a decentralized platform, which makes it interoperable with other blockchains.
Launched in October 2020, Filecoin protocol is based on a “useful work” consensus, where the miners are rewarded as they perform useful work for the network (provide storage and retrieve data). Filecoin (⨎) is an open-source, public cryptocurrency and digital payment system. Built on the InterPlanetary File System.
BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.
Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
