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Ethereum Vs. Bitcoin: What Are The Key Differences?
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.
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 as a mechanism for disintermediating 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 on how Bitcoin and Ethereum work, let’s look at two consensus mechanisms:
A Proof of Work 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 the security, reduced risk of centralization, and energy efficiency.
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 the security, reduced risk of centralization, and energy efficiency.
Where Ethereum has born as a proof of work blockchain, it has transitioned more and more toward proof of stake. Indeed, Ethereum by transitioning toward Ethereum 2 integrates mechanisms like proof of stake and sharding that enables it to become more scalable, compared to the 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.
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