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Ethereum vs. Bitcoin: Everything You Need to KnowShare on LinkedinDownload

Ethereum vs. Bitcoin: Everything You Need to Know

In this article

Introduction

If you’ve been in crypto for even a week, you’ve heard of Bitcoin (BTC) and Ethereum (ETH), the two giants of the budding cryptocurrency space.

However, while it’s clear that these assets are wildly popular (and valuable), their differences and which is better might not be immediately obvious to crypto newcomers.

This comparison of Ethereum vs. Bitcoin will break down everything you need to know about the difference between Ethereum and Bitcoin and whether Ethereum is better than Bitcoin (or vice versa).


Ethereum vs. Bitcoin Purpose

The first thing you should know about Bitcoin vs. Ethereum is that they fulfill two very different purposes.

Bitcoin, the original cryptocurrency, was designed to be the first truly peer-to-peer digital cash.

On the other hand, Ethereum takes things one step further. While Ethereum can also be used for payments, it allows for programmable transactions using what are known as smart contracts.

In plain English, smart contracts are self-executing contracts that you write up with computer code. One simple example might be automated flight insurance.

Imagine you have a flight to a far away land, but the flight gets delayed by hours, ruining your travel plans. Instead of you having to file an insurance claim, the flight insurance smart contract contains some instructions that say if your flight gets delayed by a certain amount of time, to automatically pay you the insured amount.

This of course saves a lot of time both for you and the insurance company, so you can go on and enjoy your life instead of worrying about calling the insurance company while on vacation 😉

While this is just one example, uses for this kind of technology are only limited by the imagination.

Though ETH was largely a speculative idea with a lot of promise for a while, in recent years it’s shown its potential with use cases like ICOs (decentralized crowdfunding) and DeFi (decentralized finance), which allows for the decentralized creation of traditional financial services, such as borrowing, loans, and asset management.

Ethereum vs. Bitcoin Transaction Speed

When it comes to using technology (or anything), we’ve come to expect that things are fast, instantaneous even. Both Ethereum and Bitcoin were fast in their early days but as both have continued to gain in popularity, they’ve struggled with scalability, or the ability to handle many transactions at once.

Nevertheless, both are tackling this problem head on. Bitcoin developers are working on solutions, such as Lightning Network to make transactions quick and low cost again. While Ethereum developers are working on proposals like sharding.

That being said, Ethereum still has the edge when it comes to transaction speed, as blocks (groupings of transactions) confirm about every 15 seconds compared to Bitcoin’s confirmation time of about every 10 minutes:

ethereum vs bitcoin transaction speed
Source: BitInfoCharts

Ethereum vs. Bitcoin Transaction Fee

If Bitcoin and/or Ethereum are ever going to achieve mainstream adoption, not only are transaction speeds a concern but transaction fees are, too.

After all, you don’t want to pay more than the cost of a cup of coffee in transaction fees to buy a cup of coffee. Nor do you want to be the owner of a flight insurance smart contract and end up paying more in transaction fees than you would insurance payouts.

Again, transaction fees for both platforms were low in their respective early days, when usage of both platforms was low. But with the rise in popularity of both Bitcoin and Ethereum, transaction fees have increased.

With that said, Ethereum still beats Bitcoin on this one, as transaction fees for Bitcoin can get quite high:

ethereum vs bitcoin transaction fee
Note how during the peak of the 2017 cryptocurrency craze, Bitcoin’s average transaction fee was nearly $60. Source: BitInfoCharts

Ethereum vs. Bitcoin Mining

Another key comparison to make between Ethereum and Bitcoin is their mining processes. Mining is the process by which some users in a crypto network validate transactions using computer hardware like processors, graphics cards, and ASICs (specialized mining devices).

As of now, both Ethereum and Bitcoin use what’s known as “Proof of Work” (PoW) mining to confirm network transactions. One of the main criticisms of this approach, though, is that it is very energy-intensive. Bitcoin mining in particular uses as much energy as some small countries.

Because of this issue, Ethereum is planning a transition to a consensus model (how networks agree on, or validate, transactions) known as Proof of Stake (PoS). Proof of Stake is less energy-intensive than Proof of Work.

If Ethereum successfully transitions to Proof of Stake, it would be a big win for blockchain - at least from an energy consumption standpoint. As one of the most popular implementations of blockchain technology, Ethereum would set a good example for other projects to follow.

The problem though with PoS is that it hasn’t been proven on a large scale yet, whereas Bitcoin mining has been working for over a decade without any major hiccups.

Ethereum’s transition to PoS, also called Ethereum 2.0, was supposed to take place in January 2020. However, the date has been pushed back indefinitely with no set date for Ethereum 2.0’s release.

Ethereum vs. Bitcoin Hashrate

Related to mining is a network’s hashrate, or the amount of mining “power” that secures a network and its transaction validation process.

The higher the hashrate a network has, the less chance it has of being victim of a 51% attack, where a malicious actor or group gains 51% (majority) control over the network’s hashrate. This allows them to stop certain transactions from going through, reverse transactions, and basically ruin a network and its credibility forever.

While neither Bitcoin or Ethereum has been victim to a 51% attack thus far, Bitcoin is the clear winner in terms of hashrate and for this reason, is considered one of the most secure crypto networks:

ethereum vs bitcoin hashrate
Bitcoin and Ethereum are on totally different levels of hashrate (exahashes for BTC, terahashes for ETH). For reference, 1 exahash is made up of 1 million terahashes. In other words, Bitcoin is much more secure from attacks than Ethereum. Source: BitInfoCharts

Ethereum vs. Bitcoin Price

Of course, no discussion of cryptocurrency is complete without price. While cryptocurrency and blockchain technology as a whole are some of the most groundbreaking innovations in recent years, they’ve also made some people very wealthy.

Both Ethereum and Bitcoin in particular have rewarded early investors. For instance, Bitcoin is the best-performing investment of the 2010s, as mentioned in our future of cryptocurrency article. In fact, it might even be up there as one of the best investments of all time.

That being said, Ethereum isn’t far behind:

As you can see, Bitcoin and Ethereum are the #1 and #2 investments of the 2010s decade, respectively. They even beat infamous tech titans like Amazon and Netflix. Also, apparently people started eating a lot more pizza.

While both have been incredible investments, Bitcoin is in the lead for now, as history shows. Moreover, another thing to keep in mind is that Bitcoin has a fixed supply, which gives it more scarcity similar to other scarce and valuable assets like gold. Ethereum on the other hand has no limit on how many ETH can be created.

Following basic supply and demand principles from economics, this means that even if Bitcoin and Ethereum have the same demand, the value of an individual ETH would be less, as the asset has a higher supply and therefore, is less scarce.

Of course, this doesn’t mean that ETH can’t grow more in percentage terms, but Bitcoin already has the image of being a scarce, and thus valuable, asset among investors.


Conclusion: Invest in Ethereum or Bitcoin?

So hopefully this exhaustive comparison of Bitcoin vs. Ethereum was able to tell you some of the main differences between ETH and BTC.

When it comes to transaction fees and transaction fees, ETH comes out on top. For mining (BTC mining is more proven than ETH’s upcoming Proof of Stake - important when peoples’ money is on the line), hashrate, and price, Bitcoin is the winner.

Nevertheless, as mentioned, Bitcoin and Ethereum have two very different purposes, which makes a direct comparison difficult. A better comparison might be Bitcoin vs. Bitcoin Cash (both payment protocols) or NEO vs. Ethereum (both smart contract platforms).

Instead of comparing the two directly, it’s good to remember that Bitcoin and Ethereum are both the market leaders in their respective niches of decentralized payments and decentralized applications (Dapps).

For example, many influential investors and companies view Bitcoin as the main crypto asset worth investing in and building financial products around. Bakkt, an exchange, custody, and payments platform, is a product of Intercontinental Exchange (ICE), which owns exchanges, including the famous New York Stock Exchange.

Ethereum also has big names associated with it. The Ethereum Enterprise Alliance is an Ethereum industry organization that brings together the likes of Intel, JP Morgan, and Microsoft to build standards for Ethereum technology so that Ethereum and the decentralized web can work well across businesses and markets around the world.

Simply put, Bitcoin and Ethereum are so big at this point that despite their differences, they are both cornerstones of the cryptocurrency industry and should probably be main investments in anyone’s crypto portfolio. Just be sure to use a Bitcoin wallet and Ethereum wallet that you, and not someone else like a centralized exchange, control so your investment stays intact!

Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.

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