Ethereum V Bitcoin: Which One Do You Buy?
With the extreme rise of the crypto-community in the past couple of years, accompanied by the continuous emergence of new coins, arose the need for endless comparison of those cryptocurrencies. Whether in the terms of sheer value or the functionality of their blockchain technology, their comparison is a constant topic on every site or forum even remotely related to the topic of cryptocurrency. Logically the most common is the comparison between the two with the largest market cap, Bitcoin ($ 236 B) and Ethereum ($ 132 B). (For an instant update on market capitalization click here) So in this article we are going to explain the main differences between these two juggernauts.
The Technology Behind Bitcoin and Ethereum
First and foremost, we will explain and compare the main purposes of these cryptocurrencies as well as the way they use the blockchain technology since there lie the crucial differences between them.
How Does Bitcoin Work:
As most of you already know, Bitcoin is the first virtual currency released in 2009 by a phantom Satoshi Nakatomo introducing the blockchain technology to the world. With its main purpose being just that, as well as to serve as an alternative payment method and store of value which is not operated by any centralized authority, unlike fiat currencies. These features got the whole thing going and started the entire cryptocurrency craze. Over the years the acceptance of cryptocurrency concept increased, and Bitcoin became accepted as a formal way of payment by global companies such as Microsoft or Dell.
For an interesting You Tube overview of how Bitcoin works click here.
Ethereum was introduced in 2015 by Vitalik Buterin. As Bitcoin, it also operates using blockchain technology but uses it for a different purpose.
How Does Ethereum Work:
Unlike Bitcoin, the way that Ethereum works is to use it’s blockchain to enable the creation of Distributed Applications that are not used only for maintaining the Ethereum blockchain. These apps are created without any control, downtime or a need for a third-party interference. In a sense, we might say that Ethereum is not only a platform but a programming language that is running on blockchain technology.
Other Ways Ethereum Works: Ethereum also uses a SmartContract system to facilitate transactions of money, property or anything of value between people while providing the security of using a third party as a control without the need of actually using it. Ethereum can even be used as a platform for other cryptocurrencies. Actually, many other cryptocurrencies are built on or even relying on its technology.
For a brief explanatory video by Ethereum’s founder Vitalik Buterin click here.
As you can see the two cryptocurrencies differ in their main purpose. While Bitcoin is mainly created as an alternative for regular money and used as a payment method and store of value, Ethereum’s main purpose is to serve as a platform that facilitates peer-to-peer transactions and creation of Distributed Applications and monetize the work of developers.
Value and Mining of Ethereum & Bitcoins:
After we went through the technical differences, now we are going to move to a topic that is probably more interesting for the cryptocurrency enthusiasts. Here we will compare their current value and mining potential.
- By being the most valuable coin on the market Bitcoin is, logically, the better choice as a store of value. Not only it is more expensive ($ 14,068.20 comparing to ETH $1,366.26 – at the time of writing this article), but it is the most recognizable and acceptable one in the world. That makes it easier to obtain, store, sell or use as a direct way of payment. This can be attributed to Bitcoin’s built-in shortage. Namely, Bitcoin is a finite resource and has a predefined final number of 21 million, after which no more Bitcoins will be created. In theory that means that their value will grow the closer, it is to the end.
- On the other hand, Ethereum will continue to release the same amount of coins forever which makes it supply constant and expanding. Bear in mind that cryptocurrency market is young, highly volatile and still not completely explored, therefore no one can really make any exact predictions on what will happen with any of these coins in the future.
- When it comes to mining the embedded scarcity of Bitcoin will become ever harder to mine as approaching to that 21 million mark. To explain, it works like this: the reward for mining Bitcoin blockchain block is cut in half after every 211.000 blocks mined. Current block prize is 12.5 Bitcoins per mined block which is a large difference in comparison to starting 50 Bitcoins per block.
- On the other hand, Ethereum miners are rewarded by its proof-of-work algorithm called Ethash. The reward is 5 ETH for each block mined. Ethash also encourages decentralized and individual mining, unlike Bitcoin where miners need to use more expensive ASICs in order to make a profit.
- Another difference related to this topic is the block confirmation time.
- Bitcoins average block confirmation time is 10 minutes
- Ethereum takes it down to 12 seconds. This is enabled by Ethereum’s GHOST protocol which makes confirmations quicker but, at the same time produces more orphaned blocks.
- As you can see as Bitcoin’s popularity makes it better as a store value, while its finite number and the fact that almost 80% of its resources are already mined makes it harder for new miners to make a profit.
- Ethereum is currently one of the most profitable coins in terms of mining.
All in all, although both Bitcoin and Ethereum are called cryptocurrencies and both use blockchain technology, you can see from this article that they are essentially two completely different concepts.
- While Bitcoin is used as a payment method
- Ethereum’s main purpose is to serve as a platform that facilitates transactions and enables the creation of Distributed Applications. To determine which one is “better” you will have to ask yourself “what do I need it for?”. If you want to use it as store value then Bitcoin’s popularity and recognition take the advantage, while its finite supply, built-in scarcity and the fact that almost 80% of its resources make it less profitable for mining. If you are wondering in which one to invest, then your guess is as good as ours. Both have shown an increase in value since their introduction but the volatility and the young age of cryptocurrency market make it practically impossible to provide accurate predictions.
We strongly suggest that you do your own research and don’t invest more than you can afford to lose!