What is better – Ethereum or Bitcoin? And by what parameters should they be compared with each other?
The first thing to note about the differences between these two cryptocurrencies is their completely different goals. As well as their capitalization: according to Coinmarketrate.com, if BTC accounts for $459.5 billion, then ETH accounts for only $232.1 billion, and it ranks second.
But this is just one of the aspects, and it may seem to a beginner that the financial part of a digital currency is all that matters, but there are other aspects. Let’s look at some key questions to start figuring out the main differences.:
- It was launched in 2009 and became the first cryptocurrency and the first application of blockchain technology.
- It is a digital currency.
- Its goal is to solve financial problems at the global level, which is why it is called the People’s bank.
- Its operation does not require the involvement of a third party, unlike other alternatives such as PayPal or banks.
- Its creation was driven by the search for an alternative to fiat money, such as the dollar or the euro.
- It is used to buy goods and services, or to send and receive money.
- It has a lot of liquidity due to the huge volume of transactions, which has reached $34 billion in the last 24 hours
- It takes several minutes or hours to complete a transaction.
- It was launched in 2015 and is synonymous with blockchain 2.0.
- It allows you to execute smart contracts on its blockchain chain.
- It eliminates the need to use a third party in many systems, and not only in the financial system, as in the case of Bitcoin.
- It provides a platform on which to create decentralized applications, known as dApps.
- To do this, developers have at their disposal a programming language called Solidty.
- Her cryptocurrency is called Ether, and she works on the blockchain of this cryptocurrency.
- It is also highly liquid: over the past 24 hours, its volume has amounted to more than $ 20 billion.
- Transactions in Ethereum take seconds.
But although we are already beginning to see certain aspects in these basic differences that distinguish them from each other, there are key points that show that they differ even more than we might think.
If we need to remember why they are different from others, then we need to think about what makes them special. In the case of Bitcoin, this is the fact that it is a digital currency. While in the case of Ethereum, we should think about smart contracts. Thus, it is impossible to get confused.
The purpose of Bitcoin is to be a haven of value, a way to send and receive money. While Ethereum can do the same, it offers an additional layer of functionality that makes more complex transactions possible with smart contracts.
Another thing that distinguishes it from Bitcoin is the ability to create dApps and smart contracts. A combination that allows you to transfer not only money, but also tokens of a certain value. Which may or may not be a cryptocurrency, for example, the ownership of a car.
We have already talked about smart contracts before, but we will continue to do so here, because this is a fundamental difference.
On the one hand, Bitcoin allows us to make transactions manually, that is, when we want to send, we create a transaction and it is executed.
Meanwhile, in Ethereum, we can impose certain requirements on them so that they are fulfilled. Some of them should not be known to us and allow us to generate them automatically and programmatically.
The speed at which we send our coins or receive them is not an insignificant detail. Waiting for a few minutes or hours, as in the case of Bitcoin, can be a lot or a little depending on what we want to do. Whereas in the case of Ethereum, it only takes a few minutes.
The number of Bitcoin coins is limited and is only 21 million. This creates a shortage of supply, which makes it attractive as a valuable haven.
Ethereum, on the other hand, has no restrictions. This means a continuous release of Ether. Although the issue will be reduced, its creator stated that there will be an ETH in the amount of no more than $ 100,000,000.
The difference of 6 years between one and the other can be a big advantage in a rapidly changing world. Although appearing second, may be a way to learn from mistakes.
THE MAIN ASPECTS OF CRYPTOCURRENCIES
Not everyone is an expert in all the concepts we’ve covered above, so let’s touch on some of the basic definitions that give meaning to the world of cryptocurrencies.
Both cryptocurrencies are decentralized, which is one of their common features. This means that there is no single entity that manages the entire network or determines how many coins can exist.
If we take an example of a social network such as Instagram, or this page itself, we will understand that it works on a server or on many servers, but in the possession of the company. This makes it centralized and at risk of hacking if someone gets access to the server on which it is hosted.
If Instagram were decentralized, there would be no single point of attack. Due to the presence of thousands of servers known as nodes in cryptocurrencies, an attacker will have to gain access to all of them in order to make changes or delete information.
In a word, decentralization means that there is no central point of failure, there is no central control and there is no one person or organization that can be trusted. This makes us think that decentralization is the future.
But there are not only positive aspects, there are also negative ones. One of them is that we have no one to complain to if we have problems. There is no technical support to solve the problem. If we lose our cryptocurrencies, then everything will remain that way. That’s why we have to worry about the security of our cryptocurrencies.
It’s hard to believe today that you’ve never heard of blockchain. Even if you are just starting to deal with cryptocurrencies, this is one of those things that everyone has heard about at least once. But don’t worry, here you will understand how it works, although you can always visit our guide, where we will look at it in more detail.
Blockchain is a public distributed ledger. Simply put, imagine an Excel file containing transactions. It is called a blockchain because it contains fixed-size blocks with transactions that point to another block and are nested into each other like links in the same chain.
It continues to grow as new blocks are created. And order is very important to preserve the integrity of the chain. This is what cryptography is used for, helping to ensure that transactions cannot be reversed.
Earlier we said that information is distributed, which means that there is not a single computer with information, but there are many computers working together. These nodes process the information and verify it as if they were one computer.
This makes it almost impossible to fake transactions, as you will have to change it on each node. That is why consensus in the network is very important, when all nodes agree that existing transactions are valid. The more nodes, the more reliable the blockchain is.
All blocks are shared by the network and are stored by nodes that need to verify their validity. This happens in a process known as mining, during which nodes consume electricity and time. Thanks to this, they receive a reward in the native currency of the blockchain.
It is estimated that Bitcoin can have more than 100,000 nodes, making it virtually impossible to crack. Meanwhile, the mining process will soon end for Ethereum, as it is currently switching to a new blockchain model, but in general terms it does not differ much in the principle of operation.
We’ve already talked a bit about smart contracts, but here’s a little more explanation in case you get confused. In this case, only Ethereum has such an opportunity, and it is not unimportant. With their help, we can set them certain conditions for performing transactions.
They are located in the blockchain and allow any programmer to create such a cryptocurrency and download it. Moreover, thanks to their power, they allow you to create applications that always run on the blockchain and cannot be edited by third parties.
A good way to think about smart contracts is to imagine buying real estate, for example, a house. Usually this process requires the involvement of a third party, such as a lawyer, broker or notary. In contracts of this type, this is no longer necessary, since proof of ownership can be found in the Ethereum blockchain and sent when certain conditions are met (one of them is payment).
This can be applied to many scenarios where we no longer need intermediaries, and we can conduct the entire process between stakeholders, saving costs, bureaucracy and time.
As we have seen, Ethereum and Bitcoin have different goals.
The goal of Ethereum is to offer decentralized contracts and applications using a blockchain that will never be autonomous and cannot be changed. It provides users with a platform and programming language for creating applications based on it.
Bitcoin is completely different. It serves as a decentralized place to store valuables and a peer-to-peer digital currency used for financial transactions. This eliminates the need for third parties to make or receive payments.
In conclusion, it should be noted that the first difference is in goals and concepts.