Tuesday, November 29, 2022
 

Ethereum vs Bitcoin: Use Cases, Technical Differences, Scaling Issues

Bitcoin (BTC) and Ethereum (ETH) are the two best-known cryptocurrencies that are altering the dynamics of the crypto industry. Bitcoin has the unique title of the world’s first cryptocurrency, and people sometimes refer to it as digital gold or gold 2.0. These titles imply that Bitcoin represents a store of value asset with a limited supply, like precious metals.

On the other hand, the crypto community perceives Ethereum as a decentralized computer because it powers thousands of decentralized applications (dApps). Based on industry metrics such as market capitalization, unique wallet addresses, and daily trading volume, Bitcoin and Ethereum represent the two most prominent cryptocurrencies. Illustratively, the combined market value of BTC and ETH greatly exceeds half a trillion dollars.

Both cryptocurrencies exist for slightly different use cases and should not frankly compete. However, the popularity of Ethereum has pushed it into direct competition with all cryptocurrencies, especially from the traders’ perspective. The Ether token has eagerly lurked behind Bitcoin on lists of the leading cryptocurrencies by market cap since its introduction in mid-2015.

A thorough analysis of the two is provided below to comprehend the underlying idea behind the two currencies.

Bitcoin (BTC) — Defined

Bitcoin is a peer-to-peer electronic cash system, the first digital currency to function independently of any central authority, with its genesis block, mined by Satoshi Nakamoto in January 2009.

Bitcoin is the first successful currency based on the concept of Decentralized Ledger Technology (DLT) called the blockchain, where systems agree on a single fact. Since Bitcoin runs without the control of any financial institution, it relies on a network of users running its blockchain software with a set of rules every network participant follows. The rules determine how new tokens go into circulation, the addition of valid transactions to the blockchain, the verification process, the maximum coin supply, and more.

The idea of virtual, decentralized money since the inception of Bitcoin has become increasingly popular, carving out a place for itself and continues to co-exist with the financial system despite being frequently questioned and contested. Given the position of Bitcoin, the development of other virtual currencies proliferated.

Ethereum (ETH) — Defined

The Ethereum network is an open-source distributed software platform powered by its native token, Ether (ETH). While Bitcoin started out solving financial transaction issues, Ethereum furthers blockchain technology beyond a mere payment system.

With the Ethereum network, it became possible for self-executing contracts, smart contracts, and dApps to develop and operate without interruption, fabrication, or interference from a third party via its built-in blockchain-based programming language, Solidity.

Developers utilize the ETH to create and execute apps on the Ethereum platform, the network’s equivalent of fuel for processing instructions. Apart from this, ETH is tenable for payments, a store of value, or collateral, just like BTC.

While the founders of Bitcoin hide under the pseudonym, Satoshi Nakamoto, the founders of Ethereum are Vitalik Buterin, Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Lorio, and Amir Chetrit.

BTC vs. ETH: Technical Differences

Although the distributed ledger and cryptography principles underpin the Bitcoin and Ethereum networks, the two have significant technological differences.

Data on Block

The data attached to transactions on the Ethereum network may include executable code, but data attached to that of the Bitcoin network is often merely for note-taking.

Block Time

Block time refers to how long it takes for a network to confirm a transaction. Ethereum validates transactions in seconds using the Ethash algorithm and can process 30 transactions per second. However, Bitcoin takes longer because its system can only validate seven transactions per second using the SHA-256 algorithms.

Wallet Identifiers

The public wallet addresses on both networks are also different. Wallet addresses on Ethereum begin with “0x,” while Bitcoin wallets start with either 1, a3, or bc1. Noteworthy is that Bitcoin has a tokenized representation on the Ethereum blockchain as an ERC-20 token, allowing users to keep holding BTC while using dApps.

Consensus Protocol

At the moment, Bitcoin and Ethereum use proof-of-work (PoW), a consensus system that enables the nodes of the respective networks to concur on the status of all data stored on their blockchains to guard against economic assaults on the networks

One of its primary criticisms is that PoW requires a lot of computational power and is hence very energy-intensive. The alternative to PoW is proof-of-stake (PoS), as it substitutes mining with staking and miners with validators who stake their crypto holdings.

PoS algorithms limit the energy necessary to reach consensus by attributing mining power to the proportion of validators’ tokens instead of having miners with specialized computers, making it more energy efficient and lowering entry barriers for validators.

The PoS is a new mechanism that Ethereum will migrate to in 2022 as part of its ETH 2.0 upgrade, a series of related updates that will increase Ethereum’s scalability, security, and sustainability.

BTC vs. ETH: Application Dissimilarities

The overall objectives of the Bitcoin and Ethereum networks are dissimilar. Ethereum was designed as a platform to enable immutable, programmable contracts and applications via its currency. Bitcoin founders only intended it as an alternative to traditional cash, a means of monetary exchange, and a store of value.

Because Ethereum facilitates the development of immutable, programmatic contracts, its ecosystem has expanded with the surging popularity of its dApps in areas of decentralized finance (DeFi) apps, arts, and collectibles, non-fungible tokens (NFTs), and GameFi technology.

For instance, ETH grew by 510% in 2021, compared to a 93% gain for BTC. Even though BTC has always been more than ten times the value of ETH, in November 2021, the ETH market cap of $528 billion was about one-half of BTC’s $1.08 trillion.

BTC vs. ETH: Digital Gold vs. Digital Silver

The comparison follows their market share. Bitcoin compares to gold because it holds the most significant market cap, which exceeded  $1 trillion last year, and its limited supply of 21 million coins will ensure that it retains value. Ethereum is compared to digital silver because it is the second-largest cryptocurrency by market cap and, like the precious metal, has a wide variety of applications.

BTC vs. ETH: Circulation

As of August 3, 2022, there are 19,111,325 BTC and 121,813,764 ETH in circulation, equivalent to, respectively, $446,028,464,841 and $202,036,593,825. These figures imply BTC and ETH together hold 60.3% of the total crypto market.

BTC & ETH: Parallels

In recap, Bitcoin and Ethereum are digital assets on a publicly accessible blockchain ledger in digital wallets, tradable on crypto exchanges. Neither of them is issued or governed by central banks or other financial institutions, which implies that they are decentralized finance.

The mining processes on both networks ensure malicious actors cannot alter other users’ balances or spend their funds twice. Each new transaction connects to the history of older transactions.

Miners on both networks generate and broadcast valid blocks via the inherently invaluable proof-of-work (PoW) mechanism.

Scalability Issues

The Ethereum and Bitcoin core networks have scalability problems as more individuals adopt both blockchains over time. While traditional payment systems like Visa and Mastercard can process 24,000 transactions per second, ETH and BTC networks are incredibly slower at 30 transactions per second. Transaction costs on both networks increase when block demand exceeds their capacity.

BTC: Scalability Solutions

Bitcoin has implemented technical improvements such as Segregated Witness (SegWit), an upgrade that “segregates” some data outside the space in each block propagated to the network. SegWit allows more efficient use of each Bitcoin block’s limited 1 MB of space.

Additionally, engineers have been working on a layer-two scaling solution, the Lightning Network, a solution that adds a transaction layer on top of the main blockchain. Transactions on the Lightning Network move quickly and incur little costs, and the Lightning Network will support up to 15 million transactions per second.

ETH: Scalability Solutions

Scaling techniques are also used by Ethereum, both on the layer-two networks and the main Ethereum network. Sharding, Ethereum’s primary strategy for growing its network would enable more transactions per second while reducing network traffic congestion.

Servers that aggregate several transactions before sending them directly to the Ethereum blockchain are the basis for layer-two scaling solutions on the Ethereum platform. The grouping and broadcasting of these transactions to Ethereum differ significantly between implementations.

Learn More About Crypto, Blockchain, & Web3:

Bitcoin (BTC) and Ethereum (ETH) are the two best-known cryptocurrencies that are altering the dynamics of the crypto industry. Bitcoin has the unique title of the world’s first cryptocurrency, and people sometimes refer to it as digital gold or gold 2.0. These titles imply that Bitcoin represents a store of value asset with a limited supply, like precious metals.

On the other hand, the crypto community perceives Ethereum as a decentralized computer because it powers thousands of decentralized applications (dApps). Based on industry metrics such as market capitalization, unique wallet addresses, and daily trading volume, Bitcoin and Ethereum represent the two most prominent cryptocurrencies. Illustratively, the combined market value of BTC and ETH greatly exceeds half a trillion dollars.

Both cryptocurrencies exist for slightly different use cases and should not frankly compete. However, the popularity of Ethereum has pushed it into direct competition with all cryptocurrencies, especially from the traders’ perspective. The Ether token has eagerly lurked behind Bitcoin on lists of the leading cryptocurrencies by market cap since its introduction in mid-2015.

A thorough analysis of the two is provided below to comprehend the underlying idea behind the two currencies.

Bitcoin (BTC) — Defined

Bitcoin is a peer-to-peer electronic cash system, the first digital currency to function independently of any central authority, with its genesis block, mined by Satoshi Nakamoto in January 2009.

Bitcoin is the first successful currency based on the concept of Decentralized Ledger Technology (DLT) called the blockchain, where systems agree on a single fact. Since Bitcoin runs without the control of any financial institution, it relies on a network of users running its blockchain software with a set of rules every network participant follows. The rules determine how new tokens go into circulation, the addition of valid transactions to the blockchain, the verification process, the maximum coin supply, and more.

The idea of virtual, decentralized money since the inception of Bitcoin has become increasingly popular, carving out a place for itself and continues to co-exist with the financial system despite being frequently questioned and contested. Given the position of Bitcoin, the development of other virtual currencies proliferated.

Ethereum (ETH) — Defined

The Ethereum network is an open-source distributed software platform powered by its native token, Ether (ETH). While Bitcoin started out solving financial transaction issues, Ethereum furthers blockchain technology beyond a mere payment system.

With the Ethereum network, it became possible for self-executing contracts, smart contracts, and dApps to develop and operate without interruption, fabrication, or interference from a third party via its built-in blockchain-based programming language, Solidity.

Developers utilize the ETH to create and execute apps on the Ethereum platform, the network’s equivalent of fuel for processing instructions. Apart from this, ETH is tenable for payments, a store of value, or collateral, just like BTC.

While the founders of Bitcoin hide under the pseudonym, Satoshi Nakamoto, the founders of Ethereum are Vitalik Buterin, Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Lorio, and Amir Chetrit.

BTC vs. ETH: Technical Differences

Although the distributed ledger and cryptography principles underpin the Bitcoin and Ethereum networks, the two have significant technological differences.

Data on Block

The data attached to transactions on the Ethereum network may include executable code, but data attached to that of the Bitcoin network is often merely for note-taking.

Block Time

Block time refers to how long it takes for a network to confirm a transaction. Ethereum validates transactions in seconds using the Ethash algorithm and can process 30 transactions per second. However, Bitcoin takes longer because its system can only validate seven transactions per second using the SHA-256 algorithms.

Wallet Identifiers

The public wallet addresses on both networks are also different. Wallet addresses on Ethereum begin with “0x,” while Bitcoin wallets start with either 1, a3, or bc1. Noteworthy is that Bitcoin has a tokenized representation on the Ethereum blockchain as an ERC-20 token, allowing users to keep holding BTC while using dApps.

Consensus Protocol

At the moment, Bitcoin and Ethereum use proof-of-work (PoW), a consensus system that enables the nodes of the respective networks to concur on the status of all data stored on their blockchains to guard against economic assaults on the networks

One of its primary criticisms is that PoW requires a lot of computational power and is hence very energy-intensive. The alternative to PoW is proof-of-stake (PoS), as it substitutes mining with staking and miners with validators who stake their crypto holdings.

PoS algorithms limit the energy necessary to reach consensus by attributing mining power to the proportion of validators’ tokens instead of having miners with specialized computers, making it more energy efficient and lowering entry barriers for validators.

The PoS is a new mechanism that Ethereum will migrate to in 2022 as part of its ETH 2.0 upgrade, a series of related updates that will increase Ethereum’s scalability, security, and sustainability.

BTC vs. ETH: Application Dissimilarities

The overall objectives of the Bitcoin and Ethereum networks are dissimilar. Ethereum was designed as a platform to enable immutable, programmable contracts and applications via its currency. Bitcoin founders only intended it as an alternative to traditional cash, a means of monetary exchange, and a store of value.

Because Ethereum facilitates the development of immutable, programmatic contracts, its ecosystem has expanded with the surging popularity of its dApps in areas of decentralized finance (DeFi) apps, arts, and collectibles, non-fungible tokens (NFTs), and GameFi technology.

For instance, ETH grew by 510% in 2021, compared to a 93% gain for BTC. Even though BTC has always been more than ten times the value of ETH, in November 2021, the ETH market cap of $528 billion was about one-half of BTC’s $1.08 trillion.

BTC vs. ETH: Digital Gold vs. Digital Silver

The comparison follows their market share. Bitcoin compares to gold because it holds the most significant market cap, which exceeded  $1 trillion last year, and its limited supply of 21 million coins will ensure that it retains value. Ethereum is compared to digital silver because it is the second-largest cryptocurrency by market cap and, like the precious metal, has a wide variety of applications.

BTC vs. ETH: Circulation

As of August 3, 2022, there are 19,111,325 BTC and 121,813,764 ETH in circulation, equivalent to, respectively, $446,028,464,841 and $202,036,593,825. These figures imply BTC and ETH together hold 60.3% of the total crypto market.

BTC & ETH: Parallels

In recap, Bitcoin and Ethereum are digital assets on a publicly accessible blockchain ledger in digital wallets, tradable on crypto exchanges. Neither of them is issued or governed by central banks or other financial institutions, which implies that they are decentralized finance.

The mining processes on both networks ensure malicious actors cannot alter other users’ balances or spend their funds twice. Each new transaction connects to the history of older transactions.

Miners on both networks generate and broadcast valid blocks via the inherently invaluable proof-of-work (PoW) mechanism.

Scalability Issues

The Ethereum and Bitcoin core networks have scalability problems as more individuals adopt both blockchains over time. While traditional payment systems like Visa and Mastercard can process 24,000 transactions per second, ETH and BTC networks are incredibly slower at 30 transactions per second. Transaction costs on both networks increase when block demand exceeds their capacity.

BTC: Scalability Solutions

Bitcoin has implemented technical improvements such as Segregated Witness (SegWit), an upgrade that “segregates” some data outside the space in each block propagated to the network. SegWit allows more efficient use of each Bitcoin block’s limited 1 MB of space.

Additionally, engineers have been working on a layer-two scaling solution, the Lightning Network, a solution that adds a transaction layer on top of the main blockchain. Transactions on the Lightning Network move quickly and incur little costs, and the Lightning Network will support up to 15 million transactions per second.

ETH: Scalability Solutions

Scaling techniques are also used by Ethereum, both on the layer-two networks and the main Ethereum network. Sharding, Ethereum’s primary strategy for growing its network would enable more transactions per second while reducing network traffic congestion.

Servers that aggregate several transactions before sending them directly to the Ethereum blockchain are the basis for layer-two scaling solutions on the Ethereum platform. The grouping and broadcasting of these transactions to Ethereum differ significantly between implementations.

Learn More About Crypto, Blockchain, & Web3:

 

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