Ether , the native cryptocurrency of the Ethereum network, is the second most popular digital token after bitcoin . As the second-largest cryptocurrency by market capitalization , comparisons between Ether and bitcoin are only natural. The Bitcoin and Ethereum blockchain networks serve different purposes as do the coins and tokens operating on them.

• One might distinguish them in the same way one distinguishes the stocks of two companies in different industries that trade on a major stock exchange.
• As mentioned earlier, Ethereum hosts a massive number of DApps and DeFi services.
• The Ethereum ecosystem is growing by leaps and bounds thanks to the surging popularity of its dApps in areas such as finance , arts and collectibles (non-fungible tokens, or NFTs), gaming, and technology.
• To address issues regarding scalability, part of the transition to proof of stake is sharding, which will continue to be addressed through 2023.
• On the other hand, the PoS model does not require miners to decode the 64-digit hexadecimal key to add a new block to the chain.
• No one can own either the Bitcoin or Ethereum blockchain networks themselves as they represent little more than a collection of privately owned computers linked together through open-source code.

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What Is Ethereum?

Ethereum is compared with digital silver because it is the second-largest cryptocurrency by market cap and, like the precious metal, has a wide variety of applications. Thanks to smart contracts, programmers worldwide can use the blockchain to develop a wide variety of decentralized applications . As a result, Ethereum gave way to some of the biggest crypto innovations today, such as NFTs and blockchain-based games.

However, by late August 2022, Bitcoin’s market share had declined to 39.6%. To give you a better idea, think of the older Ethereum blockchain as a very busy highway with just one lane. But after the recent upgrade, 63 new lanes have been added to this highway. This has not only made the traffic flow smoother but has also increased the speed Ethereum vs Bitcoin with which it can move. To fully grasp the next section, which will go a bit more technical from now on, it’s important to be clear about the main consensus models. BTC’s prominence as a store of value is further enhanced by the fact that BTC holders can lend, borrow or earn interest on their BTC holdings via the Ethereum blockchain.

To protect the blockchain from scams and frauds, any validator who is caught authenticating illegitimate transactions faces a reduction in his staked funds. These blocks are full of transaction records and, once completed, are locked for eternity. The problem with this method is that miners have to use heavy computing devices, which consume a lot of electricity. Recent applications allow users on the Ethereum blockchain to trade BTC derivatives, or even earn interest on their BTC holdings. While there are several differences between the two networks, the most obvious one is supply.

It caused the users to pay high transaction fees and deal with delayed transfers. Moreover, it can also deal with a risk that comes with a 51% attack threat. Being a decentralized platform, Ethereum’s developers have to make sure that no single party manages to take over the majority of the network. One of the primary goals of the Ethereum community is to make the platform more secure for investors and developers. In the past, we have seen several hacking incidents on different blockchains that resulted in people losing their money. Moving towards a PoS system, at least in theory, will minimize the risk of cyberattacks.

Future

It’s market capitalization is $162 million, while there are only 635k active addresses on the network. Ethereum, the second-most popular cryptocurrency in the world, hit a fresh all-time high this week. Compare that to Bitcoin’s 260% over the same period and you can see why some investors are tempted to add this alt-coin to their portfolio.

Certain vendors, for example, will accept Bitcoin, including Home Depot, Starbucks, Whole Foods, and GameStop. On the other hand, if you want to purchase an NFT or purchase certain add-ons to online games, you’ll need ETH to do that. BTC and ETH can both be purchased using US dollars on any major crypto exchange. Prices and trading fees may differ slightly across exchanges, but you would be buying or selling the same crypto coin or token. It remains anyone’s guess which cryptocurrency and blockchain will stand the test of time—perhaps they both will. But one thing is certain—both have induced much-needed discussions about financial systems worldwide.

Beacon Chain

Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. Sharding is a common phenomenon in the general programming world, in which the data is distributed in several machines to improve the processing speed. Similarly, in the case of Ethereum, it has been done by introducing 64 shards. Holders with fewer funds who still want to participate can join staking pools. So as an investor, you don’t need to worry about the ETH tokens stored in your wallet. I have no business relationship with any company whose stock is mentioned in this article.

Such activity leads to huge traffic and thousands of transactions happening all the time. Contrary to most people’s first impression after hearing the news, Ethereum 2.0 is NOT a new blockchain. In fact, it is a set of interconnected updates to the existing mechanism. Ethereum is a blockchain that uses PoW to confirm transactions, but it will be transitioning into an updated version called Ethereum 2.0, which utilizes PoS for this function instead. However, Bitcoin has become more mainstream and, in general, is more accessible to mainstream users.

Hence, its launch marked the birth of second-generation blockchain technology. Anyone who has been in the crypto space even for a short while is familiar with the name Ethereum. The second-largest cryptocurrency after Bitcoin and a blockchain home to numerous NFTs and DeFi projects, Ethereum has branched into digital money, global payments, as well as applications. While there is broad and growing acceptance of blockchain technology for numerous applications, the ultimate value, of any individual crypto coin or token cannot yet be confidently determined. Thus far, the value of both BTC and ETH has been largely derived from speculation about their future opportunity, which is not yet fully defined. No one can own either the Bitcoin or Ethereum blockchain networks themselves as they represent little more than a collection of privately owned computers linked together through open-source code.

Bitcoin’s supply is limited to 21 million, while Ethereum currently doesn’t have an issuance limit, or a defined monetary policy for Ether. Ether’s unlimited supply supports its infinite potential uses in the future, while Bitcoin’s hard cap locks it in as a store of value. The Ethereum ecosystem is growing by leaps and bounds thanks to the surging popularity of its dApps in areas such as finance , arts and collectibles (non-fungible tokens, or NFTs), gaming, and technology. Ethereum will also introduce sharding sometime in 2023 to enhance its scalability. Over the years, the virtual, decentralized currency concept has gained acceptance among regulators and government bodies.

Key Differences

BTC and ETH are both decentralized, peer-to-peer cryptocurrencies operating on open-source, distributed ledger technology, and purchasing BTC or ETH on a major crypto exchange is virtually the same process. One might distinguish them in the same way one distinguishes the stocks of two companies in different industries that trade on a major stock exchange. Ethereum is a blockchain-based software platform with the native coin, ether. Ethereum smart contracts support a variety of distributed apps across the crypto ecosystem. The Bitcoin and Ethereum blockchains and networks are different concerning their overall aims.

Bitcoin’s purpose is to serve as the most convenient and independent store of value. Meanwhile, Ethereum’s network is built on decentralizing the financial and digital technology system. A 51% attack is an attack on a blockchain by a group of miners who control more than 50% of the network’s mining hash rate, or computing power. A major criticism of proof of work is that it is highly energy-intensive because of the computational power required. Proof of stake substitutes computational power with staking—making it less energy-intensive—and replaces miners with validators, who stake their cryptocurrency holdings to activate the ability to create new blocks. The biggest issue for individual users of cryptos is that they each represent different types of transactions and can even be vendor-specific.

Efficiency Of Ethereum Vs Bitcoin

As of Aug. 30, 2022, Bitcoin had a market cap of $376.5 billion, accounting for about 39.6% of the total cryptocurrency market, which was valued at just over $954.3 billion. Bitcoin uses a consensus protocol called proof of work , which allows the network nodes to agree on the state of all information recorded and prevent certain types of attacks on the network. In September 2022, Ethereum moved to proof of stake , a set of interconnected upgrades that will make Ethereum more secure and sustainable. To address issues regarding scalability, part of the transition to proof of stake is sharding, which will continue to be addressed through 2023.

Bitcoin has also experienced change, introducing the Taproot upgrade to enable smart contracts. The Bitcoin Lightning Network is another project being worked on as a second-layer protocol that intends to take transactions off-chain for the purpose of speeding up the network. Ethereum enables building and deploying smart contracts and decentralized applications without downtime, https://xcritical.com/ fraud, control, or interference from a third party. All 64 sharded chains are connected to one blockchain, which controls all of them and enables transactions throughout the network. This central component is the brain of the entire ecosystem and is named Beacon Chain. Both PoW and PoS are crypto mining mechanisms that provide a consensus model to authenticate transactions.

Why Can There Only Be 21 Million Bitcoins?

Stay tuned for more changes to come, and watch how Ethereum tackles future challenges. Miners had to use highly-complicated computing devices, which consumed massive amounts of electricity. The newer PoS model, in sharp contrast, puts an end to the entire mining network, making Ethereum more sustainable and eco-friendly. As mentioned earlier, Ethereum hosts a massive number of DApps and DeFi services. According to the data collected from different sources, Ethereum is home to almost 80% of the total DeFi apps, and about 90% of all the NFTs are part of its ecosystem.

ETH processes transactions much faster than BTC, which in turn reduces the energy efficiency of ETH as well. Gas is the pricing value required to conduct a transaction or execute a contract on the Ethereum blockchain platform. At the start of the cryptocurrency boom in 2017, Bitcoin’s market value accounted for close to 87% of the total cryptocurrency market.

What Are Some Similarities Between Bitcoin And Ether?

In the PoW model, a network of users around the world race against each other to solve a highly complex algorithm. Each time this algorithm is solved, a new data block is added to the blockchain. To put it another way, Bitcoin is digital gold while Ether is digital copper.

Bitcoin was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value. Ethereum was intended as a platform to facilitate immutable, programmatic contracts and applications via a global virtual machine. While bitcoin is designed as a currency and a store of value, the Ethereum network is intended for complex smart contracts and decentralized applications.

Ethereum 2.0 is the next generation of the Ethereum blockchain that uses a proof-of-stake model to verify transactions. Although Bitcoin was not the first attempt at an online currency of this type, it was the most successful in its early efforts. As a result, it has become known as the predecessor to virtually all cryptocurrencies that have emerged over the past decade. It introduced a novel idea set out in a white paper by the mysterious Satoshi Nakamoto—Bitcoin offers the promise of an online currency that is secured without any central authority, unlike government-issued currencies. Full BioNathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016. As far as the value goes, the upgrade has made Ethereum’s foundations in the crypto market even stronger.

What Is Bitcoin & Ethereum?

Moreover, all of them will work the same way as the old one did, except for the difference that now workload has been distributed onto multiple databases. Since the shift to the PoS mechanism in the latter half of the last year, the Ethereum blockchain randomly selects an ETH holder. The selected holder is then trusted with the responsibility to hash the new block.

An important perspective to maintain on the two cryptocurrencies is that they are not directly competitive and their fates will likely be independent of one another. It is entirely possible that either or both can be wildly successful or fail completely in the long run. BTC and ETH are both digital constructs based on cryptographic technology and are the primary coin or token for well-established blockchain networks. Of the thousands of cryptos available, they are the two most widely held by a substantial margin. Each digital currency is traded on online exchanges and stored in cryptocurrency wallets.

While one is considered “digital gold,” the other is comparable to “digital copper.” The two networks are separate but symbiotic in nature. Because of these fundamental differences in the underlying design, Bitcoin and Ethereum do not compete with each other, and should be in fact viewed as complementary networks. Bitcoin is seeking to disrupt gold (a market worth $7.3 trillion) while Ethereum is trying to disrupt the financial services sector (worth $22.3 trillion). For crypto newbies, understanding the differences between these two digital assets is crucial. Here’s an overview of the two leading cryptocurrencies and their potential for the near future. It’s a blockchain platform that has smart contracts that can be built on top of it.