According to current market capitalization, the two most important cryptocurrencies in the market are Bitcoin and Ethereum. Both of them are digital money transfer systems that use blockchain technology and encryption for peer to peer transaction. Although both are same, there are subtle differences in how they work and what they can be used for. If you’re planning to invest in either of the cryptocurrency, it’s really important to understand those differences. But before this, you must know what really is bitcoin and Ethereum.
Bitcoin is the first decentralized digital currency, invented in the year 2008 by the group of people under the name Satoshi Nakamoto. This digital money transfer system uses encryption techniques for regulation and generation of units of currency. It works as peer to peer and transactions take place between users directly, without an intermediary. Bitcoins were created as a reward for the mining process. They can be exchanged for other currencies, products, and services.
It’s a talk of the town since many years, but it’s not alone in the game of cryptocurrency. With some additional features and applications, Ethereum too has gained a lot of hype.
Ethereum is an open-source, blockchain-based distributed computing platform. It supports a modified version of Nakamoto agreement through transaction based state transitions. Ether can be transferred between accounts and used to compensate participant mining nodes for computations performed. Ethereum was proposed by VitalikButerin in late 2013.
How Ethereum is different from Bitcoin?
- Block Time: Ethereum block time is shorter as compared to Bitcoin. It’s approximately 10-20 seconds in comparison to Bitcoin’s 10 minutes. What it means is Bitcoinupdates its database in approximately every 10 minutes, whereas Ethereum does it in between 10-20 seconds. Ethereum offers faster transaction times by using the Ghost protocol. Moreover, Ethereum uses ethash algorithm while Bitcoin uses secure hash algorithm.
- Economic model: Ethereum is based on a different economic model than Bitcoin. For example, Bitcoin halve block rewards in every 4 years, and Ethereum releases the same amount of Ether every year without any limits.
- Flexibility: Ethereum has its own Turing-complete internal code that allows it to compute large data within seconds. On the other hand, Bitcoin transactions take more time and not that flexible.
- Programming Language: Ethereum uses “Turning complete”programming language whereas Bitcoin is in a “Stack based” language.
- Cryptocurrency creator: The Ethereum network allows the creation of other cryptocurrencies, or tokens, using the same protocol as Ether but distributed on different blockchains. These currencies can be can be public or private. This means they can be created by organizations to represent shares, voting rights or as means of proving identity or authorization credentials.
In a nutshell, Ethereum could be considered as the better version of Bitcoin. However, its popularity and rising market capitalization has made Ethereum into a big competition for other cryptocurrencies, especially from the trading perspective. Currently, the market cap of Ether (ETH) is far behind Bitcoin (BTC). Bitcoin and Ethereum are different versions using the blockchain technology and are set to establish themselves, driven by different intentions.