Home Bitcoin Guides Bitcoin vs. Ethereum: A Beginner’s Guide 

Bitcoin vs. Ethereum: A Beginner’s Guide 

Bitcoin vs. Ethereum

One of the first things people wonder regarding Bitcoin vs. Ethereum is the difference between them.

They’re the two most popular cryptocurrencies by far, but although their popularity and financial value may be similar, the two are far from twins in terms of purpose and function. 

In this guide, we’ll take a look at how the two differ, along with the pros and cons of both. 

The Difference Between Bitcoin vs. Ethereum 

Before we explore the differences in the features between Bitcoin vs. Ethereum, you should know that the most fundamental difference between Bitcoin and Ethereum is their purposes. 

Their Purposes 

Bitcoin is a digital currency built on blockchain technology, which enables it to be decentralized and free of central authority. Its primary purpose is to allow global peer-to-peer payments that are much cheaper, quicker and available than payments that need to go through third parties (i.e. central banks etc.). 

It was the first of its kind, and the first use of blockchain technology. 

Ethereum, on the other hand, is a blockchain with a built-in programming language. Acting as a platform, it enables distributed applications (DApps) to be built on blockchain technology without the need for the developers of the DApps to create their own blockchain. This creates a much more efficient ecosystem in the development world. 

The blockchain/platform itself is called Ethereum, but its currency is called Ether (ETH) and is used to pay transaction fees.

Like Bitcoin, Ethereum was also the first of its kind. 

Their Features 

Now, let’s assess the differences in their functions, features and other technical aspects. 

Transactions 

As Bitcoin is only designed to serve as a currency, its transactions look like this: 

Mike sends 1 BTC (Bitcoin) to Rob. 

Where as Ethereum’s transactions can be programmed using DApps, meaning that you can have transactions like this: 

Send 1 ETH (Ether) from Mike to Rob IF Jade’s balance is 15 ETH and the date is 12.01.2019.

Note: DApps are built using smart contracts, which are like regular contracts but written in code. This means that they are executed automatically rather than relying on humans. Plus, as they are on the Ethereum blockchain, they are completely immutable and decentralized, meaning nothing can stop them once they are created. 

Speed of Transactions 

Bitcoin transactions take minutes or more, whereas Ethereum transactions take just a few seconds. Network congestion can delay both Bitcoin and Ethereum transactions, though. 

The winner of Bitcoin vs. Ethereum isn’t even questionable when it comes to transaction speed. 

Cost of Transactions 

As with speed, Ethereum is the clear winner when it comes to cost, too. 

Ethereum transactions typically come in at around $0.05-$0.50 depending on how quickly you want to process your transaction — you can opt to pay higher fees if you’d like your transaction to be prioritized, meaning it’ll be processed sooner. 

You cannot alter the amount you pay for Bitcoin transactions, though. All Bitcoin transactions are treated with the same priority, but the fees vary heavily depending on when you send your transaction. In January 2018, the fees got really high due to congestion — at one point, the average cost reached more than $50. It has since calmed, though, and is now around $1. 

Bitcoin transaction costs differ to Ethereum’s in other ways too, as they are sometimes non-existent. That’s right — sometimes, you don’t even need to pay a Bitcoin fee. It depends on factors such as the age of the Bitcoin being sent and the current network congestion.

(Yes, Bitcoins have age. To find out how new ones are created, view our guide on Mining.) 

Ages 

Launched in 2009, Bitcoin is the older of the two. Ethereum was released in 2015, making it 6 years younger. This means Ethereum’s technology is 6 years newer. 

Currencies 

While Bitcoin is designed to be the value of real-world transactions (like money), Ether is used to fuel transactions and power the Ethereum blockchain (like gas). 

Fun fact: denominations of Ether are actually referred to as gas, too. Just as Bitcoin denominations are referred to as Satoshis. 

Coin Supply 

Ether will constantly be created — there is no maximum, although Ethereum developers may consider changing this in the future, as hinted by Vitalik Buterin (the founder of Ethereum). 

Bitcoin is contrastingly different, as its coin supply is limited to 21,000,000. There are already over 17,000,000 of them, but the rate at which they are created is halved every four years, so it’ll be a long, long time before they’re all in circulation. 

There are currently over 99,000,000 Ether in circulation. Impending upgrades to Ethereum will see the rate of creation slowed tremendously, though, so it won’t become much more than 100,000,000 in the foreseeable future. 

Consensus Mechanism 

Bitcoin and Ethereum both use the same consensus mechanism — Proof of Work (PoW). The consensus mechanism is the way in which the nodes on a blockchain agree that a transaction is valid. It’s at the core of network security. 

Although they both use Proof of Work at present, Ethereum have plans to change that very shortly. Ethereum’s Casper protocol will see the Ethereum blockchain move from Proof of Work to Proof of Stake (PoS). 

This is hugely significant because PoS is much more energy efficient than PoW. In fact, PoW uses so much energy that it prevents scalability — it is completely unsustainable and so it cannot facilitate the growth that mainstream use demands. 

So, Which is Better? 

The truth is, there is no right or wrong answer for which is better regarding Bitcoin vs. Ethereum. As they’re both serving completely different purposes, there cannot be a general winner.

Bitcoin is a decentralized currency, whereas Ethereum is a decentralized building platform and network for applications. They’re two entirely different products. 

Bitcoin’s use cases are very limited, whereas Ethereum’s are essentially endless due to the possibilities that DApps enable. For more on these possibilities, see our What is Ethereum guide.

As for the technology itself, Ethereum is the younger of the two by 6 years and the technical statistics reflect on that. It is both quicker and cheaper. 

A Bonus Factor 

An intrinsic element on which we can compare Bitcoin vs. Ethereum is the difference in their communities and the way in which they are run. 

Bitcoin is seemingly conservative, whereas Ethereum appears to be more innovative and quicker to adapt. This is evident in the scaling solutions that the Ethereum development community have proposed and are currently working on, including the switchover to PoS.

Many people put this down to the leader-like role that Vitalik Buterin plays in the Ethereum development community — Bitcoin, contrarily, was founded by an anonymous developer who led the project under the pseudonym of Satoshi Nakamoto but later disappeared from the community completely.  

Final Words 

Bitcoin vs. Ethereum is a debatable topic filled with endless questions and elaborate details. It’s difficult to squeeze it all into a beginner-friendly article, so if you have any unanswered questions, please do not hesitate to ask — we’d be glad to help!

Fun fact: Ethereum founder, Vitalik Buterin, was just 19 when he launched Etheruem to the public in 2015!

LEAVE A REPLY

Please enter your comment!
Please enter your name here