ZuluTrade Blog

Ethereum vs Bitcoin: 6 Differences Crypto Investors Must Know

Knowledge Crunch | Wednesday, October 6, 2021 4:58 PM GMT

Bitcoin (BTC) and Ethereum (ETH) are the two most widely adopted applications of blockchain technology in existence today. While many people think it’s Bitcoin vs. Ethereum, it is actually Bitcoin and Ethereum. 

Bitcoin is like digital gold, while Ethereum is a decentralized computer. Both systems are powered and secured by a decentralized network of individuals across the world (miners), who are paid to do their part in keeping the network’s security but still that doesn’t mean they’re the same.

Here we’ll break down some of the differences between the two and find out how they both differ from one another.

 

Table of Contents

 

What is Bitcoin?

What is Ethereum?

Bitcoin: Pros & Cons

Ethereum: Pros & Cons

Difference #1: Supply Cap

Difference #2: Technology

Difference #3: Account Management

Difference #4: Price History

Difference #5: Block Size

Difference #6: Future Dominance

 

What is Bitcoin?

In short, Bitcoin is a decentralized digital currency that offers the promise of lower transaction fees than traditional online payment mechanisms and unlike government-issued currencies, it is operated by a decentralized authority.

In January 2009, a mysterious figure named Satoshi Nakamoto executed an idea that he had laid out in a white paper a peer-to-peer electronic cash system that could operate securely without a central authority. With Bitcoin, the idea of cryptocurrency, or money without any physical form, was born. 

Bitcoin was not the first time that someone thought of a decentralized, nonphysical form of money, but it was the first time that the idea actually caught on. The value of all other cryptos generally moves in tandem with Bitcoin, and Bitcoin is still traded more than any other coin. Bitcoin was the first major crypto on the scene but now, this brings us to our next subject of who was second... Ethereum.

 

What is Ethereum?

Ethereum is a global computing platform powered by its native cryptocurrency, Ether (ETH). As demand for computing power on the Ethereum blockchain increases, so will demand for ETH.  Solidity is Ethereum’s programming language and is used to create smart contracts that can be deployed on the blockchain. 

Ethereum was launched in 2015 as an upgrade to the perceived weaknesses in Bitcoin. Its use cases provided more opportunities for developers to create new applications, so it eventually became a separate and competitive entity. Ethereum was created by Vitalik Buterin, and the foundation is currently the most actively developed blockchain project in the world.

Developers chose to build their apps on Ethereum’s blockchain because it is highly decentralized, and therefore highly resistant to censorship and other forms of centralized malice. Peer-to-peer apps on Ethereum are known as decentralized apps (dApps) and are capable of providing trustless products and services.

 

Bitcoin: Pros & Cons

In a sense, investors view bitcoin the same as gold. However, unlike gold, bitcoin is not backed by any physical commodity and can therefore lead to bigger swings in value. It’s virtually impossible to break Bitcoin’s source code and manipulate the currency’s supply.  

Although it was preceded by other virtual currencies, Bitcoin is known as the first modern cryptocurrency. That’s because Bitcoin is the first to blend certain key features shared by most subsequently created cryptocurrencies. So now let's explore those pros and cons. 

 

Bitcoin Pros

Bitcoins main pros are: 

  • Potentially high returns - Bitcoin tends to peak at extremely high prices.
  • Security - You always know where your bitcoin comes from and where it goes.
  • Very accessible - Cryptocurrency exchanges make it easy to start buying bitcoin.
  • Very liquid - It’s easy to cash out and sell your bitcoin if you need money.
  • For the time being, treat Bitcoin as you would any speculative asset: Move cautiously, or not at all, and never invest money that you can’t afford to lose.

 

Bitcoin Cons

Bitcoins main cons are: 

  • Unregulated - The use of bitcoin itself is unregulated, leaving you legally unprotected should anything go wrong.
  • Huge amounts of energy to mine - Bitcoin uses more electricity than the entire country of the Philippines. 
  • Limited practical use - You cannot use your bitcoin to buy things (Unless you live in El Salvador). It must be converted to regular money first.
  • Extremely volatile - Bitcoin prices can drop very quickly and reach very low prices.

 

From a practical point of view, Bitcoin is no different from any other high-risk investment. This means whether or not you should be investing in it depends on your own risk profile and your investment goals.

 

Ethereum: Pros & Cons

 

Ethereum, is the second-largest cryptocurrency by market capitalization, a position it has maintained for some years. Ethereum is a high-risk, high-reward investment. If the value of Ethereum falls, users may lose a portion of their investment, just like any other investment. 

Ethereum’s outstanding performance has attracted both traditional and institutional investors. There are some pros and cons in investing in Ethereum.

Source: Accubits

 

Ethereum Pros

 

Ethereum main pros are:

  • Ethereum Is Decentralised - Ethereum allows people to execute deals and transactions without third parties, helping users deal with restrictive regulations, unfair fees, and censorship worldwide.
  • Always improving - Ethereum has a large community of active developers that actively try to improve the network Ethereum 2.0.
  • Reduced carbon footprint - Ethereum mining uses a lot less energy consumption than Bitcoin.
  • The Hub Of The Crypto Market - Some of the biggest cryptos are still based on Ethereum, such as Uniswap.

Due to the worldwide creation of trading platforms, exchanges, and online brokerages, Ethereum is undoubtedly one of the most liquid financial assets. With very cheap costs, you may quickly exchange Ethereum for cash or valuables such as gold. Simply put, there is more that you can do with Ethereum than Bitcoin.

 

Ethereum Cons

 

Ethereum main cons are:

  • Ethereum Struggles With Scaling - Ethereum has scaling and network congestion issues to attract more cryptocurrency investors.
  • High Transaction Fees - Congestion on the Eth network can cause absurdly high transaction fees
  • No cap supply - In comparison to Bitcoin (capped at 21 million coins), an unlimited amount of Ethereum can exist.
  • Extremely volatile - as with all cryptos they can be highly volatile, which can increase profits but also land you with multiple losses.

Unlike Bitcoin, which serves a single purpose, Ethereum serves as a ledger, a platform for smart contracts, and so on, which can lead to flaws, breakdowns, and hacks. The price of Ether has fluctuated a lot in the past, which might be a major disadvantage for certain investors, especially novices. Furthermore, Ethereum’s fees fluctuate, which is also troublesome.

Now that we’ve discussed the pros and cons, let's jump into the key differences of what makes Bitcoin and Ethereum what they are.

 

Difference #1: Supply Cap

Unlike Bitcoin, Ethereum has no limits on its total amount. There is a max cap on Bitcoin of 21 million, but such restrictions do not apply to Ethereum. However, there are still some limits on the supply of Ethereum that means it would be incorrect to say it has an 'unlimited supply'. It has a cap of 18 million ETH per year (or 2 ETH/block) - 25% of Ethereum's initial supply. Let’s have a look at the supply cap difference for both cryptos.

Ethereum

Instead of miners with the most computing power having the greatest advantage in successfully creating new tokens, those with the largest ownership stakes are now granted the right to mint new ETH through a process called proof of stake (PoS).

With PoS, users are required to put up collateral, or a 'stake' in the form of ETH to become a validator on the network. So the more ETH that is staked the higher the value because there are fewer ETH in circulation, 

In addition, proof of stake removes the costs associated with mining such as electricity and hardware costs, meaning that fewer ETH will be sold by miners. Instead, these ETH will be staked, driving up the value even further.

Bitcoin

There are only ever going to be 21 million bitcoins; that known limit to global supply is a core reason why some investors consider the cryptocurrency akin to digital gold. Unlike gold, however, newly discovered reserves aren't possible, and nearly 90% of bitcoin, or 18.6 million, have already been mined.

The rate of new BTC creation also gets smaller over time through a process known as bitcoin halving, which cuts the pace of bitcoin creation in half every 210,000 block transactions. The last bitcoin halving was in May 2020; at the current pace, the next halving will be sometime in 2024. That covers the supply cap, what about the tech?

 

Difference #2: Technology

The distinction between Ethereum and Bitcoin is that Bitcoin is merely a currency, while Ethereum is a ledger technology that is being used by businesses to create new programs. Both Bitcoin and Ethereum are based on "blockchain" technology, but Ethereum is far more powerful.

Ethereum

Ethereum shines when it comes to developing distributed applications and smart contracts. Ethereum is unquestionably quicker than Bitcoin, with transactions normally taking seconds rather than minutes to complete. While still blockchain based, and operating as a store of value, its fans and evangelists see it as a platform for distributed computing, which comes with its own built-in currency, called Ether.

Bitcoin

Bitcoin blockchain can simply be pictured as a database of accounts (or wallets) with an amount of currency stored in each. Bitcoin excels as a peer-to-peer payment system. There are no tangible bitcoins; instead, there are balances linked to a cryptographically encrypted public ledger. So both differ in tech but what about account management?

 




Difference #3: Account Management

Two types of record-keeping models are popular in today’s blockchain networks. The first method is called the UTXO (Unspent Transaction Output) Model and the second one is the Account/Balance Model. The UTXO model is employed by Bitcoin, and Ethereum uses the Account/Balance Model.

Ethereum

Ethereum uses an account model that debits and credits accounts depending on exactly how much ETH is transacted. As a result, Ethereum’s account model saves computational effort since it eliminates several steps involved in the UTXO model, and is arguably more intuitive and user friendly.

Bitcoin

When a transaction takes place on the Bitcoin network, the protocol utilizes a method that relies on unspent transaction outputs (UTXOs). UXTOs are the amount of cryptocurrency that remains after a transaction is executed — similar to the change you receive back after giving cash to a merchant. Network management is important for the cryptos but what about their prices?

 


Difference #4: Price History

Ever since Bitcoin first came out in the year 2009, its trading and value have been unpredictable. However, because of the success already seen by Bitcoin and the other popular predecessors of Ether, when Ethereum was first launched in 2015, it achieved a stable price for the first year. It has fluctuated a lot since then but not drastically.

Ethereum

When Ethereum’s cryptocurrency Ether or ETH was first launched to the cryptocurrency market in the year 2015, the Ethereum price was 2.77 USD, which instantly dropped to 0.68 USD in the next three days.

Ethereum price did not see a downfall since its inception. Moreover, in 2017, the prices of Ethereum gained an astonishing hike of 10,000 per cent, making it stand equivalent to Bitcoin and the second-biggest name in the digital currency world after Bitcoin.

Bitcoin

The initial or opening Bitcoin price was 0.0008 US Dollars reaching 0.08 US Dollars by the end of the same month. Needless to say, the people who bought it then did not know that they made a very wise investment. Presently the value of Bitcoin is more than the value of Ethereum.

After its launch, for the first few years, the performance of Bitcoin or the Bitcoin price was relatively flat. Like in 2011, when it went from 1 US Dollar in February to 30 Dollars in June to back to 2 Dollars by the end of the year. Such inconstant trends continued till the year 2013. 

Now let's explore the block sizes of each and see how different they are.

 

Difference #5: Block Size

One of the most controversial and the most tricky aspects of a cryptocurrency is the block size. Blocks themselves are batches of transaction data, and the amount of data contained in each block combined with the chain’s block generation speed determines the number of transactions per second, or TPS, that the network can handle.

 

Ethereum

Unlike Bitcoin, the size of blocks of the Ethereums is computed or estimated by the quantity of each of the blocks that can accumulate in themselves as Ethereum carries a gas system in place of transaction fees. In the trading of Ethereum, one block can contain up to 6.7 million of in it. 

Hence it is clear that only a limited transaction can take place per block of Ethereum, which is, up to 6.7 million. It must also be noted that one transaction can consume 21,000 units of gas per block.

Bitcoin

For protecting Bitcoin from a spam transaction, its founder initially set a limit on the block size of a Bitcoin to 1 MB. However, over time, Bitcoin gained a lot of popularity, which demanded a lot more scalability than before. 

Bitcoin currently maxes out around seven TPS. Many feel that increasing the block size is key to bringing Bitcoin (BTC) into mainstream adoption. It is certainly fair to point out that as block size increases, not only can more transactions be confirmed in each block, but also the average transaction fee will drop. 

All of these differences lead up to the same question again and again… Who’s going to be the top dog!?

 

Difference #6: Future Dominance

Bitcoin has not only been just a trendsetter, ushering in a wave of cryptocurrencies built on a decentralized peer-to-peer network, but also has become the de facto standard for cryptocurrencies, inspiring an ever-growing legion of followers and spinoffs. 

Ethereum

Ethereum is one of many but it might just tip Bitcoin over the edge. The imminent arrival of ETH2 has revived talk of the Flippening, the hypothetical moment when Ethereum’s market capitalization surpasses Bitcoin’s. The Flippening has been predicted several times before, but each time it failed to materialize.

Bitcoin

Bitcoin’s market cap is currently almost double that of every other cryptocurrency combined. That margin, however, is near historical lows. Time will only tell if Bitcoin keeps the title of king of all cryptos but as Bitcoin continues to be considered as “digital gold”  it certainly will continue to be the top dog for quite a while...

 


Now Over to You

Despite the above differences, Bitcoin and Ethereum were both born out of a shared endeavour to decentralize economies, industries, and value systems around the world. Both platforms were designed to address these concerns in different but equally important ways.

We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade. 

 

 

Why not start trading Bitcoin or Ethereum on ZuluTrade today?

 

Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.

 

Comments are closed

Trading spot currencies involves substantial risk and there is always the potential for loss. Your trading results may vary. Because the risk factor is high in the foreign exchange market trading, only genuine "risk" funds should be used in such trading. If you do not have the extra capital that you can afford to lose, you should not trade in the foreign exchange market. Forex Brokers and ZuluTrade are compensated for their services through the spread between the bid/ask prices or there may be a cost to initiate a trade through the bid/ask spread. Signing up is totally free, and there is NO contract and NO monthly fees, ever.

This blog is for informational purposes only. This blog is not intended for distribution channels and may not be reproduced or distributed without the permission of Zulu Trade ltd or any of its affiliated entities (“ZuluTrade”). All opinions, news, prices or other information contained in this blog are provided as general market commentary and this report does not contain and it is in not to be considered in any circumstance as market analysis, offer or solicitation to buy or sell any financial instruments, personalized or general recommendation for any investment decision or investment strategy by ZuluTrade, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this blog should not be construed as financial or investment advice on any subject matter. The financial instruments referred to herein may not be suitable for all investors and any investments on such financial instruments requires the assessment by each investor and its counsels of the investor’s investment characteristics, including the investment risks which the latter is willing to assume. This blog has been based on information which has been made public, obtained from sources believed to be reliable, but it has not been verified by ZuluTrade. No representation or warranty (expressed or implied) is made as to the accuracy, completeness, correctness, timeliness or fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever of howsoever arising is accepted in relation to the contents hereof by ZuluTrade or any of its directors, officers, employees. Further, no representation is being made that any results will be achieved, and past performance is not indicative of future performance.