Bitcoin vs Ethereum: The two big cryptocurrencies compared
An in-depth look at what makes the two crypto giants unique and the value they add to the sector
- Bitcoin vs Ethereum
- The mining problem
- The crypto specifics
- ETH vs BTC: Which delivers the biggest gains?
- Could Ethereum overtake Bitcoin?
- Final thoughts
If you are new to the world of digital assets or want to firm up your knowledge, taking the time to understand the difference between Bitcoin and Ethereum is essential.
There are endless analogies that are readily used on Crypto Twitter. One of them is that BTC is the foundation that underpins the industry, while ETH provides the all-important infrastructure that enables transactions to take place seamlessly.
Both cryptocurrencies are quite different from a technical standpoint, as we will explain.
Trade Bitcoin to US dollar – BTC/USD chart
Bitcoin vs Ethereum
The main difference between Bitcoin and Ethereum is their purpose. Bitcoin was the first ever cryptocurrency to be forged into existence. It was designed to get rid of the middleman, allowing individuals full control over their funds. No longer is a bank or payment provider necessary for transactions.
This decentralised mission underpins the entire industry. The crypto world would look very different, if it even existed, without Bitcoin forcing the path.
Ethereum was founded later with a very different objective in mind. The Bitcoin rival was hoping to be much more than a store of value: it wanted to spearhead innovation in the crypto world. Ethereum was giving developers a platform to use blockchain technology to create their own decentralised applications, or DApps. In this respect, it has been compared to a world computer or the next version of the internet.
Ethereum has already fuelled some of the biggest innovations in the sector. Through its ERC-721 token standard, it assisted with the mainstream explosion of NFTs. Coders have also turned to the blockchain to create DeFi platforms, like Aave or SushiSwap.
Each of the two top cryptocurrencies is very true to its original purpose. If you are looking to buy physical goods in the real world with crypto, Bitcoin is usually the preferred option. Meanwhile, Ethereum is the place to be for those looking to interact with exciting DApps. This has given ether much more utility compared to BTC.
Trade Ethereum to US dollar – ETH/USD chart
The mining problem
One factor the two crypto giants have in common – at least at the moment – is the way new coins are minted. They both use proof of work, where computers complete mathematical problems to validate transactions and mint new coins.
It is no secret that bitcoin is an energy-guzzling giant. The cryptocurrency’s energy usage from mining has made plenty of headlines and earned it a poor reputation. Recent analysis has said it uses more electricity than Argentina.
But it is not smooth riding for Ethereum either. Proof of work has proven to be both economically and environmentally unsustainable for the cryptocurrency. Users of the blockchain are familiar with its extortionate gas fees, as it can only process a set number of transactions per second.
You could argue that the one thing that is holding Ethereum back from greatness is the fact that it has been a victim of its own success, meaning that it is struggling to keep up with demand from users. All of this has prompted a rise in so-called ‘Ethereum killers’ such as Polkadot, Solana and Cardano.
Ethereum is aware of the problems plaguing its blockchain and has decided to switch to a proof-of-stake mechanism. When the final upgrade goes live, the number of transactions per second is expected to jump from its current rate of 15 to 100,000. The gas fees are expected to plummet as well.
The cryptocurrency has said this ambitious transition will be fully completed by 2023, but it has been delayed before. Regardless, some analysts are confident that ETH 2.0 could give ether’s price a much-needed boost and put further distance between it and the ‘Ethereum killers’.
The crypto specifics
Bitcoin and Ethereum are also vastly different when it comes to the details of the cryptocurrency. The former has been likened to digital gold, not only because of its store of value purpose, but its ultimately fixed supply of 21 million BTC. Bitcoin’s rarity is part of the appeal: investors want to be part of this exclusive club and its scarcity is driving up the price.
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Bitcoin has baked a decreasing new supply of coins into its core mechanics. Roughly every four years, or 210,000 blocks, the mining rewards are halved. When the coin first launched, miners would unlock 50 BTC from every block, now only 6.25 BTC are minted per block. It is also coming close to its maximum supply with more than 19m BTC circulating the market, or 91% of its fixed amount.
Ethereum does not have a maximum supply. There are already 121 million ETH in circulation. But the new update is set to significantly reduce the supply of newly minted ether, with validators locking away millions upon millions of ETH, cutting the liquid amount drastically.
Despite Ether’s greater circulating supply, Bitcoin has the upper hand with its market cap. With a staggering $398bn to its name, Bitcoin’s market cap is more than double that of Ethereum's $146bn.
This is mainly driven by the price gap. At the time of writing, bitcoin is sitting above $20,000 while ether is only at $1,200.
ETH vs BTC: Which delivers the biggest gains?
While they have their differences, Ethereum and Bitcoin are like twins when it comes to price performance. Both cryptocurrencies saw unprecedented growth in 2021, with the two reaching all-time highs just days apart. Bitcoin broke its price record on 10 November when it hit $68,789.63. Six days later, Ethereum climbed to its all-time high of $4,891.70.
Similarly, the pair entered a bearish trend afterwards that continued into the new year. This downfall was accelerated recently with the crypto crash that saw both now roughly 70% below their November highs.
Looking more closely, ETH has usually managed to outperform BTC. They may follow the same trends but Ether sees better rallies. This is visible even recently. Ethereum was up 63% at the beginning of April 2022 compared with last year’s price, while Bitcoin was down 25%, according to The Block. However, the crash has levelled the playing field and at the time of writing, on 28 June, they have both fallen to 39% below last year's price.
Could Ethereum overtake Bitcoin?
With ETH experiencing a better price performance and rallies, it is not inconceivable that it could one day overtake its rival, especially as the industry is volatile and cryptocurrencies formerly in the top 10 have later found themselves kicked out.
Some crypto experts have predicted that ETH will succeed BTC – an event known in the crytpo community as the ‘flippening’ – which would be partly fuelled by its utility in both DeFi and wider applications.
Ethereum has already overtaken Bitcoin in a quarter of countries in terms of the number of investors, according to a May 2022 study by CoinText.
However, algorithm-based forecasts think a flippening is unlikely. DigitalCoinPrice says Bitcoin will come close to $100,000 by the beginning of 2030, whereas it does not think ETH will pass $7,000 by 2031.
PricePrediction says Ethereum will be hovering around $50,000 in 2030. Bitcoin, however, it says, will exceed the $1m mark in the next decade.
Comparing the two shows how versatile and unique the crypto industry can be, whether it is paying for groceries with BTC or selling art NFTs with Ethereum.
There is no clear winner when it comes to deciding between Bitcoin vs Ethereum. ETH has greater utility, whereas BTC is designed to be a store of value.
Whether it is Bitcoin or Ethereum, choosing which token is superior, if any, will depend on the investor.
Unsurprisingly, the crypto world is split on whether Ether or Bitcoin is better. It’s fair to say that both digital assets have their own distinctive use cases. Just as there are multiple banks, credit card providers and insurance companies, different cryptocurrencies cater to different audiences. Bitcoin was designed to be a store of value, like digital gold. Ethereum, on the other hand, was built for greater utility, almost like a decentralised supercomputer.
Some experts think Ether has what it takes to surpass its rival, especially as there are more use cases for the cryptocurrency. However, algorithm-based forecasters are not convinced and expect Bitcoin to continue its lead. Remember, all cryptocurrencies are highly volatile and both ETH and BTC are currently victims of the bear market, so you should never invest more than you can afford to lose.
Bitcoin was designed to be scarce through its maximum supply of only 21m BTC. This rarity has helped drive the price of Bitcoin higher than Ethereum, which currently has an unlimited supply.
Bitcoin and Ether can be bought from a number of crypto exchanges. PayPal has also allowed its users to purchase both currencies – and pay merchants with them.
Here at Currency.com, we allow you to gain exposure to BTC and ETH through contracts for difference, which allow you to speculate on their price. You can adopt long positions if you believe the value of the currencies will rise or go short if you’re anticipating bearish activity.