Bitcoin vs Ethereum: the two cryptocurrencies compared
Bitcoin vs Ethereum: what’s the difference? We explain what makes each blockchain unique, and the value that they add to the cryptocurrency sector.
If you’re 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’ll explain.
It is worth noting that this article has been produced in the aftermath of a massive correction that substantially dragged down both bitcoin and ether – so the market cap may have changed since then.
One of the biggest differences between Bitcoin and Ethereum lies in the use cases of each blockchain. BTC has been likened to digital gold because its supply has been fixed at 21 million, but there’s a lot more ETH to go around (for now, at least).
Currently, both run on a proof-of-work consensus mechanism, meaning that new coins enter circulation after being mined. Mining cryptocurrencies can be a rather energy-intensive process. Ethereum is currently in the process of switching to a proof-of-state consensus mechanism, where validators will be responsible for approving transactions. Although the operators of these nodes will be compensated for their efforts in the form of fees, they won’t receive new ETH. To ensure that they also act in the best interests of the network, validators will also have to stake 32 ETH from their own wallets – funds that they could end up losing if they disrupt operations.
This ambitious transition may not be completed for some time, but some analysts are confident that this could give ETH prices a much-needed boost – in a similar way to the impact that block reward halving events have on bitcoin. Not only is the supply of newly minted ether going to reduce significantly, but millions upon millions of ETH are going to be locked away by validators – cutting the liquid amount drastically.
Of course, we mustn’t forget that the Ethereum blockchain also boasts some distinctive applications that Bitcoin lacks. As well as offering smart contract functionality, it’s home to a vast array of decentralised finance protocols and non-fungible token projects. You could argue that the one thing that’s holding Ethereum back from greatness is the fact that it’s 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 and Cardano.)
This should be a temporary issue in the Bitcoin vs Ethereum debate. ETH 2.0 is set to usher in the use of ‘sharding’, which will allow transactions to be processed in parallel – dramatically enhancing scalability.
Trade Bitcoin to US Dollar - BTC/USD chart
ETH vs BTC: Which delivers the biggest gains?
So, which cryptocurrency has secured the most-consistent price growth – bitcoin or ether? Although BTC certainly leads the pack in terms of its market capitalisation, ETH has consistently managed to outperform BTC. From the infographic above, you can see that ETH surged by 482% in 2020 – streets ahead of BTC on 300%.
This theme has continued well into 2021. From its starting point on 1 January to the most recent all-time highs, bitcoin has raced up by 122%. Meanwhile, ether shot up from $746 to $4,362 – that’s a surge of 484%.
Of course, it isn’t always this simple. No asset goes up in a straight line. When the cryptocurrency markets suffered a dramatic flash crash on 19 May, ETH’s losses were a lot higher.
Is ether better than bitcoin?
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 like there are multiple banks, credit card providers and insurance companies, different cryptocurrencies cater to different audiences.
Ark Invest’s Yassine Elmandjra recently explained that BTC has the potential to rival gold as a store of value in the long term – and the cryptocurrency could reach parity with the precious metal by 2026. He went on to describe ETH as a “multitrillion-dollar opportunity”. But warned that many of the other thousands of cryptocurrencies won’t survive in the long term – even describing dogecoin as “useless”.
Will ether overtake bitcoin?
A constant source of buzz on Crypto Twitter is how ETH has the potential to ‘flippen’ BTC, meaning that it will eventually become the world’s biggest cryptocurrency.
Although this seems unlikely in the short term, it isn’t beyond the realm of possibility a few years down the line.
Tracy Alloway, a columnist for Bloomberg, recently opined that BTC is at risk of becoming the “AOL of crypto” – especially if its technology ends up being leap-frogged by newer alternatives with more enhanced features.
Because of the Ethereum Foundation, the infrastructure that powers ETH is constantly being upgraded, hence the current transition to proof-of-stake. Make no mistake, this is a high-stakes move that could prove exceptionally disruptive in the event of technical hiccups. Transactions worth a whopping $1.5trn were settled on the Ethereum blockchain in the first quarter of 2021.
How do you buy bitcoin or ether?
Bitcoin and ether can be bought from a number of crypto exchanges. In recent months, 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.
Trade Ethereum to US Dollar - ETH/USD chart
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FURTHER READING: Bitcoin price prediction: what happens next?