Until the 30th of July 2015, there was no real competition to the dominance of Bitcoin in the cryptocurrencies industry. While many coins came into the market soon after Bitcoin’s launch in 2009, we could generally say that most of these were merely spin-offs from Bitcoin’s protocol.
To understand the primary purpose of cryptocurrencies would be to look at the main title of Bitcoin’s whitepaper: A Peer-to-Peer Electronic Cash System. A cryptocurrency is just a decentralized digital currency created using cryptography on a blockchain administered by the people instead of a government or any other authoritarian-like organization.
Since Ethereum became available on the 30th of July, 2015, it has become the second-most traded crypto after Bitcoin, mainly because Ethereum proposes to be more than just a digital currency. We should expect Ethereum’s influence to grow tremendously in a few years time. While holding about 12% of the market share currently, due to its coveted second spot, many analysts and enthusiasts look to find similarities and distinctions between the two coins.
The similarities between Bitcoin and Ethereum
At their cores, both coins are just digital currencies available on mainstream crypto exchanges. Any holder of Bitcoin or Ethereum can easily convert these coins to fiat currencies, store them in wallets, and transact with as a medium of exchange, if merchants accept them, like regular money.
Fundamentally, they are both decentralized, meaning they aren’t created by any governments or central authority anywhere in the world. They achieve this feat by being computer-mined by miners on their respective blockchains through a proof-of-work system. This term merely means that miners attempt to create a new block through computational mining, which is to solve highly complex mathematical equations through hash functions. All users in the blockchain have proof that each block is valid.
The differences between Bitcoin and Ethereum
We can look at some of the more nuanced, technical aspects of Ethereum and, more significantly, the broader uses of both coins.
Main technical differences
Supply: Satoshi Nakamoto, the pseudonymous founder of Bitcoin, coded the coin’s network on the SHA-256 algorithm to only produce 21 million coins in its lifetime. This figure is possible through the mechanism of halving, which occurs roughly every four years. With the halving of mining rewards, the supply of the coins also halves. As of the 05th of October 2020, there are approximately 18.5 million BTC in circulation, which is about 88% of the total supply. The expected subsequent halvings would ensure we are still on track to reach the 21 million figure by roughly 2140.
On the other hand, Ethereum technically has an infinite circulating supply with no halving coded in its algorithm, Ethash. Already more than 100 million ETH are in circulation.
Block time and reward: The time it takes to form 1 BTC is significantly longer than 1 ETH. The approximate time to create one a Bitcoin is 10 minutes, a stark contrast to Ethereum’s estimated 13 seconds.
Main use differences
The use cases for both currencies make for interesting future endeavors, especially for the latter. As outlined in its whitepaper, Satoshi originally developed Bitcoin as a new form of digital money that could be exchanged peer-to-peer without any government control whatsoever. Since its inception, Bitcoin has very successfully fulfilled that purpose, which has made the coin extremely valuable in the marketplace. Though currently, Bitcoin is more linear in its use cases, which is being purely digital money.
Ethereum, on the other hand, saw and took advantage of the unrealized potential of blockchain technology, making it a more dynamic proposition than its counterpart. In essence, we can do a lot more with Ethereum than we could with Bitcoin. The organization simply describes its open-source platform as one that ‘’can codify, decentralize, secure and trade just about anything.’’
Aside from being a digital currency like Bitcoin, Ethereum offers revolutionary features such as ‘smart contracts’ and ‘decentralized applications’ (dApps for short). Smart contracts are self-executing digital contracts coded on the blockchain that can store anything of value such as money, content, and property. In keeping with the theme of decentralization, these contracts can run efficiently without the need for a central authority or middleman and are said to be very resistant to fraud or any other interference. Smart contracts are what make dApps possible.
These smart contracts have also largely been responsible for ICO (initial coin offerings) tokens. The latter is prominent in the crypto space, allowing anyone to piggyback off Ethereum’s cryptocurrency network by creating their own tokens. Such is their role in this regard that research estimates at least 1900 tokens exist using Ethereum’s network. These features have attracted the attention of large companies such as Microsoft, JPMorgan, and Amazon for collaborations and innovations.
Analysts continue to predict that perhaps Ethereum may become more dominant than Bitcoin in the next few years due to its diverse capabilities and technological uses. It may be detrimental that we have not definitively identified Bitcoin’s original founder, making it still a more mysterious currency. On the other hand, Ethereum’s founder is well-known in the industry, along with several of its developers and supporters.
This fact could be one of the numerous reasons people may trust Ethereum more. Bitcoin has long had issues with scalability, and some of its most faithful proponents have not wanted to change much with the coin. This resistance has created many factions proposing all kinds of hard forks from its blockchain. Ethereum does not have a scale problem, and this alone could make it the foremost cryptocurrency in the future.