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Bitcoin vs. Ethereum

What's the difference?

Updated

Fact checked

Bitcoin and Ethereum are the two biggest giants of the cryptocurrency world. Bitcoin (BTC) was the first coin and Ethereum (ETH) followed a few years later.

There are a lot of similarities between them. Ethereum was initially created as a “hard fork” of bitcoin, so its programming is almost the same. The main difference is that ETH has built-in “smart contract” technology, which bitcoin doesn’t.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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What makes bitcoin and Ethereum similar?

There are a lot of similarities other than the programming.

  • Both coins are valuable: At the time of writing, bitcoin and Ethereum are the No. 1 and 2 coins, respectively, in terms of market cap. They’re the world’s biggest and most valuable cryptocurrencies.
  • Both coins are popular: Even with hundreds of other cryptocurrencies now in existence, bitcoin and Ethereum remain widely used.
  • Both coins are old: Some of the newer coins outperform bitcoin and Ethereum in various ways. Other coins are quicker to transfer, have lower fees or have extra features.
  • Both coins use proof-of-work mining: Mining is how transactions are processed on the blockchain. Back when bitcoin and Ethereum were created, proof-of-work mining was how all cryptocurrencies handled transactions. These days, not all coins use proof of work, and some coins don’t even need mining.

Also, both coins have scaling problems. Because they’re so old, both bitcoin and Ethereum are having trouble with being too popular and having too many people using them.

Having too many users means both can experience slower transactions and higher transaction costs. To solve this, both are also introducing their own different solutions to this problem.

Over the years, both coins have gone their separate ways, but their upcoming solutions to the scaling problem will make them even more different.

The bitcoin solution to the scaling problem

Over the years, bitcoin has had other hard forks that were specifically designed to solve its scaling problem.

The Ethereum fork was designed to add smart contracts. But other hard forks were designed to make transactions faster and cheaper, to help accommodate all the extra users that were arriving, such as Litecoin and Bitcoin Cash.

But the bitcoin as we know it today resisted those hard forks and remained unchanged. Instead, it introduced a system called “SegWit” and has future plans of creating something called the “Lightning Network”.

  • SegWit: A new way of arranging data to make transfers faster and easier. The downside is that you can only use SegWit with certain wallets and certain exchanges. This basically means that bitcoin users have to turn SegWit on and off to use it properly. If it’s turned on, or off, at the wrong time when sending money, traders risk losing their bitcoin. For this reason, most people seem to just keep it turned off.
  • The Lightning Network: A system that basically involves setting up multiple payment channels to go around the blockchain. The idea is to keep smaller transactions off the main bitcoin network. At the beginning of 2018, it was still under development.

The Ethereum solution to the scaling problem

Ethereum’s smart contracts are extremely useful but can also slow down the network, especially when there are a lot of complicated smart contracts with a lot of different steps.

It needed different solutions. Its planned updates include:

  • Plasma: The Plasma update will only broadcast smart contracts to the main Ethereum blockchain after the contract’s completion. Basically, it moves all the complicated and slow parts behind the scenes and only puts the final result on the main blockchain. This could prevent smart contracts, especially more complicated ones, from slowing down the network.
  • Casper: This is a major change. It involves switching from the old proof-of-work mining system to a new and more efficient proof-of-stake algorithm. Rather than having computers solve problems to verify blocks, it will instead have people verify transactions simply by holding ETH in their wallets. It’s an increasingly common mining method for new coins, but modifying an old blockchain like Ethereum is a lot more difficult.

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Founded in 2013, CoinMama lets you buy and sell popular cryptos with a range of payment options and quick delivery.
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Bank transfer (ACH)
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Xfers
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Buy 55+ cryptocurrencies at true cost, earn up to 8% p.a. on holdings, pay with your crypto for cashback at stores, get loans and more with this complete crypto-finance platform.
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cryptocurrencies

Get a US$15 bonus when you trade US$100 or more of any supported crypto. T&Cs apply.
Trade with USD on Binance.US, the American dollar onramp of the world’s largest cryptocurrency exchange. Non-US residents can read our review of Binance's main exchange here.
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Disclaimer: eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro. Your capital is at risk.

Copy the trades of leading cryptocurrency investors on this unique social investment platform. Non-US residents can read our review of eToro's global site here.
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Disclaimer: Highly volatile investment product. Your capital is at risk.
Trade cryptocurrency derivatives with high liquidity for bitcoin spot and futures, and up to 100x leverage on margin trading.
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cryptocurrencies

Buy, sell and trade a range of digital currencies on this high-liquidity exchange – suitable for beginners right through to advanced traders.

UK residents: In addition to normal crypto trading, Kraken offers margin lending. As this is a regulated activity which they are not authorised to offer in the UK, we advise you not to use this service. If you're interested in margin trading, see authorised providers.
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CoinSwitch allows you to compare and convert over 250 cryptocurrencies across all exchanges.
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Buy Bitcoin and other popular cryptocurrencies with credit card or debit card on this digital cryptocurrency exchange.

US residents: Restricted in the following states - NY, CT, NM, WA, HI, AL, VT, FL, AK, NV.
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With options to buy bitcoin and popular altcoins through credit card, wire transfer and more, BitfFyer offers users the choice of paying with cryptocurrency or USD, EUR and JPY.
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What makes bitcoin and Ethereum different?

One of the main differences is that bitcoin is capped at a supply of 21 million. There will never be more than 21 million bitcoin in existence. It’s expected to reach this limit by around 2140.

Meanwhile, ETH has an unlimited supply, but the creation of new coins is very tightly controlled to keep inflation from ruining the coin’s value.

Some other differences are found in the way bitcoin and Ethereum are growing over time, and with the other coins and blockchains they’ve started working with.

For example, a system called Rootstock is being developed as an “attachment” for the bitcoin blockchain. If it works, this attachment will bring smart contract technology to the bitcoin blockchain where needed.

Meanwhile, Ethereum has developed its own industry standard, called ERC20. This is like a set of measurements for cryptocurrency to allow for greater compatibility between multiple currencies.

These standards are very useful. Just like a train needs to be exactly wide enough to ride on its rails, cryptocurrencies need to have exactly the right programming to fit into wallets and be easily transferred.

By creating the ERC20 standard, coins can start off with the right match and more easily become popular and widely used. So far, countless new ERC20 coins have forked off Ethereum, and it’s been one of the main sources of new cryptocurrencies.

Prices: Bitcoin vs. Ethereum

Bitcoin

1
0
Updated: 11 Jul 2020 17:50:39 UTC

Ethereum

1
0
Updated: 11 Jul 2020 17:50:40 UTC

The same but different

Other upcoming developments are also set to make different coins more compatible. For example, the ShapeShift and Atomic Swap systems allow for more seamless exchanging of one coin for another without needing to buy or sell them.

There are also many planned “cross-chain” developments. These are designed to let people connect different blockchains together and transfer coins more freely among them.

Bitcoin and Ethereum started off being very similar and then got very different over time. But now they’re both coming back to meet in the middle with similar features and easier integrations with each other.

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