What’s the difference?
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 as bitcoin. The main difference is that ETH has built-in “smart contract” technology, which bitcoin doesn’t.
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 differentiated themselves more and more from each other, but their upcoming solutions to the scaling problem will be making them extremely 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, they risk losing their bitcoin. For this reason, most people just kept 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. It’s 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 extremely 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 should 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.
Where to buy BTC and ETH
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
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.