Blog Crypto Ethereum vs Bitcoin: How Do Their Blockchains Compare?

Ethereum vs Bitcoin: How Do Their Blockchains Compare?

date May 12, 2022 time 5 min read 485 views

Should you look at it as “ethereum vs bitcoin” or is that even the right approach? The best way to decide is to understand the blockchain technology behind both protocols to figure out which one you think will go the distance—or maybe you’ll decide you like both. There are some clear differences between Ethereum and Bitcoin, but they both play an essential role in crypto.

When a beginner gets interested in crypto investing, one of their first questions will inevitably involve bitcoin and ethereum. The debate is almost as old as cryptocurrency itself, but we won’t be speculating on which is the best buy. We’ll focus on the mechanics of their blockchain technology. And it’s not all about weighing up the similarities and differences to see who comes out on top—in many ways, the two blockchains are complements and not competitors.

Bitcoin vs ethereum: How do they stack up?
Bitcoin vs ethereum: How do they stack up? (Source: Pixabay)

While bitcoin deserves credit for being the crypto frontrunner and being the most valuable crypto (in terms of market price), you’ll often find the crypto community praises ethereum more for its technology. To see how the two protocols weigh up, let’s look at them individually.

Bitcoin overview

Let’s start off with the most famous cryptocurrency of all: Bitcoin. Its creator, Satoshi Nakomoto, launched the world’s most famous cryptocurrency with the aim of providing a decentralized way for people to make payments, meaning they wouldn’t have to rely on centralized authorities like banks. If you don’t want governments or big financial institutions prying on your money, then bitcoin is a great solution.

This is made possible by Bitcoin’s innovative use of blockchain, which replaces a bank’s database of transactions with a public ledger powered by “nodes” (computers in the network). Each time a transaction is made, a new block is added to the chain, meaning everyone can see activity taking place. However, the identities of those who made the transactions remain anonymous.

Bitcoin gained traction among those who don’t want traditional financial institutions and governments to access all our information. It also inspired countless other crypto innovations. One of them is Ethereum.

Ethereum overview

The first difference between Ethereum and Bitcoin is what they were designed for. While bitcoin was designed as an alternative currency, Ethereum isn’t really meant to be a currency at all. Despite falling under the “cryptocurrency” category, its principal function is to power other apps, from NFTs to gaming.

Ethereum and Bitcoin both use blockchain technology, but Ethereum focuses on applications and smart contracts.
Ethereum and Bitcoin both use blockchain technology, but Ethereum focuses on applications and smart contracts. (Source: Pixabay)

The Ethereum blockchain achieves this partly through the use of something called a smart contract. A contract that makes it possible for goods or services to be distributed only when the funds are transferred. This takes away the need for a third party that oversees everything, and makes the applications of crypto much more far-reaching. 

Not only can we make payments using a cryptocurrency like bitcoin, but we can also use Ethereum apps to take out a crypto loan or use a crypto investing platform (along with many other non-financial applications). 

As for the native token itself, ETH is mostly used for making transactions within the apps on Ethereum.

Ethereum vs bitcoin comparison

Now, let’s summarize what we’ve seen so far by carrying out a complete comparison of bitcoin vs ethereum.

The two blockchains have plenty of similarities. They’re both committed to decentralization, and they both use public ledgers. However, they have different ends in mind for those blockchains.

Bitcoin hosts an alternative currency, while Ethereum intends to take things further by using smart contracts to host applications.

Bitcoin and Ethereum share similarities and differences, but ultimately there’s no need to choose between them.
Bitcoin and Ethereum share similarities and differences, but ultimately there’s no need to choose between them. (Source: Pixabay)

This is exactly why the two blockchains are complementary: If crypto is the future, we’re going to need both a currency to use for transactions and a multitude of applications we can use for other services. The future is unlikely to contain a single cryptocurrency and far more likely to feature different platforms.

There are also some technical differences between the two protocols. Bitcoin uses an algorithm called SHA-256, while Ethereum uses Ethash. Ethereum can process transactions in a matter of seconds, while bitcoin transactions typically take around fifteen minutes.

Proof-of-work vs proof-of-stake

The public ledger on the Bitcoin blockchain is made possible by the proof-of-work protocol, which is a way of verifying transactions without relying on a third party. Without it, dishonest individuals in the network could manipulate the system to spend the same money twice or carry out other illegitimate transactions. 

Through the proof-of-work protocol, bitcoin miners compete to find the answers to cryptographic protocols, allowing them to reach a consensus. Because so much power is required to do so, it literally provides proof of work. 

Like bitcoin, Ethereum originally relied on a proof-of-work system to verify transactions. However, due to the environmental issues and scalability problems posed by the vast energy consumption, developers are now transitioning to Ethereum 2.0, which will follow a proof-of-stake system. Through staking, nodes put down some of their ETH as a kind of collateral as they verify transactions; they’ll earn rewards or penalties depending on performance.

Some believe Ethereum’s commitment to innovation and efficiency could help it to get ahead—but that doesn’t mean Bitcoin will fall out of the race completely. 

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George Schooling

George Schooling

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