Financial Blog

When we think of crypto, Bitcoin and Ethereum are the first two things that come to mind. Ether (ETH), the cryptocurrency of the Ethereum network, is arguably the second most popular digital token after Bitcoin (BTC).

Ether and Bitcoin are similar in many ways: both are digital currencies, are decentralized, and are using blockchain technology. However, there are also many crucial distinctions between the two most popular cryptocurrencies by market cap.

Here’s the difference between the two:

Bitcoin

Probably the most famous cryptocurrency available on the market, Bitcoin was launched in January 2009 by Satoshi Nakamoto, and introduced the idea of a secure and decentralized form of currency completely independent from local and national institutions like banks. It’s important to know that in Bitcoin, there are no actual coins used, the balances are cryptographically stored as data in a secured public ledger. 

Despite not being the first online currency (hello Blinded Cash, Bit Money, and HashCash), Bitcoin was without a doubt the most successful in its early efforts and, in a way, has come to be known as the predecessor in some way to virtually all succeeding cryptocurrencies developed in the last decade or so.

Ethereum

Blockchain technology isn’t easy to understand, so let’s put it this way: Blockchain is a database that stores in the way of blocks that are then chained together as more data and information are added. As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.

However, one key characteristic of blockchain is that it can be used to create applications that go beyond just enabling digital currency. Enter Ethereum. 

Ethereum was launched in July 2015 and is currently the largest and most well-established, open-ended, decentralized software platform. It enables the deployment of smart contracts and decentralized applications, or dapps, to be built and run without any downtime, fraud, control, or interference from a third party. It comes complete with its own programming language which runs on a blockchain, enabling developers to build and run distributed applications.

Ether is used mainly for two purposes—it is traded as a digital currency on exchanges in the same fashion as other cryptocurrencies, and it is used on the Ethereum network to run applications. According to Ethereum, “people all over the world use ETH to make payments, as a store of value, or as collateral.”

What are the key differences between the two?

• Bitcoin was built to do one thing well—to act as an alternative form of currency by providing a way for people to anonymously transfer value from one to another without a central bank. Ethereum was built as a general-purpose blockchain, allowing for more flexible and varied functions through its smart contracts. As a result, Ethereum is able to do many things well instead of serving solely as a store of value.
• Bitcoin has a limited supply (21 million), while Ethereum has a greater amount of supply (100+ million). This may change in the future.
• Both Bitcoin and Ethereum rely on a processing-power-intensive process known as Proof-of-Work to validate and record transactions which are for security’s sake inefficient by design. The upcoming Ethereum 2.0 will be transitioning its blockchain to a more efficient, Proof-of-Stake system.
• Ethereum block times are currently at about 14 seconds, compared to Bitcoin’s 10 minutes
• Bitcoin is much more widely accepted as a cash replacement. Recently, El Salvador made Bitcoin a legal tender. It’s the first country in the world to ever do so. Meanwhile, Ether can be used as a digital currency, but that is not its primary purpose. The Ethereum platform was built primarily to monetize operations of Ethereum smart contracts and dapps.
• In short, Bitcoin is digital gold, while Ethereum is digital silver.

Which is the better investment?

Cryptocurrency in general is a high-risk investment, so before you start investing (or investing it all if you think you know more than the average crypto enthusiast), make sure you’re willing to tolerate the high levels of risk and volatility.

While neither of these cryptocurrencies is a “safe” investment, Bitcoin may carry less risk than Ethereum because it carries the advantage of having a long track record and greater name recognition. However, the latter may have more opportunities for growth over time.

Whichever option you choose, make sure you’ve done your research and are comfortable with risk. Cryptocurrency isn’t right for everyone, but choosing the right investment can help you make the most of your money.

If you don’t know where to start, we recommend that you learn the basics and fundamentals of investing first. You can start by learning from our investing blogs.