Bitcoin and Ethereum are two of the most popular Cryptocurrencies. The anonymous Satoshi Nakamoto created Bitcoin in 2008, and later, in 2013, Vitalik Buterin introduced Ethereum. Although both Cryptocurrencies have some similarities, still, their designs are entirely different from each other.
Before proceeding with either of them, you should understand the critical differences between Bitcoin vs Ethereum. This can help you in providing a better grasp of the whole Cryptocurrencies and blockchain industry. In addition to this, with large open-source communities and significant developments, they are both integral components of the market.
Bitcoin vs Ethereum: The differences
Bitcoin vs Ethereum Video by CNBC
When you talk about the main difference between Bitcoin vs Ethereum, well it begins from their conceptual design. The main aim of Bitcoin is to become a secure and censorship-resistant value system while Ethereum is designed to enable users to build and run applications through the Ethereum Virtual Machine (EVM) on the network.
Bitcoin and Ethereum have various subtle differences, but usually analyzing the main changes requires evaluating the following:
Transaction Schemes
In case, you don’t know, for authenticating transactions both Bitcoin and Ethereum uses public-key cryptography. Moreover, these keys are validly signed by the receiving party that controls private keys for the access of native Cryptocurrencies on each network, BTC, and ETH.
Bitcoin uses a scheme known as UTXO, or you can say ‘unspent transaction output.’ It links all the transactions in a chain of inputs and outputs. Out of which, the unspent outputs represents the ‘funds’ that you can use to unlock a specific amount of BTC using a corresponding private key. Later, you can use these funds to spend as inputs in a new transaction.
If you have BTC, then it doesn’t mean that you own these BTC. However, instead, you have the right to spend a specific amount of unspent transaction outputs in the network. For Public encryption, Bitcoin uses ECDSA as its digital signature algorithm. So, to create a validated transaction, you have to digitally sign the hash of a previous deal with the combination of the recipient’s public key.
However, in the case of Ethereum, it uses an account-based model that is quite similar to the traditional way of checking accounts with a bank. All the information about faster transaction in Ethereum is stored in the Addresses, or you can say public keys. So, an update in the addresses of each account is considered as a state transition. There are two types of accounts in Ethereum:
- Contract Accounts- Contract accounts are smart contracts that you can run by using a code and later program it to receive, store, and contact other accounts present in the network.
- Externally Owned Accounts- Users control externally owned accounts, and by control, I mean that they can send and receive transactions, and sign them using their private keys.
Monetary Policy
The monetary policy of Bitcoin has already set up since its creation in 2008. Now, it has around 21 Million BTC that is governed by the total cap, and every four years, it will divide the block rewards. This means that the mining of bitcoins will consistently release in approximately every ten minutes. The emission rate of bitcoin’s directly relate to mining, and as reward miners receive newly minted BTC. It is similar to winning the lottery in every ten minutes. However, the emission tends to cause economic deflation and relates to a decreasing issuance over time.
Due to high stock-to-flow ratio and rarity of BTC, it is often referred to as ‘digital gold.’ That’s why I am saying that the monetary policy of Bitcoin is one of its most significant advantages.
However, when you compare the monetary policy of Bitcoin vs Ethereum’s monetary policy, I would say that Ethereum’s monetary policy is more fluid and has not been completely set in gravel yet. Moreover, both use a similar mining process in a POW scheme. In addition to this, a difficult adjustment is used to make sure that the blocks are created every 12 seconds instead of 10 minutes. There is a debate going on about the monetary policy of network as it looks to transition to POS or Proof of Stake agreement.
If you look into the market of Ethereum, right now, there are around 104,500,000 ETH available. However, with a falling emission, it is targeting low inflation. Later, Serenity was proposed as a roadmap for Ethereum 2.0. Presently, the emission rate for Proof of Stake is in between a target of 0.5 – 2 percent.
Moreover, when you compare the monetary policy Bitcoin with Ethereum, I would one has the edge over the latter. The only reason for this is that throughout the last several years, Ethereum community prioritize other network components then fixing its monetary policy. So, I think that shifting to POS is a bold move by Ethereum.
Smart Contracts and Scripting Functionality
Bitcoin is a simple scripting language that you can leverage for using useful mechanisms such as certain wallet features and multi-sig transactions. However, the main reason for the creation of Ethereum was to facilitate decentralized applications and Turing-complete smart arrangements on its network.
Ethereum is the first ever created smart contracts platform that stresses on dapps or developers building applications to run on its decentralized virtual machine. Now, don’t compare Dapps with anything else as they are censorship-resistant. In the case of Ethereum, you will see numerous dapps from coin prediction markets such as Augur to collectible games like Cryptokitties since its origin.
However, if you still confused about Dapps, than you can easily understand by imagining a world where you are working but at same time your car is working away and transporting passengers or your computer is utilizing its spare capacity to server your business all over the world.
Mining Developments
The monetary policy of Bitcoin has already set up since its creation in 2008. Now, it has around 21 Million BTC that is governed by the total cap, and every four years, it will divide the block rewards. This means that the mining of bitcoins will consistently release in approximately every ten minutes. The emission rate of bitcoin’s directly relate to mining, and as reward miners receive newly minted BTC. It is similar to winning the lottery in every ten minutes. However, the emission tends to cause economic deflation and relates to a decreasing issuance over time.
Due to high stock-to-flow ratio and rarity of BTC, it is often referred to as ‘digital gold.’ That’s why I am saying that the monetary policy of Bitcoin is one of its most significant advantages.
However, when you compare the monetary policy of Bitcoin with Ethereum’s monetary policy, I would say that Ethereum’s monetary policy is more fluid and has not been completely set in gravel yet. Moreover, both use a similar mining process in a POW scheme. In addition to this, a difficult adjustment is used to make sure that the blocks are created every 12 seconds instead of 10 minutes. There is a debate going on about the monetary policy of network as it looks to transition to PoS or Proof of Stake agreement.
Narrative & Practical Applications
Since the launch of Bitcoin in 2008, it’s story has grown from a digitally bias currency to a high-value covenant story. Now, this digital gold inclines flexibility in the face of determined misconceptions, judgment, and uncertainty. Moreover, outside of the traditional financial realm, it has become a necessary means of value storage and transfer.
Most of the Bitcoin users are usually involved with the legacy Cryptocurrencies professionally, or they were ideologically inspired to use it out of general dislike to fiat currencies. Some use it out of necessity or curiosity. Additionally, the community of Bitcoin stresses robustness, privacy, and censorship-resistance. These community guidelines led to some innovative developments and applications of Bitcoin.
However, on-chain throughput of Bitcoin is not enough to support a digital P2P payments network.
Future Road maps
Future Road maps includes Innovative ideas and upgrades to the core protocols –
Several future Bitcoin upgrades, including the long-awaited incorporation of Schnorr signatures, are focusing on efficiency and privacy enhancements. A massive design space is introduced to make sure that more applications and payment capabilities are ready to use Bitcoin.
Till date, the transition of Ethereum to POS is the most significant development in the smart contracts platform. However, this change will come to effect in multiple steps, and that includes Constantinople upgrade in the future. Moreover, on the horizon, there are other additions for Ethereum. The possible formation of zk-SNARKs into the network can help you improve the privacy and efficiency across the web. So, to enhance the scalability of Ethereum, future bridges can use systems such as Cosmos and Polkadot.
Conclusion
So, to conclude, I would say that in today’s world Bitcoin and Ethereum are established as a Cryptocurrencies. Bitcoin started the trend as the unique digital currency, and now, as a smart contracts platform Ethereum is determined to be the leading foundation for a new generation of applications. Moreover, if you compare, their primary differences, only then you will be able to understand what describes the story and benefits of using both Cryptocurrencies.
In addition to the differences mentioned by me, you will find many more technical differences between Bitcoin and Ethereum. So, as always, I recommend, you to do your own set of research when evaluating Cryptocurrencies.
Bitcoin vs Ethereum Infographic
The following infographic is brought to you by a joint collaboration between bargainroo.com and gutcher.de.
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