Bitcoin vs Ethereum. The two biggest cryptocurrencies are very different. Learn what makes BTC and ETH unique.
Key Takeaways
- Bitcoin (BTC) and Ethereum (ETH) are the leading cryptocurrencies.
- Both operate on blockchain technology with a focus on decentralisation.
- Bitcoin is primarily a store of value, while Ethereum is functional, enabling the execution of applications and smart contracts.
- Bitcoin uses Proof of Work (PoW), while Ethereum transitioned to Proof of Stake (PoS) in 2022 for faster and more energy-efficient processing.
- Bitcoin is often described as ‘digital gold’ and Ethereum as ‘digital silver’.
- Bitcoin is seen as a decentralised value store and less volatile, as well as known for its fixed supply.
- Ethereum, with more functions, has higher transaction activity, greater adoption rates, and adopted the PoS system.
- Many traders hold both Bitcoin and Ethereum due to their distinct advantages.
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Introduction: Bitcoin vs Ethereum
In the world of cryptocurrency, two projects lead the pack. Bitcoin (BTC), the world’s first blockchain-based digital currency, is the largest cryptocurrency product by metrics like market capitalisation and number of unique crypto wallets holding it. Ether (ETH) follows as the native cryptocurrency used in the Ethereum network.
Both Ethereum and Bitcoin run on blockchain technology, with a major focus on decentralisation. While both have a number of other similarities, they have many differences, as well. Created as an alternative to traditional currencies, Bitcoin aims to be a medium of exchange and store of value; meanwhile, Ethereum was built to facilitate smart contracts and decentralised applications (dapps) via a global virtual machine.
Considering the dominance of both Bitcoin and Ethereum, it’s only natural to compare and contrast them. In this article, we provide a brief overview of Bitcoin vs Ethereum, discuss their similarities, and compare their differences. Each has certain advantages and disadvantages, depending on how one might want to use them.
A Brief Primer on Bitcoin (BTC)
Proposed in 2008 by a person or group of people under the pseudonym ‘Satoshi Nakamoto’, Bitcoin was the first digital currency to successfully decentralise the management of financial holdings and transactions at scale. It began operating in 2009.
Bitcoin takes the ‘middleman’ out of transactions, allowing two parties to operate on a peer-to-peer (P2P) basis, much like a cash transaction in the physical world. However, unlike cash, the market determines the value of Bitcoin. There is no central bank managing the available supply.
In a Bitcoin transaction, rather than using an intermediary of some kind to verify the execution, the settlement is recorded on a public ledger, known as a blockchain. This ledger is encrypted for security but publicly available, and a large network of participating computers verifies it. These computers are known as Bitcoin nodes, and they redundantly store ledger information to ensure the records remain accurate and secure. Some nodes build upon the blockchain in a process known as Bitcoin mining, receiving a small portion of the uncirculated supply of BTC as a reward for their efforts.
As of April 2024, Bitcoin boasts a market cap of over US$1.38 billion, mostly either traded or held as an investment. Many companies accept Bitcoin as payment for the goods and services they offer.
To understand more about Bitcoin, start at our Bitcoin Hub for more in-depth information on the world’s first cryptocurrency.
Ethereum (ETH) — Finding More Uses for the Blockchain
Once the revolutionary idea of using blockchain technology to decentralise currency took hold, people began to think about what else it could do. Drawing inspiration from Bitcoin and other concepts for decentralised currency that came before it, Vitalik Buterin proposed Ethereum in 2013.
Buterin drew inspiration from studying and building upon a number of ideas — including one Nick Szabo proposed in 2005, now known as ‘smart contracts’ — officially launching Ethereum in 2015 with a group of co-founders.
Using blockchain as a kind of distributed computer, Ethereum’s smart contracts and dapps are stored on the ledger in the form of encrypted computer code as they execute. Ethereum’s currency, ETH, provides a means for these smart contracts and dapps to execute.
What Is Ether?
Aptly named, ether (ETH) is fuel for the Ethereum blockchain. Since all transactions, including executable functionality, need to be validated on any blockchain, there is a cost involved, as the nodes providing this validation and security are rewarded for their efforts in the form of fees. For Ethereum, this action is known as ‘staking’, where stakers put up their own valuable capital in ETH in order to participate.
Depending on the complexity and number of transactions required for a dapp to perform its functions, the costs of this validation may vary. Ethereum developers and members of the community refer to the amount of ETH needed for the validation process as the ‘gas price’.
Since it is a cryptocurrency itself, ETH also has a fluctuating value determined by the market.
What Is Ethereum Used For?
Thanks to its executable capabilities, Ethereum offers many features, from single transactions and recurring subscriptions to creating non-fungible tokens (NFTs) and exchanging other cryptocurrencies — even to full applications like games. Furthermore, Ethereum has its own programming language, Solidity, that developers use to create dapps for various executions.
Decentralised finance (DeFi) apps, a special class of dapps that take advantage of the decentralised nature of blockchain for financial activities, are used for cryptocurrency trading, lending, and more. Crypto.com’s DeFi Wallet is built on this kind of technology, providing a number of great features and security while remaining fully non-custodial. Users’ private keys are entirely theirs, which is not the case for custodial wallets.
As part of the cryptocurrency sphere, Ethereum is also popular as an investment and trading vehicle. While it doesn’t have a limited supply like Bitcoin, traders and investors are still drawn to its robust capabilities and are interested in the network’s continued growth and adoption. There are additional factors in the market’s pricing of ETH, as well, such as staking.
Bitcoin vs Ethereum: Pros and Cons
Both Bitcoin and Ethereum share several similarities — blockchain technology, decentralisation, high popularity, and a market-determined value — but what makes them different? Below, we dive deeper into the biggest differences between these two leading cryptocurrencies with direct comparisons.
1. Bitcoin is primarily a store of value; Ethereum is functional
While both Bitcoin and Ethereum have a market value, Bitcoin is primarily viewed as a value store. That means it has capabilities essentially as a form of money, with the added features of security (a secure method of transaction via the blockchain) and decentralisation (no single entity or group has control).
Ethereum has all of that, as well, but it’s also a vehicle for running applications and smart contracts on the blockchain. It has its own form of currency (ETH), but it leverages the blockchain for additional functionality. While Bitcoin offers decentralised currency, Ethereum offers both decentralised currency and decentralised software. To understand this difference better, there’s a great analogy crypto enthusiasts use:
‘Digital Gold’ vs ‘Digital Silver’
Bitcoin is thus far the largest and most valuable cryptocurrency, and its supply is scarce. Only 21 million bitcoins will be created, helping to preserve its value as long as there is demand. While Bitcoin excels at representing value, it doesn’t have many applications other than as a form of money. For these reasons, Bitcoin is often referred to as ‘Gold 2.0’ or ‘digital gold’.
Ethereum, on the other hand, is considered ‘digital silver’: less scarce and therefore less valuable, but with more uses than gold. Compared to Bitcoin, Ethereum is more versatile and adaptable to the needs of application developers, just like silver has a wide variety of applications, like in cars, electronics, and utensils.
2. Proof of Work vs Proof of Stake
Both Bitcoin and Ethereum use the blockchain as a ledger to validate and secure transactions. To achieve both accuracy and security, blockchains use a ‘consensus algorithm’ that helps all nodes understand when a new transaction has been added to the ledger. Originally, Ethereum used the same kind of consensus algorithm as Bitcoin — Proof of Work (PoW) — but that changed in 2022.
Since Ethereum is used for live applications in everyday use, it makes sense that its ledger updates more often than Bitcoin’s. Data from Statista shows that Ethereum was processing about one million transactions per day by the end of August 2023. This scale is enormous compared to the Bitcoin network, which processed 550,000 transactions for the entire month of August.
Because of its much higher scale for transactions, Ethereum experienced significant challenges using Bitcoin’s PoW consensus algorithm, which leverages the blockchain’s encryption for securing data to create a mathematical puzzle. PoW uses a process called ‘mining’ where participating nodes work to solve a puzzle in a process that takes time. This process uses a significant amount of computer processing energy: In fact, Bitcoin uses as much power to operate as some mid-size nations.
In 2022, Ethereum moved to the Proof of Stake (PoS) consensus mechanism through The Merge upgrade. In the PoS system, a group of participating validators are randomly chosen to validate transactions, verifying them if they reach a consensus (the process known as ‘staking’). The PoS system is faster and requires less computer processing power than PoW, though it is still memory-intensive.
Mining vs Staking
The consensus algorithm model works for both Bitcoin and Ethereum as a form of validation and security because participants are incentivised with rewards of cryptocurrency. But there are differences between Bitcoin miners and Ethereum stakers.
In PoW, miners compete to solve a mathematical puzzle, and the first one to solve gets to add the block of transactions to the ledger and receives the reward. Due to PoW’s competitive and lucrative nature, most miners are now composed of technologically sophisticated organisations using specialised, powerful hardware to solve the equation; these are known as mining farms or facilities.
Additionally, Bitcoin halving plays a role in mining. Every few years, Bitcoin reduces the mining reward by half, which is also how it releases new bitcoins into supply. This process is another reason why mining has become less feasible outside of larger organisations, which are more efficient and maintain reasonable win rates.
In staking, stakers are randomly selected and don’t compete against each other to solve a puzzle, which means it requires less computing power. For a chance to be chosen, stakers have to prove they have a stake in doing their job effectively. As an example, in the case of solo ETH staking, stakers have to submit 32 of their own ETH to be locked up while their node is active. During staking, they are unable to access those coins for a period of time, even if the price of ETH drops. They also face penalties if their node doesn’t provide 100% uptime while they are staking.
3. Transaction Times and Fees
Bitcoin’s transaction fees relate to the amount of data in a transaction. During periods where there is a higher demand for block space (or the amount of transactions that can be processed in a given time), these fees spike. Generally, transaction fees have remained relatively stable, though they’ve recently crept up with Bitcoin’s increased popularity.
With that, the time it takes for a Bitcoin transaction to complete varies, from as short as 10 minutes (about the same amount of time it takes to add a new block to Bitcoin’s blockchain) to up to an hour, depending on demand.
Ethereum transaction fees are known as the ‘gas price’, and they tend to fluctuate more than Bitcoin’s. The gas price is directly related to the computing power required to complete a transaction and can increase depending on network activity. Ethereum gives users the ability to prioritise a transaction to be completed more quickly at a higher fee. Generally, users pay the base gas fee — the minimum price — or they set a gas limit (the most they are willing to pay to have the transaction processed).
Even without priority, the transaction completion time for Ethereum is generally much faster than Bitcoin. It takes about 10 to 15 seconds for a block to be added to the Ethereum blockchain, with finality typically achieved within a few minutes. However, that time significantly increases during high-demand periods (high congestion on the network).
4. Security Comparisons
While both Bitcoin and Ethereum are highly secure thanks to encryption and blockchain technology, both have different approaches towards achieving security.
Bitcoin’s PoW system deters attacks because it is highly demanding in terms of computing power and energy. It’s extremely difficult and expensive to leverage enough power and computing resources to overpower enough of the existing Bitcoin nodes for a 51% attack.
Ethereum’s PoS system faces a similar obstacle for bad actors, but it’s monetary. Participants need to stake their own ETH on the blockchain, which can be both extremely expensive and risky, and there are mechanisms in place to disregard a bad actor’s blockchain and penalise their stake. This means they could lose some or all of the ETH they’ve staked while still not accomplishing the goal of overtaking the system.
Learn more about how Bitcoin and Ethereum’s underlying consensus mechanisms work.
5. Price Volatility
One of the primary things to consider with Bitcoin and Ethereum is price volatility (how much the price tends to swing up and down in the crypto market). Depending on a trader’s risk tolerance and trading strategy, they might see greater or lesser volatility as an opportunity or a deal-breaker. All cryptocurrencies are volatile, and Bitcoin and Ethereum are no exception; though, they tend to be more stable in general than less popular tokens. But which one tends to experience more extreme price swings?
A 2022 report from Morgan Stanley noted that Ethereum was more volatile than Bitcoin in the period from 2018 through 2021, experiencing 30% more volatility during this time. Factors like the concentration of ETH in fewer wallets and the release of initial coin offerings (ICOs) built on the Ethereum network may have contributed to its volatility.
Bitcoin vs Ethereum — Which One to Choose?
With the largest market cap and number of holders, Bitcoin has carved out a niche as the decentralised value store of choice. With the benefit of a fixed supply released on a controlled timeline, Bitcoin acts for many as an investment vehicle, and it tends to be somewhat less volatile than Ethereum. It has built a reputation for decentralisation and security, but faces criticism over its energy-demanding PoW system.
Ethereum sees noticeably more transaction activity than Bitcoin thanks to its many functions. The technology rises to the next level in comparison to Bitcoin, making it exciting to those interested in the cryptocurrency space and leading to faster-growing adoption rates. As the smaller of the two leading cryptocurrencies, Ethereum has historically been somewhat more volatile, but its PoS system has newer security features. Since moving to the PoS system in 2022, Ethereum’s power consumption has been much less — and significantly less than Bitcoin.
Both Bitcoin and Ethereum have distinct advantages. There are certain things Ethereum can do that Bitcoin can’t; yet Bitcoin is still the leader of the pack thanks to its maturity and fixed supply. As investment vehicles, they each have their own merits and downsides. That’s why many traders like to hold both Bitcoin and Ethereum.
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