Cryptocurrencies have always been subject to waves of volatility. But they are steadily rising in popularity and gaining traction among investors around the world. Of the hundreds of cryptocurrencies available on the market today, Bitcoin (BTC) and Ethereum (ETH) are the two most popular and well-known. They have long held the largest market caps and tend to be the yardsticks by which all other cryptocurrencies are measured.
With the price of Bitcoin up by more than 300% over the past 12 months and Ethereum’s value soaring by roughly 700% in the same period, more and more people are entering the BTC vs ETH debate. Each of these digital currencies has its own unique advantages and disadvantages, and it is always wise to conduct extensive research on any investment.
Bitcoin vs Ethereum: The basics
Intro to Bitcoin
Launched in January 2009 and based on a White Paper written by a mysterious entity who calls themselves Satoshi Nakamoto, Bitcoin is essentially the predecessor of every cryptocurrency that has been developed since then. While not the first attempt at an online currency, the underpinning blockchain technology has led to Bitcoin’s continued success. It’s even led to it gaining a measure of acceptance among regulators and government bodies. In fact, many cryptocurrencies — including Bitcoin — are now legally recognised as a medium of payment and a store of value in various countries around the world.
Intro to Ethereum
Launched in July 2015, Ethereum took the concept of blockchain technology one step further by using it to create a decentralised software platform — rather than using it purely for creating a cryptographically secured public ledger. They did this by utilising another revolutionary piece of technology known as “smart contracts”.
With these tiny pieces of self-executing code, developers can build entire applications and even other cryptocurrencies on the Ethereum network. This is often the number one example given to the question of “Why is Ethereum better than Bitcoin?”
However, Ethereum is more likely than Bitcoin to be more heavily impacted by regulatory changes in the future. With its strong ties to the decentralised finance (DeFi) industry, some regulators are concerned that these decentralised and distributable applications offer bank-like services but don’t offer the same consumer protections.
Ethereum (ETH) vs Bitcoin (BTC): The similarities
Before we discuss how Ethereum is different from Bitcoin, we need to discuss their shared similarities. Both of these are digital cryptocurrencies built using ultra-secure blockchain technology. Both use the proof of work model to create new coins and validate transactions. They are also both available from the majority of cryptocurrency apps and exchanges.
Both of these tokens are also decentralised, which means that they are not issued or regulated by a central bank or other authority. Another feature that adds value to each of the tokens is the fact that only a limited quantity of each can ever be generated. However, the proof of work model used to “mine” these coins has an annual carbon footprint that has led to increasing criticism.
Both the Bitcoin and Ethereum networks are relatively slow when it comes to processing transactions, although Ethereum is slightly faster. So while they both have a first-mover advantage, there is a strong chance that they will be superseded by newer, faster and more sustainable cryptocurrencies.
Both face the potential problem of increased regulation from authorities around the world who are trying to find ways to control the sprawling industry. It isn’t clear right now what shape any new rules might take, but their decentralised nature makes them a subject of concern for regulators and governmental bodies everywhere.
The main difference between Bitcoin and Ethereum
So what is the most important difference between Bitcoin and Ethereum? The answer lies in their main purpose. Bitcoin is a purely digital currency that has become recognised as a store of value — effectively digital gold. In theory, it is meant to maintain its worth over time. As the digital currency that is the most widely accepted for payment, it makes sense that it consistently has the highest trading volume.
Ethereum, on the other hand, was designed to be a general-purpose blockchain that allows for limitless functions thanks to its smart contract. This means that ether, the token that the Ethereum network uses, is more than just a store of value, although it can be used as a digital currency. With smart contracts, users can exchange just about anything of value, including shares, real estate, Fiat currencies and more.
Both Bitcoin and Ethereum reward miners every time they add a block to the blockchain. With Bitcoin, this amount used to be 12.5 BTC per block and halved to 6.25 Bitcoins per block in February 2021. This amount will halve again once the next 210,000 blocks are mined. With Ethereum, the reward is fixed at three ether per block and will never change. While both networks currently use proof of work to add a block to the blockchain, Ethereum plans to switch to using something known as proof of stake. With this model, how fast a person can mine or validate transactions in a block is based on how many coins they own. So the more ether they hold, the more mining power they have.
Another place where these two cryptocurrencies differ lies in their transaction fees. With Bitcoin, they are entirely optional, and you can pay a miner extra to pay special attention to your transaction and be added to the blockchain a little sooner. However, the transaction will be added even if you don’t pay a fee. With Ethereum, you have to pay some ether that is converted into a unit known as “gas” in order to drive the computation that will add your transaction to the blockchain.
Bitcoin or Ethereum: Choosing the best buy
Though internet debates rage about which is the “superior” currency or which might supplant the other, the simple truth is that both Bitcoin and Ethereum complement each other. There is no likely scenario where one will totally replace the other.
With regards to which is the better buy, it all depends on your personal investment strategy and how tolerant you are to risk. Cryptocurrencies are a volatile market, and it is essential that you only invest money you can afford to lose. You will also have to do your own research on cryptocurrency investment to be sure that you’re comfortable with all the potential risks involved.
At the end of the day, both Bitcoin and Ethereum will probably be dominating the crypto landscape for quite some time. There is a very good chance that you will decide that both of these digital currencies have a place in your crypto portfolio, and even that there may be room for others like Litecoin or XRP.
Buy and sell ETH and BTC on Australia’s largest cryptocurrency exchange
There are hundreds of platforms spread all around the world that are just waiting to give you access to the many varieties of different cryptocurrencies that are available today. To decide which one is right for you, you will not only need to know what they are but what features matter most to you.
Now that you know some of the core differences between these cryptocurrencies, you are ready to get started with your crypto journey. So sign up with BTC Markets today and get access to our secure platform as well as expert tips and advice on cryptocurrency investment.