Bitcoin VS. Ethereum: a Brief History

The concept of digital currency is not new. There have been footprints of digital currency dating back to 1983, though in theories only. Since 1983, there have been many transformations, experiments, implementation glitches, as well as decentralization issues in the development of the first decentralized cryptocurrency. In 2009, Bitcoin was eventually launched as the first-ever decentralized cryptocurrency, courtesy of Satoshi Nakamoto. However, even before Bitcoin, there were several other digital coins like e-gold and Digicash among others, which somehow crashed.

Bitcoin was the first-ever digital currency where exchanges could take place without any interference from a third party. Abbreviated as BTC, Bitcoin is today the most valued cryptocurrency in the market.

This market cap is closely followed by the Ethereum blockchain, with Ether as its digital currency, launched four years after bitcoin. ETH was developed by a Russian-Canadian teenager Vitalik Buterin in the year 2013 and took two more years to implement until it was finally launched in the year 2015. Well, Bitcoin predominantly is a coin that can be transferred without third-party interference while Ethereum is a complete network with ledger technology that uses Ether. The Ethereum Blockchain can also be used to issue other tokens.

Bitcoin VS. Ethereum
Figure : An Ethereum and a Bitcoin (Source: Investopedia)

Above is a basic introduction of Bitcoin and Ethereum.

The following are the key differences and similarities between them in different aspects.

Version Updates : With the increasing popularity of digital currency, coins like Bitcoins and Ethereum have also become popular. This invoked several version updates in the coins. Bitcoin till date has been through a total of 64 updates ranging from version 0.3.21 to version 0.21.1. Similarly, Ethereum also went through 17 updates, among which 2 are still in progress.

Market Cap: As of today (18 July 2021), the price of a Bitcoin is $32,057.91 and that of Ethereum is $1974.93 i.e. almost 16 times less than a Bitcoin. Bitcoin is primarily used for monetary purposes, as a medium of exchange or a payable token. Several organizations such as Microsoft and financial services like PayPal and Goldman Sachs accept Bitcoin as payment. The same isn’t true for the Ethereum Blockchain, which is primarily built for running smart contracts with the help of some executable codes. This is one of the primary reasons why Bitcoin is so much more expensive compared to Ethereum. Though, Ethereum is next to Bitcoin in terms of market capitalization, the market capitalization of Bitcoin is still 3 times more than Ethereum. Apart from this, there is a limit of total supply on Bitcoin but the supply of Ethereum is essentially limitless.

Transaction Speed: Though Blockchain technology has gained immense traction in the 21st century, it has been struggling with scalability issues owing to its mammoth network. Bitcoin, despite having a higher market cap, lags significantly in the aspects of transaction and block creation speed.

A block creation time (block time) is around 10 minutes in Bitcoin, while the same will take between 10 and 20 seconds on Ethereum. This is a huge gap and is primarily why users prefer Ethereum as compared to Bitcoin for faster transactions. Additionally, Bitcoin helps execute a meager 7-8 transactions per second while Ethereum can scale up to 15-20 transactions every second. This is also why Ethereum is known to be much more scalable than Bitcoin.

Cryptocurrency Mining: The mining mechanism adopted by both Bitcoin and Ethereum is called ‘Proof of Work’, which is used for validating transactions by the miners. Ethereum however, is switching to the ‘Proof of Stake’ mining/consensus mechanism owing to the Miner Extractable Values (MEV). As of now, we will compare Bitcoin and Ethereum on the current mechanism i.e. Proof of Work.

The underlying algorithm to perform proof of work is quite different for both Bitcoin and Ethereum. Bitcoin uses a part of Secure Hash Algorithm (SHA) i.e. SHA-256 while Ethereum employs Ethash, which is based on Keccak-256 and is very similar to SHA-3. The mining hardware also differs for both Bitcoin and Ethereum. A Bitcoin is usually mined using ASIC (Application-Specific Integrated Circuit), while Ethereum is mined using GPUs (Graphical Processing Units).

ASIC-based hardware is not efficient but is limited to a few cryptographic algorithms like SHA-256. On the other hand, GPU mining is a bit slower, easily available, and more flexible.

Moreover, the programming language used for Bitcoins is stack-based, while that for Ethereum is Turing Complete. A Turing Complete programming language is preferable in cases where more flexibility and generalization is required. But this comes with the added disadvantage of extra delays and more power requirements.

Volatility and Stability: High volatility is a common characteristic in all coins. In terms of volatility, Ethereum is known to be more volatile than Bitcoin. Bitcoin is often marked as a more stable coin as compared to Ethereum. Though many people have also claimed that the price value of Bitcoin and Ethereum are highly correlated i.e. if one increases the other also increases and if one decreases, the other also decreases. However, the scale of fluctuation is higher in Ethereum as compared to Bitcoin; if the value of Bitcoin decreases, the value of Ethereum will also decrease but on a higher scale. For example, say the value of Bitcoin decreases by 5%, there would be 5% decrease in the value of Ethereum. Thus, making Bitcoin comparatively more stable than Ethereum.

Volatility and Stability
Figure :The annual standard deviation of one day price changes in Ethereum and Bitcoin (Source: Reuters)


While Bitcoin is heavily used by many companies as a mode of payment, the underlying network of Ethereum is backing up many industry giants. As a choice of investment, both Ether and Bitcoin lie on the same page. On one hand, Bitcoin provides more anonymous transactions, while Ethereum provides more flexible transactions. While the popularity of bitcoin is evergreen, Ethereum has now started gaining much traction in this decade. This makes both the coins at par with each other. Interestingly, many people believe that Ethereum will overtake Bitcoin in market capitalization value. Towards this prediction, we must stay dumbstruck as the cryptocurrency world is highly unpredictable.

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