What are the differences between Bitcoin and Ethereum?
Bitcoin and Ethereum are the best known cryptocurrencies in the world, but although it seems that we are talking about the same thing, they are not the same at all.
The world of cryptocurrencies is volatile and teeming with investors looking for the best possible performance. Bitcoin has gained a lot of ground in recent times but it is not the only brillant option, we also have Ethereum. Although they are both working on a chain of blocks, they are not the same at all since each has a series of different characteristics.
Bitcoin is accepted by the vast majority including payment gateways, banks and institutions and is considered as an international digital currency, while Ethereum is only accepted for transactions from digital applications or Dapps that run on its own network. Below we expand more details of each cryptocurrency.
Bitcoin, the first to hit the market
Bitcoin was the first cryptocurrency to hit the market with blockchain technology. Although most of the media, central banks and experts consider it illegal and with a lack of transparency, it is not like that. Its technology makes theft or manipulation difficult since the entire decentralized network must authorize each transaction.
It can be traded on the open market and any individual can lend computing power to the network (mining) and receive payment for their harvesting.
Halving Makes Bitcoin a Deflationary Asset
Bitcoins are limited, which makes it a deflationary asset. The maximum harvest is capped at 21 million. They are incorporated into the protocol of halving or in other words; paying miners less after reaching an established milestone. These types of events generate great volatility, so traders must be attentive to them.
Bitcoin mining uses the Proof of Work (PoW) model using the HashCash algorithm and the SHA-256 hash function to perform computing work. This is only possible with ASIC miners due to the enormous computational power of the network.
It generates a new block approximately every 10 minutes, undergoes difficulty adjustments every 2016 blocks (14 days approx.) and pocesses a halving at every 210,000 blocks (approximately 4 years). Currently, the generation of coins for each new block mined in Bitcoin is 6.25 BTC.
The commissions for each transaction depend on its complexity, since its size affects the space occupied by each transaction. The high demand will make the supply of spaces insufficient. Therefore, those who pay the most satoshis (the lowest BTC decimal unit) commission per byte will be taken into account. In other words, at those times the commissions to confirm a transaction will be high.
The transaction handled by these funds can only be spent after 100 confirmations (approximately 16 hours).
The scalability is limited currently to about 7-8 transactions per second.
The blockchains occupy about 300 GB. To avoid scalability problems, it uses secondary layer solutions like Lightning Network and on-chain solutions like Taproot and Schnorr.
Bitcoin was created with limited smart contract functionality exploiting its potential, thanks to the Bitcoin Script. This language has a series of OP_CODES that are processed by the nodes and allow us to program logic in the execution of the transaction itself.
In addition, it does not natively have an intermediate language that simplifies development, which makes programming more complex.
Ethereum: process similar to bitcoin
Ether is the name given to the cryptocurrencies created in this environment, which is also managed using blockchain technology.
The mining process is similar to that of bitcoin but the miners are paid for this process and it does not have a limited amount of ethers that can be produced, so it is an inflationary emission. But it has an inflation control that prevents it from exceeding 2% per year.
It uses the same test as bitcoin but uses the Dagger-Hashimoto (Ethash) algorithm and the Keccak hash function. At first it was also using ASI, but since 2018 it has been using Antminer E3.
It generates a new block approximately every 10-20 seconds, it undergoes continuous difficulty adjustments and has no halving. Its emission value decreases according to a consensus reached in the community. Currently, the generation of coins for each new block mined in Ethereum is 2 Ether.
In Ethereum the scheme is similar but we are talking about Gas or computing power to consume within the engine called Ethereum Virtual Machine (EVM). A transaction cannot exceed 21,000 Gas. The smallest possible unit is called a Gwei. The formula between these points gives us the following calculation:
- Cost Tx (ETH) = ((Gas TX * Cost Gas) * 0.00000001) * Cost Ether
In Ethereum the balances are available after having completed 30 confirmations (approximately 7 minutes).
Scalability goes up to 16-20 transactions per second.
Blockchains take up about 5000GB or 5TB and growing. To solve the problems it provides native on-chain scalability.
They are different assets that respond to different needs and functions
Bitcoin is deflationary and Ethereum is inflationary. Based on a purely financial aspect, which one is more reliable or offers better investment opportunities?
The monetary protocol is different in each of these crypto assets. Despite the fact that both could be considered as Infrastructure assets, their functions are totally different and thus must be understood from an investment point of view. Bitcoin (BTC) represents a reserve asset that allows coverage against inflation and has properties that assimilate it to digital gold. On the contrary, Ethereum is a Blockchain where value is created and works as a layer to build a multitude of applications. Ether (ETH) in that sense is a utility token because it works like gas.
Bitcoin has the “halving” mechanism so that the supply does not run out quickly. How effective is this process to avoid reaching the limit?
The halving is a system by which the reward given to the miners who provide, in return, the necessary security to the network. This incentive system is decreasing in time to the point that, once all the bitcoins established in the protocol have been issued, the fees for the operations will be the only remaining payments to those miners.
Why has Ethereum failed to catch up with Bitcoin’s popularity?
Ethereum does not have the same function as Bitcoin as we have seen until now. However, it incorporates a great utility that makes it very valuable because it allows the programming on its Blockchain. Smarts Contracts run on this network and allow the current development of fields such as Decentralized Finance or NFTs, which are ERC721 tokens that also work on Ethereum. They are different assets that respond to different needs and functions.