Bitcoin vs. Ethereum: Understanding the Differences and Investment Potential

It has been a few years since the debut of Bitcoin, and now hundreds of cryptocurrencies already exist.

10:58 02 May 2024

It has been a few years since the debut of Bitcoin, and now hundreds of cryptocurrencies already exist. While many successful digital coins exist today, Ethereum is the only one that can stand up to the Bitcoin legacy. This cryptocurrency is the second most valuable coin after Bitcoin, which is why genuine free Ethereum sites like RollerCoin are rare.

Despite the popularity of these coins, many people who are new to the cryptocurrency world cannot really tell them apart. This article will provide an overview of the differences between these decentralized digital currencies and their investment potential.

What Is Bitcoin All About?

Bitcoin entered the public eye in 2009. At the time, it was seen as a new fad created by an unknown individual or group, Satoshi Nakamoto.

Bitcoin came in with the novel idea of creating currencies that we couldn’t touch—digital currency. Although it wasn’t the first project with this idea, it was the most successful one. As a result, it is regarded as the father of all cryptocurrencies.

This new currency was outside government control, and it offered transparency, security, and freedom using blockchain technology. Today, Bitcoin is the most widely accepted cryptocurrency, and it is used as a payment medium in many countries.

What Is Ethereum All About?

After Bitcoin became a success, many cryptocurrencies were created, and one of them was Ethereum. Ethereum was created by Vitalik Buterin in 2015 to further push the decentralization agenda in many industries.

This platform demonstrated the blockchain industry's potential, extending beyond a simple currency for value transfer. On Ethereum, developers could build apps powered by Ether, the native token on this platform. The beauty of the Ethereum blockchain is that it's a programmable platform, offering developers a chance to build their projects there.

Differences Between Bitcoin and Ethereum

Although they are both cryptocurrencies, Bitcoin and Ethereum differ in many ways, and they are:

Consensus Protocol

Ethereum uses a proof-of-stake consensus protocol, while Bitcoin uses proof-of-work. The proof-of-work consensus system requires miners to solve complex mathematical problems to validate a transaction. Whoever successfully solves the math problem will receive a few Bitcoins. 

The proof-of-stake consensus chooses its validators based on the amount of Ethereum they are staking as collateral. It’s a more environmentally friendly option compared to the proof-of-work concept.

Scalability

Bitcoin was the first successful attempt at a decentralized platform, so it wasn’t perfect. It could only handle seven transactions per second, which means that congestion was commonplace. All of this makes the Bitcoin network an unscalable one.

Ethereum, on the other hand, tried to correct many Bitcoin inefficiencies. As such, it could only handle up to 30 transactions per second, far more than Bitcoin. This made this platform more scalable compared to Bitcoin.

Purpose of Creation

Bitcoin was created as a digital means of exchanging funds. Ethereum expanded on what a decentralized software platform had to offer, bringing in smart contracts, decentralized apps, and more. So, Bitcoin is primarily a store of value, while Ethereum is used for many purposes, like smart contracts, the development of decentralized apps, etc.

Supply

There are only 21 million Bitcoins in existence, and some of them have been burned. So, each remaining Bitcoin is more valuable than ever.

Ethereum, on the other hand, was created with no maximum supply. So, there should be an unlimited amount of Ether available. However, Ethereum periodically burns some of its currencies to keep its numbers down.

Environmental Impact

The proof-of-work concept that Bitcoin uses is an energy burner. It requires lots of computer power (energy) to solve mathematical problems.

In the end, only one person gets the prize, making everyone else’s calculations a waste. This means that all the power they used was a waste. All of this shows that Bitcoin mining isn’t environmentally friendly.

Until 2022, Ethereum was also in Bitcoin's shoes. That was when this blockchain moved from the proof-of-work concept to the proof-of-stake concept. The proof-of-stake consensus is less power-demanding as it uses staking instead of solving mathematics.

Transaction Time

Ethereum has a faster transaction time than Bitcoin. Instead of taking up to an hour to add new blocks to the blockchain, Ethereum completes it in less than 10 minutes.

Transaction Fees

The Bitcoin network offers stable transaction fees, with slight hikes occurring during peak hours. Therefore, you can say that the transaction fees only change during peak hours.

The Ethereum transaction fees (or gas fees) are unstable. They fluctuate based on the number of visitors and the time of the day (peak hours).

Investment Potential

Bitcoin has carved its place as the coin with the highest investment potential. Although its value fluctuates, advancements in the cryptocurrency industry will cause Bitcoin's value to rise.

Ethereum has established itself as a platform where developers can create their own apps. It has also dabbled into the fields of gaming, non-fungible tokens (NFTs), decentralized finance, and more. This shows that Ethereum is never tired of the business of innovating.

Conclusion

Bitcoin and Ethereum are the largest market capitalization holders in the cryptocurrency industry. They are the most valuable cryptocurrencies, with differences in purpose, transaction speeds, environmental impact, supply, and other areas. If you have cash to spare for investments, don't hesitate to invest in these two coins.