What’s Bitcoin?
Bitcoin was the world’s first cryptocurrency, created and launched by Satoshi Nakamoto in 2008. There were numerous attempts to develop a practical and widely recognized cryptocurrency before Bitcoin came along. However, Bitcoin has held firm and catapulted cryptocurrency into mainstream popularity in recent times.
Bitcoin remains the world's largest cryptocurrency by market cap, despite high fluctuations in price. An interesting characteristic of Bitcoin is its limited supply––Nakamoto incorporated an algorithm into Bitcoin's code that restricts Bitcoin's total production to 21 million coins. After Bitcoin reaches this limit—estimated to happen in 2140—no more coins will be mined or generated, unlike other currencies such as the U.S. dollar, which had 40% of its supply printed in the past two years alone, dramatically increasing its supply and leading each dollar to be worth less. This characteristic in part makes it a valuable digital asset, as the first digitally scarce asset.
Other features make Bitcoin an appealing alternative to traditional financial systems. Bitcoin is decentralized, ensuring no central authority supervises or gains control of the Bitcoin network. Instead, each transaction is verified on a peer-to-peer (P2P) network across a global web of computer systems. This protocol keeps all its users’ information private and secure.
Bitcoin has inspired many other cryptocurrencies and blockchain networks, all of which have tried to usurp Bitcoin’s position at the top of the crypto ladder by offering various unique features, products, and services.
What’s Ethereum?
Ethereum is the second-largest cryptocurrency network. Contrary to popular belief, Ethereum is not a cryptocurrency. Instead, Ethereum is a blockchain network that houses its own native cryptocurrency, ether.
Nakamoto's original intention for Bitcoin was to create a digital currency that transforms the world's idea of financial instruments that people can use instead of traditional fiat currencies, such as the U.S. dollar or the euro.
Like Bitcoin, Ethereum aims to be a viable alternative to existing fiat money. However, Ethereum is not just a cryptocurrency used as a medium of exchange. Instead, it allows users to construct dApps (decentralized applications) on top of it for various use cases. These dApps have similar characteristics as bitcoin, as they’re trustless, permissionless, and completely accessible. dApps is an umbrella term that incorporates NFTs (non-fungible tokens), DeFi (decentralized finance), and smart contracts (digital contracts that automatically activate if certain predetermined conditions are met between two parties).
Ethereum seeks to change how internet-based services work by providing users greater control. Bitcoin, at this point, solely focuses on being the superior form of money, without this additional functionality
Similarities
Bitcoin and Ethereum are the world's two largest and most popular cryptocurrencies. They lead the cryptocurrency charge in terms of market cap, wallet users, and trading volume.
The similarities don't end there. Bitcoin and Ethereum are decentralized in nature, meaning they aren’t controlled, managed, or regulated by a central authority like the Federal Reserve System or the government. Both have their own decentralized blockchains with native cryptocurrencies, providing crypto wallet services for digital storage and using seed phrases and cryptography to ensure safe and secure transactions.
Blockchain technology uses a global network of computers called nodes that verify and add each transaction to the blockchain as proof of validation. Each node has access to a copy of the blockchain's network to ensure the system can never be falsified or replicated.
Besides operating on decentralized blockchains, using open-source software and cryptographic encryption, and housing native currencies, Bitcoin and Ethereum are significantly different in terms of functionality. Let’s explore the differences between both cryptocurrencies in detail.
Differences
Use cases
As previously stated, Bitcoin focusses on solely being the superior form of money, without this additional functionality of smart contracts and tokens which exist on Ethereum.
While both networks allow developers to build ontop of them, leveraging the blockchains for data storage, in Ethereum, application developers can create their own tokens to govern their applications. These include "standards" like ERC-20 and ERC-721, which correspond to tokens like DAI and UNI and NFTs respectfully.
Additionally, Ethereum allows for smart contract programmability. Developers can make these applications can utilize Ethereum like a global computer, programming contracts which execute automatically without a centralized party. This enables several use-cases which had previously required centralized intermediaries such as DeFi and 2 sided marketplaces.
Bitcoin supporters will argue all this extra functionality is superfluous and dilutes the true innovation of better money. They argue these “bells and whistles” compromise the integrity of the blockchain. Ethereum supporters argue that these additional functionalities are necissary.
Market cap
Market capitalization, or market cap, is a metric used to assess how popular or valuable a cryptocurrency is on the crypto market. You can calculate a cryptocurrency’s market cap by multiplying the price of one coin by the number of total coins in global circulation.
Bitcoin’s market cap is around $463 billion, with more than 19 million coins in circulating supply, while Ethereum’s is approximately $233 billion, with close to 122 million ether in global circulation (at the time of writing).
This means that the same sized trade on Ethereum will affect the market twice as much as Bitcoin.
Issuance
Issuance refers to the creation of new coins. Cryptocurrency issuance uses various methods depending on the conditions and protocols outlined by a cryptocurrency's developer.
Bitcoin and Ethereum both reward individuals in their native currency for guaranteeing network security. However, the amount that individuals receive and whether or not some crypto is burned differs. In Bitcoin, miners receive a fixed amount for every block. This amount halves around every four years, leading to a maximum potential supply of 21M.
Ethereum’s issuance model is more complex, with the reward per verification differing according to mathematical equations. Ethereum also burns or destroys some of its currency in every transaction after a recent upgrade. Ethereum may even become deflationary if the blockchain receives a significant amount of activity.
Consensus mechanism
Consensus mechanism is a process to ensure all peers on a blockchain remain honest with their validating actions when verifying transactions. PoS and proof-of-work (PoW) are examples. Peers are rewarded for their efforts in a way that makes the system more efficient, allowing the mechanism to eliminate fraud.
Bitcoin uses a PoW consensus mechanism, as transactions are validated through mining. Ethereum currently uses a PoW consensus mechanism but will soon shift to a PoS mechanism in Ethereum 2.0, where users must "stake" or "lock up" their ETH to become eligible to validate ETH transactions.
Decentralization
Decentralization eliminates the oversight of a central authority or intermediary, so there’s no entity to regulate or manage the blockchain and its users' actions. Remember, Bitcoin and Ethereum both function on decentralized blockchains.
However, some claim Bitcoin is “more” decentralized than Ethereum, primarily owing to the DAO hack on Ethereum’s blockchain in 2016.
A DAO, or a decentralized autonomous organization, is a collective where each user is accountable to all other DAO members, eliminating the need for a regulatory body. Instead, DAOs function because of their members' contributions in terms of investments and votes that enable decision-making. DAOs are often built on top of decentralized blockchains like Ethereum.
One of the earliest DAOs in existence, simply called “The DAO,” raised $150 million in ether through a sale meant to last 28 days. However, the DAO was compromised due to its source code flaws, with the hacker stealing more than one-third of the funds.
Ethereum’s co-founder Vitalik Buterin added a piece of code to the mainnet to stop the hacker from transferring stolen ETH. However, the hacker or an individual impersonating them wrote an open letter stating the money was "legally taken" in compliance with the DAO's smart contract. As a result, many have raised concerns over Ethereum’s DeFi services, which are the services and products Ethereum offers through its applications and smart contracts.
Is there a correct answer?
Finally, which of the two is better? This depends on what you’re looking for. Both offer vastly different services that serve a wide variety of demands and are the largest and most popular cryptocurrencies in the world for a reason.
That being said, they aren’t the only cryptocurrencies that exist. The crypto space is a growing ecosystem that houses cryptocurrencies that excel where even Bitcoin and Ethereum may lack.
One such cryptocurrency is Worldcoin. At Worldcoin, we value your privacy and anonymity, so you never have to worry about a hack or someone duplicating your money. We are confident of our failsafe approach and want to share it with the world by providing each human with their own Worldcoin for free.
We’ve put a lot of research and development into our cryptocurrency, so stay tuned for Worldcoin and other news in the cryptocurrency space by subscribing to our blog!
