Ethereum vs Bitcoin: What’s the Difference?
Cryptocurrency was born in 2009, but 2017 was the year the masses suddenly took it seriously.
It was a breakout year.
The latter half of 2017 saw a huge boom in cryptocurrency prices. The whole space went nuts.
From a fringe concept to a space worth hundreds of billions of dollars in just a few months.
With the surge in interest came the ‘get rich quick’ crowd…
While most people had at least heard of bitcoin, suddenly there was hundreds of new altcoins – a term for cryptocurrencies other than bitcoin – launched.
The price rises of these new alt coins was spectacular.
Until the inevitable bust came along in early 2018.
Now here’s the thing…
After the recent price falls, a lot of people have now dismissed the crypto opportunity. People who rushed in on a wave of price driven hype, haven’t taken the time to understand the technology.
And after the price falls they’ve now lost interest. A lot of these people won’t come back.
But we’ve been in this space for eight years.
We’ve seen the boom and bust cycles many times over. And each time, the technology just keeps improving.
In our experience so far, the price eventually bounces back to new highs and the cycle begins again.
We believe cryptocurrencies and the underlying technology are going to be around for a long while yet.
It’s akin to the invention of the microchip. An invention which has enabled undreamed off possibilities over the past seven decades.
The main point is this…
It’s still the early stages of the cryptocurrency movement.
So, you’ve got time to get involved.
At a minimum you have to know about the two behemoths of the crypto world – bitcoin and ethereum.
In the beginning…
Between them both bitcoin and Ethereum make up over 50% of the entire value of the cryptocurrency market.
Bitcoin is the most valuable and Ethereum is in second place.
It’s important to understand the differences between them.
This is the basis for understanding the evolution of the cryptocurrency market into the slew of alt coins we see today.
But in the beginning, there was just bitcoin.
In 2008, the anonymous author Satoshi Nakamoto released the famous bitcoin white paper. In it he (or she) described a peer to peer electronic cash system.
The revolutionary aspect of the paper was that it solved an old computer science problem called the Byzantine General’s Problem.
The repercussions of solving this obscure problem were huge.
It was now possible to send something of value electronically without requiring a central party to sit in between the transaction to validate it.
The system allowed two (or more) parties that did not trust each other to transact with each other securely.
That’s why it’s sometimes referred to as a ‘trust-less’ system. You don’t need to trust anyone but you can be sure the result is valid through a mixture of cryptography and the unique ‘bitcoin mining’ design.
If you think about that for a moment, you’ll realise how big the implications are.
Banks, brokers, exchanges, clearing houses, escrow agents, lawyers and many more professions are essentially just middlemen we currently need to do this one function.
The bitcoin white paper now made a new system possible. A system without the need for these middlemen.
On January 3rd 2009 the first bitcoin came into existence.
The so-called genesis block.
And ever since the bitcoin system has been running away in the background of our lives. An important point is that to date, no one has managed to hack the core code of bitcoin.
Nine years in and it’s still proving itself every day.
But here’s the thing…
Bitcoin isn’t very efficient. Operationally it’s quite slow compared to centralised payment channels, it’s deliberately restrictive in what it can do, and because of its decentralised governance structure, any changes are hard to do.
This seems like poor planning. But its actually a core feature of bitcoin. By making it this way, the security and decentralisation of the system is paramount.
But Pandora’s box was now open. And there were legions of programmers keen to push the envelope of what would be possible.
If they couldn’t do it on bitcoin, they’d have to create their own cryptocurrency.
Ethereum vs Bitcoin: Compare the pair
Ethereum wasn’t the first alt coin.
But out of the hundreds and thousands out there, it has been the most successful at creating a unique value proposition for itself.
It was created in 2015. A full six years after bitcoin.
Its co-creator was a 20-something Russian-Canadian wonderkid named Vitalik Buterin.
He described it back then as a ‘decentralised mining network and software development platform rolled into one’ that facilitates the creation of new cryptocurrencies and programs that share a single blockchain (a cryptographic transaction ledger).
What he meant was a blockchain capable of doing a lot more than the clunky bitcoin software could.
The essence of ethereum is to enable smart contracts.
These are actions that are automatically verified and acted on by lines of computer code. Rather than processed manually by humans.
You can see ethereum tackles the same issue, but it adds more capability – and with it more complexity – to the solution.
Because of these unique features, Ethereum became the underlying cryptocurrency that a lot of the new cryptocurrencies were actually launched on in 2017. These are known as ERC-20 tokens and are tokens built on Ethereum platform.
The initial coin offering (ICO) boom of 2017 turbo charged ethereum’s value as it became the de-facto way of raising funds via an ICO.
There are several other superficial differences worth noting…
Whereas bitcoin is hard coded to only have 21 million bitcoins ever, Ethereum has no hard limit on the eventual number of Ethereum.
Bitcoin is currently committed to a proof of work mining system but Ethereum is looking to move to a proof of stake system soon. This is a different way of validating the network. What’s referred to commonly as ‘mining.’
Ethereum wants to be a programming language – referred to as Turing complete, bitcoin is a ‘stack-based language.’
This means ethereum envisions itself as a platform for developers to create new applications on top of. But bitcoin is happy to be a secure and useful protocol technology which people can use if they need it.
It won’t be as flexible but it will do one thing really well.
First step down the rabbit hole
In a way bitcoin and ethereum aren’t competitors.
They have different missions. At times these overlap and compete but at other times they exist on different planets.
This is something you see a lot in cryptocurrencies. A world where the technology behind each crypto is always evolving.
Both these cryptocurrencies are an essential starting point for understanding the impact of cryptocurrencies on the world.
Bitcoin and Ethereum are your starting point for a journey down into the rabbit hole of cryptocurrencies.
By understanding these two, you can start to understand the nuances of other cryptocurrencies you come across.
We’re witnessing the creation of a new world.
A world where everything is different from the reality you live in now.
But if you’re ready for the journey, then hopefully we’ve helped start you out. Now you know how to buy cryptocurrency, the question you should ask is, what cryptocurrency should I buy?