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Introduction
The DeFi market is now a $3 trillion industry with thousands of cryptocurrency variants and dApps projects. Much of the crypto market development can be attributed to the two main cryptocurrencies namely Bitcoin and Ethereum. Where Bitcoin is the first crypto and blockchain, Ethereum is the pioneer of decentralized applications.
This article is going to discuss in detail the various aspects of the Bitcoin and Ethereum blockchain and how they are fair against and parallel to each other.
What is Bitcoin?
Bitcoin is the flagship cryptocurrency and blockchain project. Bitcoin blockchain was the first decentralized, permissioned, and open-sourced network that was introduced by a mysterious founder.
Satoshi Nakamoto is the pseudonymous creator that is believed to be an individual or a group that created the Bitcoin blockchain. The Bitcoin blockchain made its public debut in 2009 when Nakamoto sent the first 10 Bitcoins as a gift to the famous computer scientist and cypherpunk Hal Finney.
At the time of Bitcoin’s introduction, personal computers and mobile phones with an internet connection had been adopted on a mainstream level. Therefore, many prominent computer scientists of the time were working on different currency projects that were secure and more suited for e-commerce.
However, Bitcoin gained considerable traction in the tech echelons on account of its cryptography-based network that was impossible to hack and very secure for making online transactions without support from a central banking network.
How does Bitcoin Work?
Bitcoin is based on Distributed Ledger Technology. Satoshi Nakamoto also published the Bitcoin Whitepaper to brief about its technical and economic aspects. Nakamoto has introduced Bitcoin as an alternative to fiat currencies.
The Bitcoin Whitepaper also provides various technical calculations and discusses in detail its prospects. The Bitcoin blockchain is open-sourced which means that anyone can use its core programming structure and create new programs.
On the other hand, Bitcoin uses a Proof of Work consensus mechanism that allows the miners to verify the transactions on the Bitcoin blockchain and avoid any type of fraudulent activity. Bitcoin maximalists also follow the original Bitcoin plan mentioned in the Bitcoin Whitepaper, which intends to convert Bitcoin into a unit of account.
Advantages of Bitcoin
Here are some of the most visible benefits of Bitcoin that helped it gain international popularity and give birth to the cryptocurrency market:
Secure Payments
Bitcoin is considered one of the safest ways to conduct transactions. After 12 years of its introduction and despite being a fully decentralized and open-sourced project, there have been no reported cases of hack attacks or exploits on the Bitcoin blockchain.
There is a hypothetical scenario called the 51% attack, where miners who have control over more than 50% of Bitcoin hashrate can manipulate the blockchain records and use every Bitcoin twice. However, thus far Bitcoin community has prevented this scenario.
User Identity Protection
Bitcoin is a decentralized network therefore regardless of the size of the transaction it does not need user identity verification. For the same transaction, a user would have to provide government-issued documents and verify their real identification and personal information for a centralized financial network such as bank.
Instant Transactions
Bitcoin is a digital ledger therefore the transactions on the Bitcoin network are performed in a limited time in comparison to banks. A Bitcoin transaction can get verified and completed as soon as the miners have solved the cryptographic puzzle and added it to the block.
Direct Transfer
Bitcoins allows people to interact with each other directly rather than needing a centralized intermediary between them. In the case of normal online transactions, people depend on third-party financial networks that charge them a fee for their services. However, with Bitcoin people can securely perform peer-to-peer transactions.
Liquidity
Bitcoin is a fairly popular cryptocurrency and it is the most popular cryptocurrency in the world. Everyone who uses social media has heard about Bitcoin and is aware of its massive per-unit value.
Therefore, both DeFi and TradeFi companies have enlisted Bitcoin on their platforms. Recently, some banks have been granted permission to add Bitcoin to their national reserves. Therefore, for Bitcoin investors, there has been no shortage of liquidity.
Remittance
Some giants operate as monopolies in the world such as Western Union. However, these services are often expensive and it takes a lot of time and effort to send money using them. In comparison, Bitcoin is a cheaper, more secure, and faster way to perform remittance.
Financial Inclusion
Bitcoin ensures financial inclusion for the masses that are unable to gain access to conventional banking networks.
Deflationary
Bitcoin supply decreases over time which means that it is a deflationary currency. There are also supply management features in Bitcoin such as Halving that cuts down the Bitcoin mining rewards in half after every 4 years.
Limitations of Bitcoin
Here are some of the drawbacks of Bitcoin that have weighed down on the blockchain network over the years:
Bitcoin is a new technology and therefore threat actors have used it to fraud or scam people who do not understand how to use it.
Bitcoin is often criticized for its popularity among the black market and underground transactions because it does not require any type of user authentication.
Bitcoin is plagued with high price volatility. On account of this reason, several central banks have issued a warning to their citizens about the risk related to Bitcoin trading.
Bitcoin is intentionally immutable and therefore there are chances that it can be replaced by a new currency with innovative features.
What is Ethereum?
Ethereum is the second most popular cryptocurrency in the world. Ethereum was created with the view to upgrading the Bitcoin blockchain. Therefore, Ethereum is not just a DLT like Bitcoin but it also works as a host for decentralized applications.
At present, there are around 2,700 decentralized applications on the Ethereum network. Ethereum was created by the core founder Vitalik Buterin in association with a host of co-founders such as Charles Hoskinson, Joseph Lubin, Gavin Wood, and Anthony Di Lorio.
Ethereum blockchain made its debut in 2015 during an event called the Frontier. The idea of the Ethereum blockchain was published in Bitcoin Magazine by Buterin in 2014. Ethereum blockchain got the backing of some of the biggest VCs such as JP Morgan Chase during a funding event.
Ethereum went through a major fork as a result of a DAO hack in 2016. As a result of the fork, Ethereum was divided into two blockchains namely Ethereum Classic and Ethereum 2.0. Ethereum co-founder Buterin also published the Ethereum White paper in 2014 that was titled Next-Generation Smart Contract and Decentralized Application Platform.
How does Ethereum Work?
Ethereum has taken inspiration from the core Bitcoin programming. However, Ethereum also ingrained the Smart contract technology that was developed by Computer Scientist Nick Szabo in 1990.
In this manner, Ethereum was not only able to issue a cryptocurrency to perform and record the transaction cryptographically but it also became a host for decentralized applications. Ethereum Classic is a blockchain that has remained immutable. However, Ethereum 2.0 has ingrained several updates since its inception.
The latest update to take place on the Ethereum network is the Merging Event. This update took place in 2022 and it shifted Ethereum from PoW to a PoS consensus mechanism.
PoS or proof-of-stake is a type of transaction verification that uses randomizing delegation of miners based on their staking value. The core devs of Ethereum are working on the next update called Shanghai which will allow stakers to release their ETH reserves from staked positions.
Advantages of Ethereum
Here are some of the most prominent advantages of the Ethereum blockchain that have made it the second most popular crypto project:
Decentralization
Ethereum is also a decentralized and open-source platform fashioned after Bitcoin. Furthermore, all the decisions on the blockchain are performed democratically.
The new proposals are put up for voting by the Ethereum community members. The Ethereum stakeholders can vote for or against these proposals.
Enterprise Adoption
Ethereum has paved the way for the enterprise adoption of blockchain. Several companies have used the Ethereum blockchain directly as a payment gateway or they have to made use of the decentralized applications that are hosted on the Ethereum blockchain.
DeFi Development
Ethereum blockchain has played an important role in the development and progress of the DeFi sector. Ethereum works as a host for decentralized applications which encouraged the blockchain developers to create dApps that offered several other uses in addition to being financial services providers. Ethereum also contains toolkits and compilers for the developers to help them develop new dApps.
Scalability
Ethereum blockchain is a vast network of nodes and smart contracts. It has proven that it is possible for a heavyset program that contains more than 10 nodes to operate securely in a decentralized manner.
DeFi Standardization
Ethereum has also introduced several standards for DeFi developers such as ERC or Ethereum Request for Comment for tokenization and EVM or Ethereum Virtual Machine for node governance.
Interoperability
Ethereum developers can use other ecosystems for their code contributions like Java Communities using Ethereum Improvement Proposals or EIPs.
Finality
To facilitate enterprise users, Ethereum can offer customizable consensus mechanisms such as IBFT and RAFT. In this manner, private networks that are using DeFi applications with Ethereum can ensure finality for their transactions.
Upgrades
Ethereum developers have introduced several updates on the network such as Byzantium, Constantinople, St. Petersburg, Istanbul, Berlin, London, Paris, and others. These updates aim to address the issues on the blockchain and improve features like scalability, security, and decentralization.
Limitations of Ethereum
Here are some of the cons related to the Ethereum blockchain that has been highlighted by its critics time and again:
Learning the core programming language of Ethereum namely Solidity is considered challenging and it is not very popular among developers.
Ethereum is also a dApps ecosystem in addition to being a DLT. Therefore, this blockchain has faced issues with scalability time and again.
There are tons of tokens and cryptocurrencies that are hosted by the Ethereum network. However, many of these projects can be risky investments if they are only starting.
Ethereum has suffered from transaction fee inflation on account of an increase in the trading volume. Therefore, investors tend to turn away from the Ethereum network in the search of cheaper alternatives.
Similarities Between Ethereum and Bitcoin
It is best to address the similarities between Ethereum and Bitcoin blockchains. Some of the common features both blockchain projects share are given as under:
Distributed Ledgers
Both Ethereum and Bitcoin are distributed ledgers, which mean that they can record and perform transactions. Both these blockchain projects can verify the transaction records for every user present on the network. At the same time, the records of transaction on both blockchains are recorded in a public manner.
Consensus Mechanism
Bitcoin and Ethereum adopted the Proof-of-Work consensus mechanism as their core. With PoW, a blockchain requires miners to compete with each other based on the computation power they can provide. The miners who can solve the cryptographic puzzle first is the one that is qualified for transaction fee and newly minted tokens from the blockchain.
Cryptographic Technology
Bitcoin and Ethereum also make use of cryptographic technology to secure transactions and issue fungible cryptocurrencies. It means that a hacker or programmer can’t create an artificial ETH or BTC coin and pass it off as a real digital currency in its respective network.
Furthermore, all Bitcoin and Ethereum transactions contain cryptographic code that cannot be hacked or manipulated.
Exchange Listings
Bitcoin and Ethereum native coins have been listed on regulated and unregulated cryptocurrency exchanges. The people who wish to purchase or sell Bitcoin or Ethereum native tokens have to visit a DEX or CEX.
Banks or other centralized financial enterprises do not offer crypto trading or custodial services. However, recently some policy changes have encouraged crypto adoption.
Decentralized
Bitcoin and Ethereum are decentralized currencies and blockchain networks. It means that both Bitcoin and Ethereum blockchains are owned by their community members, stakeholders, validators, delegates, miners, and traders. To this end, all the decisions regarding both these blockchains are commenced following the community voting.
Digital Wallets
Bitcoin and Ethereum blockchains offer digital wallets for their users for custodial and portfolio management purposes. These digital wallets are protected by cryptographic codes called public and private keys. The public keys are like bank account numbers while the private keys are like ATM pins.
Layer-2 Solutions
Bitcoin has a layer-2 solution called the Lightening network that complements its scalability. On the other hand, Ethereum contains several layer-2 solutions such as Polygon, Arbitrum, Optimism, Cartesi, and Parastate among others.
Differences Between Ethereum and Bitcoin
Here are some of the noteworthy differences between Ethereum and Bitcoin blockchains:
Total Supply
The total supply of Bitcoin is capped at 21 million. On the other hand, the total supply of ETH is not capped and it is infinite. However, the annual supply limit for maximum ETH issuance is set at 18 million.
Mining
Bitcoin stakeholders have chosen to stick to the PoW consensus mechanism despite the criticism about its massive energy input. On the contrary, Ethereum devs have finally shifted from PoW to PoS consensus mechanism after much campaigning from its stakeholders. In comparison to PoW, PoS is 99.9% energy efficient.
Transaction Fees
The transaction fees on the Bitcoin network depend on factors such as the transaction size, trading volume, and rate of Bitcoin. A Bitcoin user may 1spend 1-10 Satoshis per transaction. For reference, 1 Bitcoin contains 100 million Satoshis.
Meanwhile, the gas transaction on the Ethereum network also uses the same parameters but Ethereum users may have to pay up to 132.86 during the busiest periods.
Transaction Speed
Bitcoin transaction speed can vary on account of several factors such as hash rate. However, the average transaction speed on Bitcoin has been recorded as around 10-60 minutes. On the other hand, the average transaction speed for the Ethereum blockchain is estimated at around 6 minutes.
Underlying Purpose
The main purpose for the creation of Bitcoin as mentioned by its creator in the Bitcoin Whitepaper is to replace fiat currency and become a unit of account. In comparison, the main objective of the Ethereum blockchain is to work as a baseline for decentralized applications. Ethereum aims to be a browser where users can search for and devs can deploy new dApps.
Coin Prices
Bitcoin is the flagship blockchain project and it has maintained a dominance of more than 45% in the crypto market. The per-unit price of Bitcoin is always the highest in comparison to all other cryptocurrencies. The historical ATH of Bitcoin was recorded at $69K during the 2021 Bull Run.
On the other hand, Ethereum’s traction exists on account of its massive utility. The per unit cost of ETH was recorded at $4,878.26 during November 2021 peak.
Block Time
Block time is the pause a blockchain takes to settle an old block and get ready for a new block formation. The average Block Time for Bitcoin is around 10 minutes while the average Block Time for Ethereum is noted between 10-20 seconds.
Conclusion
Comparative analyses are helpful for investors to deepen their understanding of blockchain and cryptocurrencies. By pitying Bitcoin against Ethereum, cryptocurrency investors can understand various technical aspects and comprehend the factors that govern them.
Using this baseline juxtaposition study, investors can improve their crypto trading strategies and make productive changes in their portfolios.
Crypto Comeback Pro is a crypto trading tool for investing in the crypto market with an %88 average win rate on trades and is the #1 trading software for crypto traders from all around the globe in 2022. Try it For FREE Today. (Ad)
