We'll dig into some key similarities and differences between the two most popular cryptocurrencies — Bitcoin and Ethereum.
The similarities between Bitcoin and Ethereum
One major similarity between Bitcoin and Ethereum is that both have tokens, “bitcoin” and “ether,” respectively, that can be used as digital currency in some jurisdictions. In other words, you can pay for things with bitcoin or ether.
Unlike the U.S. dollar and other central bank-based currencies, however, the Bitcoin and Ethereum networks, and bitcoin and ether tokens, aren’t centrally controlled by governments or banks.
Additionally, Bitcoin and Ethereum both rely on blockchain technology that records every blockchain transaction, whether that be to create, distribute, trade, or store the currencies.
Blockchain technology stores information on a ledger—similar to how a spreadsheet stores information. However, blockchain enables many people to hold copies of that ledger at the same time (often referred to as a “distributed ledger”), whereas a spreadsheet stored on one computer is far more limited and under the control of one or a few people. Many people believe that the reliance of Bitcoin and Ethereum on blockchain lends a stronger sense of security because blockchain technology is generally thought to be more hacker-resistant than centrally stored computer ledgers. Additionally, the information relating to every transaction is available for everybody to see—providing visibility and transparency.
Bitcoin and Ethereum also, as of June 2021, depend on the same blockchain validation method, known as “proof of work.” Proof of work is a type of algorithm that utilizes “miners” to compete with one another to validate blockchain transactions using computational power. This concept is described in slightly more detail below.
How Bitcoin is different
Launched in 2009 by an unknown person or group known as “Satoshi Nakamoto,” Bitcoin is the granddaddy of cryptocurrencies. As measured by market value at the time of writing, Bitcoin ranks as the world’s biggest cryptocurrency.
As of late June 2021, more than 18.7 million bitcoins had been “mined.” Bitcoin transactions are verified and recorded in the public blockchain ledger by Bitcoin users. This helps to keep blockchain hacker-resistant. As compensation for their efforts, these users who verify transactions — miners — are awarded bitcoin whenever they add a new block of transactions to the blockchain.
According to the current Bitcoin protocol, the number of bitcoins produced will be capped at 21 million. Currently, the production of bitcoin slows down every four years through a process called “halving.” A Bitcoin halving event is when the reward for mining Bitcoin transactions is cut in half. This event cuts in half the rate at which new bitcoins enter circulation. This halving process is designed to make the supply of bitcoin relatively stable and predictable. In 2020, the number of bitcoins generated about every 10 minutes (a new block of transactions is verified about every 10 minutes) fell from 12.5 to 6.25. The next halving is currently scheduled to happen in 2024.
The ceiling on how many bitcoin will be created sets up a market structure that some Bitcoin proponents believe boosts the currency’s value over the long term, though there are others who disagree with this assertion. In terms of cost, bitcoin is among the most expensive cryptocurrencies, with the price surpassing $50,000 in mid-May 2021, though as of the time of writing in late-June 2021, the price is around $34,000, which highlights the historical volatility of this asset.
You can purchase bitcoin from brokers, exchanges, and other bitcoin owners.
How Ethereum is different
While the current Bitcoin protocol will stop the production of bitcoins once the supply reaches 21 million, the potential supply on the Ethereum network is larger. As of late June 2021, the supply of ether stood at about 116.3 million. As of the time of writing in late June 2021, the price of Ethereum was hovering around $2,200.
Introduced in 2015, Ethereum offers some features that Bitcoin currently does not. Ethereum was originally designed to be used as more than a “digital cash” and the Ethereum community has built many apps on top of the Ethereum network, some of which have their own tokens that can be bought, sold, or used on the Ethereum network. You’ll see a lot of services such as lending, borrowing, online gaming, and insurance apps built on Ethereum. Note that anyone can build an app on Ethereum, so caution should be used whenever investigating a new app or token built on Ethereum.
It’s expected that significant Ethereum upgrades will happen sometime in the next few years, sometimes referred to as Ethereum 2.0.
You can buy ether from brokers, exchanges, and other ether owners, just like bitcoin.
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