The crypto space has entered a very interesting phase. In the year 2020 with the ongoing coronavirus pandemic and the global financial uncertainties, it is truly a test for Bitcoin to prove itself as the hedge against fiat currencies. And then, there is also Ethereum, whose upward and downward trend mostly follows Bitcoin’s price action.
For crypto casuals and newbies, usually, they are confused why would there be two different cryptocurrencies if they move in the same direction. Well, it is true that Ethereum and Bitcoin price actions often move in one same direction. So, what are the actual differences between Ethereum and Bitcoin?
General Use Cases
The most obvious difference between Ethereum and Bitcoin is its use cases. Yes, Bitcoin is merely a currency. Its blockchain is just used to support the Bitcoin currency and its transactions. You can send and receive Bitcoin under Bitcoin blockchain but that’s about it.
On the other hand, Ethereum is used for various different use cases. Unlike Bitcoin, Ethereum can be used to create smart contracts and deploy different types of applications (including Decentralized Finance, Decentralized Exchanges, and even games). Under Ethereum blockchain, we also have the native cryptocurrency called Ether or ETH, although most people use them interchangeably (between Ethereum and Ether).
So, the idea of using Ethereum blockchain is not only to send Ether but also for companies or startups’ token issuance, for smart contracts, decentralized finance, and decentralized applications.
The wider use cases of Ethereum have made the blockchain become quite popular, even more popular than every other altcoin in existence
One other key difference between the two is the supply mechanism. Bitcoin’s max supply is capped at 21 million while Ethereum still doesn’t have any max supply number. That being said, Ethereum influencers (including Vitalik Buterin himself) has been proposing for capping Ethereum’s max supply for obvious reasons. It is still yet to be seen whether the community would eventually adopt Buterin and/or others’ proposals.
Not only that, Ethereum is also on the verge of adopting a new consensus mechanism. For now, both Ethereum and Bitcoin are utilizing Proof-of-Work (PoW) consensus. But, it’s claimed that Ethereum would eventually move to Proof-of-Stake (PoS) when the first version of Ethereum 2.0 goes live on mainnet.
With Proof-of-Stake, Ethereum miners wouldn’t need to solve hard mathematical puzzles anymore with expensive hardware equipment. When Ethereum finally adopts Proof-of-Stake, the miners would become “validators”, and they would be able to “mine” new ETHs by staking more ETHs in the first place. This would help Ethereum blockchain to be more efficient, faster, and use fewer resources at the same time.
Another important difference between the two is the influences that the people have over them. As everybody knows, Bitcoin was founded by Satoshi Nakamoto. However, Satoshi hasn’t been active since many years ago, and nobody even knows his true identity. His other early “colleagues” also do not have that much influence over the direction that Bitcoin blockchain is taking. It has to be admitted that having no centralized figure is good for the long-term direction of Bitcoin blockchain.
On the other hand, Ethereum has centralized key figures that can easily affect everybody’s decision. While the core and features of the blockchain itself are decentralized, Ethereum’s decisions to fork or make certain feature changes are always heavily influenced by the core developers and the Ethereum Foundation. People like Vitalik Buterin and even Joseph Lubin have significant influence over the Ethereum community.
Speed and Scalability
Another important aspect to consider when it comes to the battle between blockchains is the speed factor. Yes, scalability matters when it comes to blockchain’s future potential. Bitcoin is actually very slow in this factor. It has an average of 3.8 to 4.5 TPS (transactions per second). On the other hand, Ethereum can handle about 15 transactions per second.
When Ethereum successfully implements Ethereum 2.0, it is widely believed that Ethereum TPS would improve dramatically, due to how efficient the whole network would be compared to what they have currently on mainnet. Meanwhile, Bitcoin does not have a significant plan like Ethereum 2.0. It has introduced native SegWit solution but it does not help more than 30-35% speed improvements. The current Lightning Network solution for Bitcoin has also failed to achieve mass adoption (so far) although it remains to be seen if future applications can finally help Lightning Network to be adopted.
Both Ethereum and Bitcoin have their own upsides and downsides compared to each other. However, from all the key points above, it looks like there are better upsides for Ethereum than its disadvantages compared to Bitcoin. Sure, there are similarities as well between Bitcoin and Ethereum (their price action trends, their decentralized mechanism, etc.) but we have to admit that the differences between Ethereum and Bitcoin are very obvious as outlined above.