Five Differences Between Ethereum and Bitcoin

profileErin Bruehl | September 12, 2022
five-differences-between-ethereum-and-bitcoin

Ethereum (ETH) and Bitcoin (BTC) are the two most well-known names in the digital currency world. Both have contributed significantly to the rise and legitimacy of cryptocurrency.

Both Ethereum and Bitcoin operate on blockchains with publicly distributed ledgers ensuring their authenticity. Both are decentralized cryptocurrencies, so they rely on the network as a whole to manage security and guard against fraud.

There are key differences between Ethereum and Bitcoin. We discuss five of these differences below.

1. Bitcoin is an alternative to traditional currency; Ethereum has many applications.


Bitcoin is typically used as a store of value, similar to gold, whereas Ethereum is an entire platform. Ethereum’s platform is powered by ETH, which is Ethereum’s cryptocurrency.

While many debate on why Bitcoin was created, most agree that Bitcoin was created to function as a digital currency, offering the public a way to transfer and store value in a decentralized manner. Ethereum was designed as a general-purpose blockchain, and its smart contracts capabilities allow for a wide range of applications on its network.

2. Bitcoin is the original digital currency, whereas Ethereum is a newer platform.

Bitcoin launched in 2009, and it’s widely viewed as the original cryptocurrency. While there were prior attempts at digital currency, Bitcoin was the most successful and most adopted.

Ethereum launched in 2015 as an open-ended, decentralized software platform. While ETH, or ether, is the native cryptocurrency used to run Ethereum, Ethereum is widely used for smart contracts and decentralized apps (dApps).

The uses for Ethereum are broader since Bitcoin is simply digital currency. The intention was for Bitcoin to function as a means to store and exchange value, whereas the intention for ETH was to enable and support use of the Ethereum network.

3. Bitcoin operates on a proof-of-work (PoW) model; Ethereum 2.0 operates on a proof-of-stake (PoS) model.

Both Bitcoin and Ethereum 1.0 run on proof-of-work (PoW) models. PoW is a method of validating transactions on the public blockchain, allowing the network to function without a centralized authority governing transactions.

With proof of work, computers solve very complex mathematical problems. If a “miner” completes the problems, they win the ability to process a block of transactions and are rewarded with cryptocurrency.

PoW models have been criticized for their large environmental impact due to the hardware and electricity required to power these sophisticated computer systems around the clock.

Proof-of-stake (PoS) offers an alternative to proof of work. With proof of stake, users can “stake” or set aside cryptocurrency in order to be chosen as a validator who gets to process a block of transactions. Those who stake the most coins are most likely to be chosen. In a similar manner to proof of work, a validator is rewarded with cryptocurrency.

Bitcoin operates on a proof-of-work model, and it’s likely it always will. Ethereum 2.0 will move to a proof-of-stake model.

4. Ethereum’s network allows for faster transactions.

On average, Ethereum processes transactions faster than Bitcoin. However, Ethereum’s transaction fees are higher, and users pay those.

Bitcoin processes about 7 transactions per second, whereas Ethereum processes 10 to 15 per second.

In most cases you canexpect to pay higher fees with Ethereum but also enjoy faster processing times.

5. Ethereum 2.0’s PoS model is viewed as more environmentally friendly than Bitcoin’s PoW model.

With cryptocurrency widely being criticized for its large environmental impact, Ethereum wants to dramatically cut down on its energy consumption and e-waste.

Since Ethereum 2.0 is based on a proof-of-stake model, it will boast greatly reduced power consumption compared to Bitcoin and Ethereum 1.0. Ethereum projects that this move will reduce its power consumption by 99.95%.




References

Understanding Ethereum, Bitcoin’s Digital Cousin. (October 2017). The New York Times.

Bitcoin vs. Ethereum: Which Is a Better Buy? (April 2022). U.S. News & World Report.

Introduction to Dapps. (April 2022). Ethereum.

Why Ethereum Is Switching to Proof of Stake and How It Will Work. (March 2022). MIT Technology Review.

Ethereum vs Bitcoin - Similarities and Differences. (February 2021). Finextra.
Unix Hash: Ethereum vs. Bitcoin, Which One Is a Better Investment? (March 2022). Global Newswire.

3 Environmentally Friendly Alternatives to Bitcoin. (December 2021). The Motley Fool.

Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC.

Share this story:
twitter-iconfacebook-iconlinkedIn-icon
Suggested Reading