Bitcoin and Ethereum will forever be tied to each other in history. Despite what people think, Bitcoin wasn't the first cryptocurrency—but it is the longest standing.
Ethereum is the second largest cryptocurrency in terms of market capitalization behind Bitcoin.
Despite the immutable history in the cryptocurrency landscape, Ethereum is distancing itself a bit with "The Merge." Both Bitcoin and Ethereum began as proof-of-work (PoW) cryptocurrencies.
Proof-of-work is a consensus mechanism that relies on nodes and miners to maintain the blockchain.
Consensus mechanisms are just one difference between Bitcoin and Ethereum—there is a lot more to unpack.
Since the Eth2 upgrade with The Merge, Ethereum merges to a proof-of-stake (PoS) consensus mechanism. Rather than miners maintaining the network, there are validators and stakers.
Read our post below to learn how these two heavyweight cryptocurrencies compare and contrast.
Bitcoin
Bitcoin began in 2008 when Satoshi Nakamoto, a pseudonymous character published a white paper on the cryptography mailing list at metzdowd.com.
Nakamoto described and titled the cryptocurrency "Bitcoin: A Peer-to-Peer Electronic Cash System.
While there were digital currencies came before it, Bitcoin has withstood the test of time. As the granddaddy of them all, Bitcoin is clearly here to stay.
Ethereum
Following in Bitcoin's shadow came to fruition in July 2015. Since then, it has established itself in the crypto market. In a nutshell, Ethereum enables developers to build and run dApps (decentralized applications).
The fuel used to run and power these dApps is ether—Ethereum's native cryptocurrency. You can of course start investing in cryptocurrency with ether too.
While Bitcoin has no identity behind it other than the mysterious Satoshi Nakamoto, Ethereum's figurehead is programmer Vitalik Buterin.
Bitcoin vs Ethereum
Now that you have a basic back story of Bitcoin and Ethereum, how do they compare and contrast? We break it all down for you below.
Similarities
Bitcoin and Ethereum are both decentralized cryptocurrencies meaning that they aren't controlled by any third party (bank, government, etc.). You "store" bitcoin and ether in a wallet (hot or cold).
Side note: When storing your cryptocurrency, you want to make sure you back up your private keys. Anyone who has access to your private keys has access to your crypto.
This is why when investing in cryptocurrency, you never want to leave your coins on an exchange. The sooner you move your coins to a wallet, the better.
Aside from buying cryptocurrency from an exchange, you could also buy from a Bitcoin ATM—have a look. You will find Bitcoin ATMs where you'd find traditional ATMs—strip malls, airports, gas stations, bodegas, etc.
Just remember that whether buying from an exchange or Bitcoin ATM, you'll need to identify yourself to adhere to KYC/AML (Know Your Customer/Anti-Money Laundering) regulations.
Both Ethereum and Bitcoin technology is enabled by the blockchain—a distributed decentralized open ledger. Neither Bitcoin nor Ethereum is a physical coin.
Instead, the balances you see in your wallet are associated with the blockchain.
You are free to transact with anyone at any time globally without the need for anyone's permission or involvement. This is truly a thing of beauty and can only be appreciated the more often you use it.
Investing in cryptocurrency isn't without its hurdles. While we have come a long way, struggles with regulations and government bodies slow down progress.
With that said, cryptocurrencies like Bitcoin and Ethereum have charted their own path right alongside the legacy financial system.
Differences
Despite Bitcoin's whitepaper describing the cryptocurrency as more akin to cash, it is largely viewed as a store of value. With that said, you are free to use cryptocurrency however you choose and some people won't have the luxury to use it as a store of value.
Let's check out the difference between Bitcoin and Ethereum in detail.
Store of Value
Ether is the native cryptocurrency of Ethereum and powers every action taken on the network. It is mainly used as a medium of exchange, but may soon become seen as a store of value with the recent Merge.
Proof-of-work is often criticized for its energy consumption. All of that computational power requires a lot of energy.
Smart Contracts
A huge part of Ethereum's claim to fame is its smart contracts. These smart contracts contain executable code. Transactions on the Bitcoin blockchain may contain data merely for note-taking purposes.
These smart contracts help facilitate dApps.
Decentralized applications are software being run on top of the Ethereum blockchain that includes DeFi (decentralized finance), play-to-earn games, and NFTs (non-fungible tokens). You can think of it almost as a new internet.
This means being able to manage a property, shares, social networks, finance apps, games, nations, organize people, ideas, companies, money, services, etc.
We've seen different types of projects emerge as Ethereum killers with similar features. Competition is always a good thing but Ethereum has time and notoriety on its side.
Web3
We have become accustomed to coughing our data, identity, you name it to social media conglomerates and mega-corporations like Amazon, Google, and Meta (previously Facebook).
Web3 and Ethereum's promise is to bring power back into the hands of the people. Time will tell if things like Web3 and the metaverse will become mainstream enough for mass adoption.
Maybe it doesn't have to though. Cryptocurrency and Web3 have carved out a niche and there's no turning back now.
Block Time
Ethereum's block time is a lot faster too. An ether transaction will be confirmed in seconds while a bitcoin one will take minutes. Another difference between Bitcoin and Ethereum is the algorithm—Bitcoin's SHA-256 to Ethereum's Ethash.
Transaction Costs
Both bitcoin and ether charge you for their transactions. This isn't a much different experience than you're accustomed to with fiat. These transaction (tx) fees are paid to the miners with the amount depending on the network congestion etc.
A common complaint with Ethereum is the high gas fees. They tend to fluctuate a lot more than bitcoin too. Hopefully, with Eth2 and The Merge, some of these problems will fall by the wayside.
Gold and Silver
You will often see Bitcoin being compared to gold (with the benefits of Bitcoin technology). Bitcoin has the biggest market capitalization that exceeds $1 trillion.
The maximum supply of Bitcoin that can be mined is 21 million. Due to this, Bitcoin is a deflationary cryptocurrency while Ethereum currently is not (although this could change post Merge).
Ethereum closely resembles silver because it is the second largest cryptocurrency in terms of market cap. Much like silver, it has a variety of applications.
Investing Strategy
All types of cryptocurrency behave differently. That is why you must do your own research (DYOR), vet projects and teams, do your due diligence, and develop an investing strategy.
From the outside looking in, investing in cryptocurrency is risky. While there may be a higher level of risk with crypto, the returns are unparallel.
Many see volatility as a bad thing but try to see the good in it too. What goes down, must go up, right? This is especially true in Bitcoin's case since it is a deflationary cryptocurrency.
If you're torn and can't yet see the difference between Bitcoin and Ethereum, the more you play around with them the easier it'll cement in your mind.
Start with a little bit of money (nothing more than you're willing to lose). As you go through bear and bull markets, you will begin to see the patterns emerge. Don't be afraid to ask questions and get deep into the technology.
Scour the internet to find solid trading tips. To start, we recommend connecting on Crypto Twitter, Reddit, and YouTube.
As you go down the crypto rabbit hole you'll come across various crypto communities. Get involved on Discord and Telegram. Watch videos on Odysee, DTube, etc.
Go to meetups and talk to real people, every little bit helps.
The Difference Between Bitcoin and Ethereum Is Growing
As you familiarize yourself more with Ethereum and Bitcoin technology, you will be amazed at the power and potential.
As you build out your portfolio, you will love what this technology provides—privacy, decentralization, censorship resistance, purchasing power, and the fact that you are your own bank.
While you may not want to go 100% crypto just yet, having some in your portfolio is a smart move (not financial advice).
Be sure to check out our blog to keep up with crypto, stocks, and investing basics. As you learn, be sure to spread the knowledge with your friends and family.