How is Ethereum different from Bitcoin

Bitcoin vs Ethereum: An Overview

After bitcoin, Ether (ETH), the Ethereum network cryptocurrency, is arguably the second most popular digital token. In fact, as the second-largest cryptocurrency by market cap, comparisons are only normal between Ether and BTC.

In many ways, Ether and Bitcoin are similar: each is a digital currency traded via online exchanges and stored in different types of wallets for cryptocurrency. These tokens are both decentralized, meaning they are not issued or controlled by a central bank or other body. Both make use of the blockchain known as distributed ledger technology. However, by market cap, there are also many crucial differences between the two most common cryptocurrencies. We'll take a closer look below at the similarities and differences between the ether and bitcoin.

KEY POINTS

• Bitcoin signaled the emergence of a radically new form of digital money that operates outside the control of any government or corporation.

• With time, people began to realize that one of the underlying innovations of bitcoin, the blockchain, could be used for other purposes.

• Ethereum proposed the use of blockchain technology not only for the maintenance of a decentralized payment network, but also for the storage of computer code that can be used for tamper-proof, decentralized financial contracts and applications.

• Ethereum applications and contracts are powered by ether, the currency of the Ethereum network.

• Ether was meant to complement rather than compete with bitcoin, but it nevertheless emerged as a competitor in cryptocurrency exchanges.

Bitcoin Basics

Bitcoin was launched in January 2009. It has introduced a novel idea set out in a white paper by the mysterious Satoshi Nakamoto—bitcoin offers the promise of an online currency that is secured without any central authority, unlike government-issued currencies. There are no physical bitcoins, just balances associated with a cryptographically secured public ledger. Although bitcoin was not the first attempt at an online currency of this type, it was the most successful in its early efforts, and it has come to be known as a predecessor in some way to virtually all the cryptocurrencies that have been developed over the last decade.

Over the years, the concept of a virtual, decentralized currency has gained acceptance among regulators and government agencies. Although it is not formally recognized as a means of payment or value storage, cryptocurrency has managed to create a niche for itself and continues to coexist with the financial system despite being regularly scrutinized and debated.

Ethereum Basics

Blockchain technology is used to create applications that go beyond just enabling a digital currency. Launched in July 2015, Ethereum is the largest and most well-established, open-ended, decentralized software platform.

Ethereum allows the deployment of smart contracts and decentralized applications (dapps) to be built and run without any downtime, fraud, control or interference from third parties. Ethereum comes complete with its own programming language, which runs on a blockchain, allowing developers to build and run distributed applications.

The potential applications of Ethereum are extensive and are powered by its native cryptographic token, ether (commonly abbreviated as ETH). In 2014, Ethereum launched a pre-sale for ether, which received an overwhelming response. Ether is like fuel for running commands on the Ethereum platform and is used by developers to build and run platform applications.

Ether is mainly used for two purposes—it is traded as a digital currency on exchanges in the same way as other cryptocurrencies, and it is used on the Ethereum network to run applications. According to Ethereum, "people around the world use ETH to make payments, either as a store of value or as collateral.

Key Differences

While both the Bitcoin and Ethereum networks are powered by the principle of distributed ledgers and cryptography, the two are technically different in many ways. For example, transactions on the Ethereum network may contain executable code, while data affixed to Bitcoin network transactions are generally for note keeping purposes only. Other differences include the block time (the ether transaction is confirmed in seconds compared to the minutes for bitcoin) and the algorithms they run on (Ethereum uses ethash while Bitcoin uses SHA-256).

More importantly, however, the Bitcoin and Ethereum networks are different from their overall objectives. While Bitcoin was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value, Ethereum was intended as a platform for facilitating immutable, programmatic contracts and applications through its own currency.

BTC and ETH are both digital currencies, but the primary objective of ether is not to establish itself as an alternative monetary system, but rather to facilitate and monetize the operation of the Ethereum smart contract and the decentralized application (dapp) platform.

Ethereum is another use-case for a blockchain that supports the Bitcoin network, and theoretically, it should not really compete with Bitcoin. However, Ether's popularity has pushed it into competition with all cryptocurrencies, especially from the point of view of traders. For most of its history since its launch in mid-2015, ether has been close behind bitcoin in the top market cap cryptocurrencies rankings. That said, it's important to keep in mind that the ether ecosystem is much smaller than bitcoin's: by January 2020, the ether market cap was just under $16 billion, while bitcoin's is nearly 10 times that of more than $147 billion.