Bitcoin vs Ethereum [Similarities & Differences 2024 Guide]

While there are more than 7,000 officially-listed cryptocurrencies today, two names are the undisputed leaders in the field: Bitcoin and Ethereum. If you want to understand more about how cryptocurrencies and blockchain technology works, what the state of the industry is, and where it’s going, there is no better place to start than to learn about these two pioneers.

While many think of them as direct competitors, the Bitcoin vs Ethereum dynamic is more nuanced with both having different purposes to fulfill.

In this article, you’ll find out what is Bitcoin, what is Ethereum, the similarities and differences between the two, and which one you should invest in.

What Is Bitcoin?

Bitcoin (BTC) needs little introduction as not only as a household name synonymous with cryptocurrency but as the largest cryptocurrency by market cap in the world. The idea for Bitcoin was revealed in a white paper published under the alias of an unknown individual – Satoshi Nakamoto in 2009.

The concept of decentralized digital currencies did exist before Bitcoin. However, it was Bitcoin that really pioneered the idea of a peer-to-peer electronic currency system based on a cryptographically secured public ledger that’s not controlled by any central authority. It’s also the first to achieve large-scale success and popularity.

A Bitcoin is basically a computer file stored within a digital wallet that can be accessed via an app or website. Like regular currency, a Bitcoin’s value can be divided into fractions, so you can own 0.5 BTC (half a Bitcoin), for example. Today, 1 Bitcoin = $48,371.63 USD which means that most individuals don’t own 1 whole Bitcoin. When comparing the relative value of ETH vs BTC, it’s Bitcoin’s massive rise that makes it such an irresistible investment to many.

Bitcoins are created through a process called “mining.” Peers (computers) on the network that help the distributed ledger process transactions are rewarded with Bitcoins for their efforts. Once a full “block” of transactions is computed, it’s added to the ledger. The fact that all peers work together and have to agree on the results of the transactions is what secures the network and prevents fraud.

Mining increases the available pool of Bitcoins which will be capped at 21 million Bitcoin and is expected to be reached by 2140.

Bitcoins can be bought, sold, or exchanged for other goods and services wherever they are accepted. Bitcoin trading is so popular that it takes up to 20% of all trading volumes on the most used trading platforms for Bitcoin, like Binance.

What Is Ethereum?

Ethereum was created in 2015 by Vitalik Buterin as an open-ended decentralized software platform. Unlike Bitcoin, Ethereum wasn’t developed only to function as a digital currency but also to use the concept of blockchain technology for a range of other applications. That said, Ethereum’s digital token Ether (ETH) is the world’s second-largest cryptocurrency by market cap after Bitcoin.

Ethereum is based on an open-source programming language that is continuously being developed, updated, and extended by the community. Developers can also use this technology to build their own blockchain-based software to solve a range of real-world challenges. The deployment and execution of smart contracts are powered by Ethereum’s currency, Ether.

For both monetary transactions and other applications, Ethereum uses the concept of a smart contract. A smart contract is basically a program that runs on the blockchain and facilitates trusted transactions and agreements to be carried between peers based on rules. There’s no need for centralized oversight. Aside from its other uses, the use of smart contracts is a key technical difference between Bitcoin and Ethereum.

For example, two individuals who want to exchange Ether tokens will execute a smart contract between them which will ensure that the transaction goes as planned – sending the Ether from one person to the other and processing the transaction on the distributed ledger.

Ethereum’s currency, Ether, is used both as a virtual currency for monetary transactions and to build and run applications on the Ethereum platform. Ether can be mined in the same way as Bitcoin by processing transactions on the decentralized ledger as well.

Currently, 1 ETH is valued at $3,166.96.

Key Takeaways

Bitcoin vs Ethereum: Similarities

Both Bitcoin and Ethereum are based on the concept of a peer-driven network without a central authority controlling the blockchain. Both use a cryptographically secured public ledger which is used to validate and store transactions that occur on the network.

Because peers need to agree on the order and results of transactions, it makes it incredibly difficult to commit fraud or tamper with the ledger. Combined with the built-in cryptography, Bitcoin and Ethereum are thus highly secure crypto technologies.

Users of both Ethereum and Bitcoin can access their crypto tokens from a secure digital wallet.

Both cryptocurrencies have seen a tremendous rise in value, leading to the question of whether to invest in Ethereum vs Bitcoin for monetary gain.

Peers on the network that process transactions (miners) are awarded BTC or Ether on a regular basis based on the Proof-of-Work (PoW) model. Both bitcoins (BTC) and Ether (ETH) can be bought, sold, traded, or exchanged for goods as a virtual currency.

Bitcoin vs Ethereum: Differences

The main difference between Bitcoin and Ethereum is in their overall applications. Bitcoin was created to function solely as a digital currency and store of value, similar to currencies we use in the real world. Enthusiasts hope that Bitcoin will one day be widely accepted everywhere to buy goods, exchange for other currencies, etc.

On the other hand, Ethereum has a much wider influence on the overall blockchain technology landscape. While it can also be used as a cryptocurrency, like Bitcoin, it also has other uses for developing business applications that are faster and more secure across various industries. Ethereum is also continuously being updated, expanded, and reworked by the open-source community.

There are also some technical differences. Ether transactions are much faster than Bitcoin transactions and are completed in a matter of seconds instead of minutes. They also use different encryption algorithms. Ethereum uses ethash while Bitcoin uses SHA-256.

While it mostly works the same today, mining Bitcoin vs Ethereum may also look very different soon. Ethereum is shifting to a proof-of-stake model which is aimed at preventing only a small number of parties from dominating the mining of Ethereum for actual gain. Using the proof-of-stake model, individuals without specialized equipment will stand to gain more from mining based on the amount of Ethereum they hold by staking it on the blockchain.

Bitcoin is far ahead when it comes to how widely it has been accepted as a payment method. It also has more than double the market cap of Ethereum, although the latter is by far the closest cryptocurrency to Bitcoin in this regard.

However, thanks to its wide-ranging uses, Ethereum is actually the world’s most widely used blockchain overall.

Currently, Ethereum also doesn’t have a supply limit, although this idea has been proposed by its creator and is currently being considered.

Which One Should You Invest In?

For anyone with an interest in cryptocurrencies, whether you should invest in Bitcoin or Ethereum is the question of the day as these are the most popular and obvious choices. However, choosing the right one depends on what your goals are.

Bitcoin is leading the race for widespread recognition which puts it ahead of Ethereum if you want to be able to easily make everyday transactions. PayPal already allows you to buy/sell bitcoins and it’s also accepted by many major companies, such as Microsoft, Home Depot, Starbucks, etc. If you’re asking yourself “should I invest in Bitcoin?”, the fact that you can spend it much more easily is a great reason to say “yes.”

Ethereum is still less widely accepted as a form of payment, although it is supported by Shopify and some travel booking sites.

Some want to invest in cryptocurrencies for their value growth potential. From May 2020 to May 2021, the value of ETH surged from $267 to $3,764. In the same period, Bitcoin went from $5,179 to $59,145. However, both also crashed by nearly 40% straight after to around $2,812 for Ethereum and $38,736 for Bitcoin.

The Ethereum vs Bitcoin price isn’t the only factor to consider when making an investment decision.

At its height in early 2021, Bitcoin accounted for roughly 70% of the entire crypto market value. This has declined sharply to 46% thanks to the influx of other cryptocurrencies. Bitcoin’s market cap currently sits at $1 trillion compared with a $400 billion market cap for Ethereum.

Most movements by altcoins, Ethereum included, in the cryptocurrency market are driven by news concerning Bitcoin. Other cryptocurrencies fall or rise in value as a result, including Ethereum. For this reason, most analysts still consider Bitcoin the safer bet for more stability as well as long-term growth. However, it’s worth keeping in mind that all cryptocurrencies are highly volatile, including Bitcoin.

So, the benefits of a choice between an Ethereum vs Bitcoin investment might change depending on updates and policy changes.

Conclusion

When it comes to comparisons of Bitcoin vs Ethereum, both of them are complex and revolutionary technologies that share a lot of fundamental similarities, but also some key differences. While they do compete as two of the world’s leading cryptocurrencies, they have different applications and overall long-term goals. Bitcoin is likely to continue to set the tone for cryptocurrency adoption, while Ethereum’s full potential across its broad spectrum of applications is still being realized.