Last Updated on 2 weeks by Ameer Hamza
From the news to regular timelines on social media, cryptocurrencies are everywhere. Every day, we seem to hear about a recently-released cryptocurrency that is set to give Bitcoin a run for its money or perhaps, an inclusive financial service that has just been built on the Ethereum blockchain. However, as a beginner in the crypto space, the frequent reference to Bitcoin and Ethereum may get you confused. Especially on what these coins are and the differences that exist between them. This article settles that.
What is Bitcoin?
Bitcoin is popularly called BTC. It is a virtual or digital currency and a medium of exchange. It was built as far back as 2009 by an anonymous person or group called Satoshi Nakamoto. In the history of cryptocurrencies, Bitcoin is often referenced as the first cryptocurrency to have ever been deployed. Most importantly, it functions as the largest and most popular cryptocurrency on the market. It has a market capitalization of over $1 billion, which makes it a major determinant of the movement of crypto markets.
What is Ethereum?
Like Bitcoin, Ethereum (ETH) is a digital asset that runs on blockchain technology. Joe Lubin developed it in 2015, and since then, its popularity has significantly increased. Ethereum is created through a validation process that is called ‘Proof of Stake.’ Also, its market value is the second-largest on the market.
However, the conception of Ethereum is far beyond a mere digital currency. Ethereum functions as a stand-alone blockchain network that supports the deployment of other applications. Currently, Ethereum has become the primary network for decentralized finance (DeFi) applications. DeFi applications are platforms that provide financial services without the need for middlemen.
Similarities Between Bitcoin and Ethereum
Bitcoin and Ethereum are both digital assets built on the blockchain. They are both decentralized, and they make use of cryptography to secure their systems. This ensures that both systems are not prone to hack attacks.
Another similarity is that a central authority does not issue Bitcoin and Ethereum. Instead, they are removed from governmental control and are controlled by the investors themselves. In this case, every investor’s actions or decisions on whether to buy, sell or hold are the major movers of the market. This decentralized control creates trust and prevents a central body from manipulating the systems.
Key Differences Between Bitcoin and Ethereum
While Bitcoin and Ethereum are both digital currencies, major differences exist between them. First, Ethereum functions as both a digital asset and a network that powers other applications. On the other hand, Bitcoin was majorly created to serve as an alternative to conventional currencies. As such, while Bitcoin is primarily a store of value, the usage of Ethereum spans across cryptocurrencies and financial applications. Also, Bitcoin is the medium of exchange on the Bitcoin blockchain, while Ether or ETH is the medium of exchange on the Ethereum network.
Another difference between both platforms is in the way they are created. Bitcoin is created through Proof of Work. Proof of Work involves a consensus mechanism in which individuals on the network create repetitions of mathematical procedures to validate transactions and release more Bitcoins into the market. However, Ethereum uses Proof of Stake. Proof of Stake entails a mechanism in which the validation of transactions is randomly determined based on the number of Ether that an individual owns. So, essentially, the ability to create more Ether is based on how many coins you have.