Definition
Bitcoin and Ethereum are both types of digital or cryptocurrency, but they serve different purposes. Bitcoin, the first cryptocurrency, is mainly used as a digital cash–a financial instrument for transactional purposes. On the other hand, Ethereum is a blockchain-based platform that allows the creation and implementation of decentralized applications and smart contracts, with its native currency, Ether, used as transaction fees for these services.
Key Takeaways
- Bitcoin and Ethereum operate on technologies known as blockchain, but while Bitcoin’s main application is as a digital currency (it is frequently referred to as a digital gold), Ethereum also enables peer-to-peer contracts and applications via its own currency vehicle.
- Another key takeaway is their individual approaches to updates and changes to the networks; while Bitcoin strives to maintain stability and less frequent protocol changes, Ethereum embraces innovations and active evolution which results in more frequent protocol updates.
- The difference in supply policies between the two coins is another notable takeaway. Bitcoin has a capped supply limit of 21 million coins, while Ethereum has no such cap, potentially influencing the price and inflation.
Importance
The finance term “Bitcoin vs Ethereum” is important as it represents a comparison between the two most popular and influential cryptocurrencies.
Bitcoin, being the first decentralized digital currency, largely popularized blockchain technology and has a primary use as a store of value or “digital gold”. On the other hand, Ethereum goes beyond being a cryptocurrency by enabling smart contract functionality, thereby allowing the creation of complex applications which are decentralized.
Therefore, the comparison shapes understanding of varied use-cases, differences in technology, and the potential for return on investment from each of these leading cryptocurrencies.
Explanation
Bitcoin and Ethereum are two of the most commonly used digital cryptocurrencies worldwide. Bitcoin, the first cryptocurrency ever created, was established in 2009 with a purpose to work as a peer-to-peer electronic cash system. Bitcoin’s primary use is as a digital currency, which can be saved, spent, invested, or traded.
It came into prominence for its potential to bypass government currency controls and simplify online transactions by cutting out intermediaries like banks and payment services. Bitcoin also introduced the critical concept of blockchain technology to the world, which ensures transparency, security and decentralization in online transactions. On the other hand, Ethereum, launched in 2015, not only works as a digital currency (under the name Ether), but it also provides a platform for developers to build and operate smart contracts and Distributed Applications (DApps). These DApps can run without any downtime, fraud, control or interference from a third party.
Ethereum’s central use case is to facilitate programmable transactions. It has enabled the development and execution of smart contracts, which are automatic self-executing contracts with the terms of the agreement directly written into code. This has led to the creation of Decentralized Finance (DeFi), a whole new financial sector that operates without a centralized authority.
While Bitcoin was hailed as an alternative to regular money, Ethereum has drawn attention for its ability to host and facilitate other blockchain projects within its own network.
Examples of Bitcoin vs Ethereum
Investment Portfolio Diversification:A real-world example can be seen in investment portfolios. Some investors choose to diversify their portfolio by investing in both Bitcoin and Ethereum instead of going all in on one. Bitcoin, being the first and largest cryptocurrency, often represents a more conservative bet as it is considered more established and stable. On the other hand, Ethereum, while also a popular choice, is viewed as potentially higher risk, but higher reward due to its smaller size and use in smart contracts and the Ethereum Virtual Machine.
Use in Decentralized Finance (DeFi):Another instance could be the use of Bitcoin and Ethereum in Decentralized Finance (DeFi). While Bitcoin was created as a digital currency, Ethereum was designed to facilitate software processing using a token system. Ethereum’s value comes from its ability to host and facilitate decentralized apps (DApps) on its network. DeFi applications, for example, are mostly built on Ethereum’s network, giving ETH real-world utility that extends beyond its value as a digital currency.
Adoption by Businesses and Institutions:Lastly, the adoption and acceptance of Bitcoin and Ethereum by businesses and institutions provide a meaningful example. Some notable companies like Microsoft, AT&T, and Overstock accept Bitcoin as a form of payment for their products. Ethereum, thanks to its smart contract functionality, find its applications in companies and organizations interested in using blockchain for things like supply chain management, voting systems, and records which extends beyond mere transactions. For instance, J.P. Morgan has created the Quorum blockchain, a project to establish a permissioned-variant of Ethereum to handle contracts and applications. Therefore, the acceptance and adoption by businesses demonstrate the different real-world uses and applications of Bitcoin and Ethereum.
FAQs: Bitcoin vs Ethereum
What is Bitcoin?
Bitcoin is the first and most well-known digital currency that was created in 2009. It employs cryptographic principles in a decentralized peer-to-peer network to allow transparent and secure transactions between individuals.
What is Ethereum?
Ethereum is a blockchain-based platform launched in 2015, which features not only its cryptocurrency (Ether or ETH), but also enables the execution of decentralized applications (dApps) and Smart Contracts.
What is the fundamental difference between Bitcoin and Ethereum?
The main difference lies in their purposes. Bitcoin was established as an alternative to traditional currency, aiming to be a medium of exchange and a store of value. On the other hand, Ethereum was created to facilitate peer-to-peer contracts and applications via its own currency vehicle.
Which one is a better investment: Bitcoin or Ethereum?
As the value of both Bitcoin and Ethereum fluctuates significantly, the better investment depends on an individual’s financial goals, risk tolerance and investment strategy. It’s recommended to thoroughly research both before making a decision.
Can Ethereum overtake Bitcoin?
While it’s possible that Ethereum could overtake Bitcoin in value, as some suggest, it largely depends on how these blockchains develop, how they’re adopted and used, and how regulations impact them. Both cryptocurrencies have different goals, so they might grow independently based on their unique value propositions.
Related Entrepreneurship Terms
- Blockchain Technology
- Cryptocurrency
- Smart Contracts
- Proof of Work vs Proof of Stake
- Digital Wallet
Sources for More Information
- CoinDesk: CoinDesk is a leading digital media, events and information services company for the crypto asset and blockchain technology community.
- Investopedia: Investopedia is the world’s leading source of financial content on the web, from market news to retirement strategies, investing education to insights from advisors.
- CryptoCompare: At CryptoCompare, they pride themselves in showing the most accurate live prices, charting and market analysis from the top crypto exchanges globally.
- Cointelegraph: Cointelegraph is a digital publication that covers the latest news and trends in Bitcoin, Blockchain and FinTech.
