Differences between Bitcoin and Ethereum

Learn about some of the main differences between Bitcoin and Ethereum, the two largest blockchain projects and communities in the world, and understand how these projects have acquired the value and importance they have today. 

The two cryptocurrencies, Most important in the world, Bitcoin y Ethereum, have broadly speaking many things in common, but also great differences. In fact, sometimes it might seem like they are two completely different technologies.

Bitcoin and Ethereum have similarities in that their roots lie in blockchain technology. They are also virtual assets that are used as a form of payment or a store of value.

However, the two have big differences (even if it seems like it doesn't make sense), since the base of their technologies is different: while Bitcoin is developed to be a payment method, Ethereum aims to become a platform for the development of new applications. and use cases.

Analyzing the differences between Bitcoin and Ethereum

Creator of coins

We begin with the genesis of these cryptocurrencies, their creators. It is no secret to anyone that the creator of Bitcoin is Satoshi Nakamoto who in 2009 published the first version of Bitcoin.

With the Bitcoin whitepaper, the idea of ​​the tecnología blockchain (as we know it today) and the concept of cryptocurrencies. It was he who started the cryptocurrency revolution. His work would start an avalanche of thousands and thousands of cryptocurrencies that would be born derivatives of Bitcoin. Nobody knows who Satoshi Nakamoto is, He disappeared some time ago and left the project in the hands of the community, which continues to work on a free development.

For its part, Ethereum was created by a large team of developers, among which stands out Vitalik Buterin, a young man who had the initial vision of create something much bigger and more complex than Bitcoin, trying to transform the world of cryptocurrencies with the arrival of the smart contracts Turing Complete. He is a person currently known to many people, a public figure, who constantly gives his opinion influencing the growth of Ethereum.

Financing for development

Another interesting point of comparison between Bitcoin and Ethereum is the way in which both projects financed their development. In the case of Bitcoin, its development was completely free and there was no initial economic interest. In fact, Satoshi Nakamoto developed the software without resorting to soliciting or collecting funds. Even the initial Core participated in the development of Bitcoin without receiving any payment for their work.

Today, much of the development of Bitcoin remains the same. In fact, most developers don't get paid for their work. On the other hand, only some of them receive any salary thanks to donations from people, foundations and pro-crypto organizations. And finally, only a few earn salaries for Bitcoin-related jobs at other companies, and not directly for their work on the protocol.

In the case of Ethereum, the situation is very different. Ethereum began its development after a ICO (Initial Coin Offering) in 2014 with which it was possible to collect the sum of 18 million. In fact, Ethereum was the first ICO in the crypto world, and practically one of the few that has had quite clear development and success.

With the capital raised, developers, designers, translators and others who contributed to making Ethereum a reality were paid. This is not negative, paying for people's work is laudable and fair, but the ICO model that Ethereum used for its development served as a pattern for other projects to try with disastrous consequences and billions of dollars in losses, due to at ICO scams.

On the other hand, after Ethereum, very powerful business interests ended up being established, starting with Ethereum Enterprise Alliance y ConsenSys, which on many occasions have been rejected by the community for their questionable practices

Decentralization level

As far as decentralization is concerned, Bitcoin is the most decentralized cryptocurrency in the world. It is the network with the largest number of nodes, miners, developers, computing power and forks.

In addition, the development of Bitcoin is much more decentralized than that of Ethereum, since in it, its developers generate a strong centralization, marking the path that the development of the blockchain has to follow.

On the other hand, Ethereum is a project that at the time was tainted by breaking the immutability of the blockchain, by rewriting a part of its history to erase the theft that occurred in The dao and recover the funds of the organization, all under a series of quite debatable actions and that created a strong division in the community and the blockchain, giving rise to Ethereum Classic (ETC), which would be the original Ethereum cryptocurrency and blockchain that refused to accept said rewrite.

This is something that has not happened in Bitcoin, since it breaks one of the principles of the blockchain and gives rise to censorship.

Coin price

One of the first differences that we usually see between Bitcoin and Ethereum is the difference in price between the two. Bitcoin has always been worth more than Ethereum, and some reasons for this are:

• Bitcoin has a limited issue.
• It is more accepted by users.
• Has a much larger user base
• It generates more confidence as it is a project with more time and maturity.

Ethereum, on the other hand, has a much lower value per token. In addition, many people are struck by the fact that some tokens that live among Ethereum's smart contracts have a much higher valuation than the same cryptocurrency (Ether) on its blockchain.

However, this is a common mistake, as users should rely on the capitalization and not the token price.

On the other hand, Ethereum has an inflationary coin issuance system, which has kept the value of its token with a fairly low price growth, something that it compensates with the number of tokens issued and that ends up being reflected in its capitalization of market, the second largest in the world.

Total coin issuance

Another difference between Bitcoin and Ethereum is the issuance of coins. In the case of Bitcoin, the issue is determined to a total approximate 21 million bitcoins, you can never exceed that amount. Also, the emission of Bitcoin decreases over time until it reaches 0, thus, a deflationary type emission.

Instead, Ethereum has a total inflationary emission and an infinite emission of coins in its entirety. The latter is a point still debated by the community, and there is no consensus on what should be done about it. To this is added that Ethereum has an inflation control that prevents inflation of more than 2% per year from being generated, based on the total number of active currencies within the system. This is possible because the generation of coins per block in Ethereum is very small, currently reaching 2 Ether per block (approximately every 15 seconds).

There are currently more than 111 million Ether in circulation and more will continue to be generated, even as Ethereum 2.0 and its mining model Proof of Stake (PoS) go active.

Cryptocurrency mining

Mining is another of the big differences between Bitcoin and Ethereum. First, Bitcoin uses the well-known model of Proof of Work (PoW), using the algorithm HashCash and the hash function SHA-256 to perform computational work. This is a mining model that is currently only possible using ASIC miners due to the enormous computational power that the Bitcoin network has. In fact, The Bitcoin network is so powerful that not all the supercomputers in the TOP 500 together would surpass it in power.

Another of the important characteristics of Bitcoin mining is that it is generates a new block approximately every 10 minutes, suffers of difficulty settings every 2016 block (about 14 days) and has a halving (split in half the block reward) every 210.000 blocks (about 4 years). Currently, the generation of coins for each new block mined in Bitcoin is 6,25 BTC.

For its part, Ethereum uses, since September 2022 with The Merge, the so-called Proof of Stake (PoS), or Validation Test, which has reduced the pollution generated by up to 99% the fact of carrying out transactions on the Ethereum blockchain.

Before the change, transactions on Ethereum were carried out using an algorithm called Dagger Hashimoto (Ethash) and the Keccak hash function (a function similar to SHA). Mining was intensive in memory use, so in principle it was resistant to ASICs, a situation that was overcome in 2018 with the appearance of the first ASIC for this cryptocurrency, the AntMiner E3. However, mining on Ethereum was still possible using GPUs, which could not be done with Bitcoin.

mining on ethereum generated a new block approximately every 10-20 seconds, suffered from continuous difficulty adjustments, and did not have a proper halving system, instead its emission value decreased according to a consensus reached in the community. 

Commission management

One point that marks the difference between Bitcoin and Ethereum is the way they handle the mining commissions.

In Bitcoin, mining commissions take into account values ​​such as the complexity of the mining due to the number of inputs and outputs, since this affects the size of the space occupied by the transaction. This space is what will finally tell you the price of the transaction and the commission to be paid is dictated by the demand and supply generated by the users depending on the network congestion.

That is, in Bitcoin if the network is very congested, the high demand for transactions will make the space supply of the blocks in Bitcoin (limited to 2 MB maximum low followed) is insufficient to serve everyone. In case the network has many transactions to process, the miners will prioritize those who pay more satoshis (the smallest decimal unit of bitcoin) per byte of commission. This results in, if you want to be confirmed in the next block, You will have to pay a high commission. The ones that pay less will not be prioritized by the miners and will be processed by them when there is less overload.

TX Cost (BTC) = (TX in Bytes * Network Price per Byte) * BTC Cost

In Ethereum the scheme is similar, but instead of storage space we talk about Gas, or what is the same, computing power to consume. Gas is a unit of measurement used in Ethereum to measure the amount of computing power it will take to process a certain action within the Ethereum engine: the Ethereum Virtual Machine (EVM). This Gas has a number of limitations, for example, a normal transaction cannot spend more than 21.000 Gas Units, but smart contracts are virtually unlimited in this regard.

These Gas Units have a cost that is measured in Gwei (the smallest decimal unit of Ether). From there, to know the total to pay for a transaction, a relationship is established between the total Gas that the transaction needs, the cost of the Gas Unit in Gwei, and the value of Ether, which leaves us with this formulation:

Cost Tx (ETH) = ((Gas TX * Cost Gas) * 0,00000001) * Cost Ether

As you can see, the way commissions are handled in both cryptocurrencies is different, but in the end they all end up in the hands of Bitcoin miners or validators in the case of Ethereum.

Another curiosity about the commissions is that in Bitcoin the coinbase transaction that manages these funds can only be spent after 100 confirmations (approximately 16 hours), while in Ethereum the balances are available when 30 confirmations are completed (approximately 7 minutes).

Scalability

The scalability of Bitcoin and Ethereum present big differences. In Bitcoin, scalability is currently limited to about 7-8 transactions per second. But in Ethereum the values ​​go up to the 16-20 transactions per second.

Ethereum is twice as scalable as Bitcoin, but it usually presents higher levels of congestion than Bitcoin, since it has the activity of thousands of additional tokens that in sum overload the network, something that does not happen in Bitcoin.

Currently, the Bitcoin blockchain occupies 300 GB while that of Ethereum is 5000 GB. This makes the scalability issues in both cryptocurrencies apparent. Hence, developers look for ways to improve this situation. For example, in Bitcoin they bet on second layer solutions such as Lightning Network and on-chain solutions like tap root y Schnorr to improve scalability.

In Ethereum, the bet at the beginning was similar, with second layer protocols. However, they have decided to drop all those efforts and focus on changing the entire protocol to provide native on-chain scalability. In part, thanks to the consensus protocol change from Proof of Work to Proof of Stake.

On the other hand, it is expected that in the future, the implementation of sharding on Ethereum greatly improve scalability.

Smart Contracts

One of the biggest differences between Ethereum and Bitcoin is in the smart contracts or smart contracts.

Bitcoin was created with quite limited smart contract functionality, and its potential can be exploited thanks to Bitcoin script. This language has a series of OP_CODES, which are processed by the nodes and we allow you to program logic in the execution of the transaction itself, functionality that gave Bitcoin the name of programmable money. 

However, Bitcoin Script is a more limited language than Ethereum, especially since it is not Turing Complete. In addition, it does not natively have an intermediate language that simplifies development, which makes programming advanced systems more complex.

This limitation of Bitcoin was exploited by Ethereum to carve out a niche. For this he developed the Ethereum Virtual Machine (EVM)a virtual machine capable of executing Turing Complete instructions. To do this, it has a language similar to JavaScript so that any programmer could develop scripts (smart contracts) to launch on its blockchain. As a result, Ethereum is the platform used to deploy decentralized applications par excellence.

However, while this is not without its limitations either. Ethereum has a clear advantage. One that has been widely used to develop a broad ecosystem of decentralized applications oriented to the financial sector (DeFi). A sector whose flourishing may be the prelude to the massification of cryptocurrencies.

Of course, Bitcoin has not sat idly by either. In fact, it currently has different projects that aim to develop an ecosystem of Turing Complete smart contracts. All this, with the aim of expanding the power and usability of this network.

Summary of differences between Bitcoin and Ethereum