Lace two cryptocurrencies most important in the crypto world, Bitcoin y EthereumThey broadly have many things in common, however, they also have great differences. So much so that sometimes it might seem that they are two completely different technologies.
This might sound like something completely illogical, it is not so much in reality. Especially if we take into account that there are different cryptocurrencies. And above all, where each of them are built based on technologies that may or may not be similar to those of Bitcoin. In this article we will focus on studying what are the similarities and differences between Bitcoin and Ethereum.
Analyzing the differences between Bitcoin and Ethereum
Creator of coins
We start with the genesis of these cryptocurrencies, their creators. It is no secret to anyone that the creator of Bitcoin, the tecnología blockchain and the concept of cryptocurrencies is Satoshi Nakamoto, who in 2009 published the first version of Bitcoin. It was he who started the cryptocurrency revolution. A job that would later start all that avalanche of thousands and thousands of cryptocurrencies that would be born derived from their work. Nobody knows who Satoshi Nakamoto is, nor does he speak to give his opinion letting Bitcoin grow freely.
For its part, the creator of Ethereum is a large team of developers, among which stands out Vitalik Buterin, a young man who was a forerunner of the initial vision, wanting to create something much bigger and 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.
Currently, most of Bitcoin's development remains the same. In fact, most developers do not receive stipends for their work. On the other hand, only some of them receive any stipend thanks to donations from people, foundations and pro-crypto organizations. And finally, only a few earn salaries for jobs related to the crypto world of Bitcoin in 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 ICOs that has had a fairly clear development and success.
With this capital, developers, designers, translators and other people who contributed to make Ethereum a reality were paid. This is not really negative, paying for people's work is commendable and fair, but the ICO model that Ethereum used for its development served as a pattern, so that many other projects will try it with dire consequences and billions of dollars in losses, due to ICO scams. On the other hand, after Ethereum, very powerful business interests were established, starting with Ethereum Enterprise Alliance y ConsenSys, which on many occasions have been rejected by the community for their questionable practices
When it comes to decentralization, Bitcoin is the most decentralized cryptocurrency that exists in the entire crypto 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 Ethereum, since in the latter, its developers generate a strong centralization marking the path that the development of Ethereum has to travel.
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 that organization, all under a series of quite debatable actions that generated a strong division in the community and the blockchain, giving rise to Ethereum Classic (ETC), which would be the original cryptocurrency and blockchain of Ethereum by not accepting said deed.
This is something that has not happened in Bitcoin, since it breaks one of the principles of the blockchain and gives rise to censorship.
One of the first differences that we usually see between Bitcoin and Ethereum is the price differential that exists between the two. Bitcoin has always had a higher value than Ethereum, and some reasons for this are: Bitcoin is limited, it is more accepted, it has a much larger user base and it generates more trust as it is a project with more time and maturity.
Ethereum, on the other hand, has a much lower value per token ether. In addition, many people are shocked by the fact that some tokens that make life between Ethereum smart contracts have a much higher valuation than the same cryptocurrency (Ether) of its blockchain. For example, Token Maker (MKR) has a current valuation of about € 521 compared to € 323 for Ether.
However, the common mistake is to look at price and not capitalization. In Maker's case, even though its tokens are worth more, it has a much lower market capitalization than Ethereum.
That is, Ethereum has an inflationary coin issuance system that has made the value of its token maintain a fairly low price growth, something that compensates with the number of tokens issued and that ends up being reflected in its market capitalization, the second largest the crypto 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.
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 of the TOP 500 together would surpass it in power.
Another important feature of Bitcoin mining is that it generates a new block approximately every 10 minutes, it suffers from 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 the same Proof of Work (PoW) but using an algorithm called Dagger-Hashimoto (Ethash) and the Keccak hash function (a function similar to SHA). Mining is intensive in memory use so it was initially 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 is still possible using GPUs, which cannot be done in Bitcoin.
Important characteristics of mining in Ethereum is that it generates a new block approximately every 10-20 seconds, suffers from difficulty adjustments continuously, and does not have a proper halving system, but its emission value decreases according to a consensus reached in the community. Currently, the generation of coins for each new block mined in Ethereum is 2 Ether.
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 its complexity due to the number of entries and exits, as 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 pay is dictated by the demand and supply generated by 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 commission byte. This results in that, if you want to be confirmed in the next block, you will have to pay a high commission. Those who pay less will not be a priority for miners and they will process them when there is less overhead.
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 series of limitations, for example, a normal transaction cannot spend more than 21.000 Gas Units, but smart contracts are virtually unlimited in this sense.
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 amount of 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 in which commissions are handled in both cryptocurrencies is different, but they all end up in the hands of the miners in the end.
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).
The scalability of Bitcoin and Ethereum has big differences. In Bitcoin, scalability is currently limited to about 7-8 transactions per second. But in Ethereum the values go up to 16-20 transactions per second. We talk about Ethereum doubling in scalability to Bitcoin, but nevertheless, Ethereum currently tends to present higher levels of congestion than Bitcoin. This situation is due to the fact that Ethereum carries with it 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. If 5000 GB or 5 TB and increasing dramatically. This makes the scalability issues in both cryptocurrencies apparent. Hence, developers are looking 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 Taproot y Schnorr to improve scalability.
In Ethereum, the bet at the beginning was similar. However, they have decided to abandon all those efforts and focus on changing the entire protocol to provide native on-chain scalability. This thanks to the change of consensus protocol from Proof of Work to Proof of Stake, in addition to the use of sharding in its new protocol, Ethereum 2.0. However, this is a risky bet and at the moment still in development.
One of the biggest differences between Ethereum and Bitcoin is in the smart contracts or smart contracts. Bitcoin was created with a fairly limited smart contract functionality, and its potential can be exploited thanks to Bitcoin Script. This language has a series of OP_CODES that are processed by the nodes and allow us to program logic in the execution of the transaction itself, a functionality that gave Bitcoin the name of programmable money.
However, Bitcoin Script is a more limited language than Ethereum, especially since Ethereum is not Full Turing. Furthermore, it does not natively have an intermediate language that simplifies development, which makes programming advanced systems more complex.
However, although this is not without limitations. Ethereum has a clear advantage in this regard. 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 stood idly by either. In fact, it currently has different projects that aim to develop a Complete Turing smart contract ecosystem. All this with the aim of expanding the power and usability of this network.
Summary of differences between Bitcoin and Ethereum
||ICO in 2014, $ 18 million raised
||Medium (Many decisions depend on a small group of people)
||High, its price is consolidated by a deflationary policy, acceptance and trust.
||Medium, its price fluctuates due to inflationary issuance and the upward pressure of Bitcoin.
|Total coin issuance
||Limited (approx. 21 million coins)
||Unlimited (The total issuance is not limited, the annual issuance at the moment remains at 18 million, ETH 2.0 will take it to 2 million annually)
||Proof of Work (PoW) Algorithm with SHA-256
||Currently PoW algorithm with Ethash (Keccak), with ETH 2.0 the algorithm will change to Proof of Stake (PoS).
||Currently 6-8 transactions per second. With LN and other payment channels, transactions are almost instantaneous.
||Between 16-20 transactions per second. With the change to ETH 2.0 it will be possible theoretically to reach 100.000 transactions per second.
||Limited. Currently there is no Full Turing support.
||Advanced. Full Turing support and a flexible programming language for easy coding.