Difference Between Bitcoin and Ethereum Blockchain

Published: 18th June, 2024 | Last Updated: 1st July, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

This post will explain the difference between Bitcoin and Ethereum blockchain. Together, these two blockchains account for 66% of the total crypto market. If you want to understand crypto in-depth, you need to understand these two blockchains. 

Key Differences Between Ethereum and Bitcoin

infographic explaining Differences Between Bitcoin and Ethereum
  • Bitcoin is considered a store of value, while Ethereum is the iOS/Android platform of the crypto world. Anyone can build an app on top of Ethereum.
  • Bitcoin uses an energy-intensive algorithm that guzzles electricity, while the Ethereum network is 23,000 times less energy-intensive. 
  • Bitcoin was the first cryptocurrency to emerge in 2009, while Ethereum launched in 2015. 
  • Ethereum has many contenders, such as Solana, Cardano, Polkadot, etc, who want to be bigger, better, and faster than Ethereum. Bitcoin, on the other hand, has won the store of value narrative, with few contenders trying to claim this position. 
  • Bitcoin transactions are slower but cheaper than Ethereum transactions.
  • Bitcoin uses a proof of work consensus mechanism while Ethereum uses proof of stake.
  • Bitcoin miners mine Bitcoin, while Ethereum validators validate transactions on the Ethereum network.

Also, see the difference between crypto and bitcoin.

Now that we have outlined the main differences, let’s take a closer look at each. Bitcoin and Ethereum both serve different purposes.

The Bitcoin Blockchain

Bitcoin Blockchain

Bitcoin uses a proof-of-work consensus mechanism, which requires a lot of electricity. The easiest way to think of a blockchain is like a giant folder of spreadsheets, with each spreadsheet linking to the next. What’s special about blockchains is that there is no central authority managing that data. 

When you go to the bank and send your friend Shawna $50, the bank debits $50 from your account and credits Shawna with $50. 

A blockchain is a peer-to-peer network where anyone can participate to verify transactions. 

With a blockchain, there is no central intermediary. 

Instead, anyone can download a copy of the transaction database and update it when people send a request for a new transaction. E.g. Send Shawna $50. 

The way you verify that this message is real is by using cryptography. We won’t go into the cryptography part here. If you want to geek out, you can read my article, which explains what Bitcoin is and how it works

With Bitcoin, the reason people participate in validating transactions is that they are rewarded with new Bitcoin if they add the next spreadsheet (known as block) and link it up to the rest. 

Who Gets Selected to Add the New Block? 

In the Bitcoin network, the person who adds the new block solves a mathematical puzzle. This puzzle requires a lot of energy.

The fact that it requires a lot of energy to add data to the blockchain is what protects it from being altered.

The older a transaction is on the blockchain, the more energy it would require to change that entry. 

Bitcoin is Viewed as a Store of Value

What’s special about Bitcoin compared to Ethereum is that Bitcoin has a limited supply of 21 million Bitcoins.

At the time of writing, 19.8 million BTC were in circulation, which means that there were only 1.2 million Bitcoins left to come online.

By 2140, there will be no more new Bitcoins coming into the market. For this reason, Bitcoin is often thought of as digital gold.

Gold is the only other form of money that is limited in supply and acts as a store of value. 

Who Created Bitcoin?

The person or group behind bitcoin is known as Satoshi Nakamoto.

Satoshi’s last message was in 2014, after which he went silent. The bitcoin that belongs to a wallet address that he owns has never moved.

Ethereum

Ethereum Blockchain

In 2011, a 17-year-old whizz kid by the name of Vitalik Buterin came across the Bitcoin whitepaper written by Satoshi Nakamoto.

Vitalik, a Canadian-born genius, was studying for a degree in cryptography at the University of Waterloo. Inspired by the concept of a decentralized digital currency, Vitalik started to imagine an alternate decentralized platform that would allow you to decentralize any information, not just digital money.

He proceeded to develop his own whitepaper and, after sharing it on a bunch of forums, started Ethereum alongside eight other founders.

What’s Special About Ethereum?

Ethereum stands out for two features. 

1. dApps

The first is that developers can write smart contracts on top of the Ethereum blockchain.

These self-executing contracts mean you can introduce “if..then..” logic on top of the Ethereum platform.

For example, if John sends $100 to XYZ address on the Ethereum blockchain’s public ledger, then $50 is sent to John’s digital wallet as a loan.

And just like that, you can have an app that is automated, decentralized, and acting like a bank.

Pretty cool. 

People have built thousands of apps on top of Ethereum.

Since most of these have financial applications, they are known as Decentralized Finance apps or dApps for short. 

Some of the largest dApps built on Ethereum are

  • Uniswap, the largest decentralied exchange
  • Compound, a lending and savings platform
  • Maker and its DAI stablecoin which is pegged to the US dollar. 
  • Yearn Finance, an app for optimizing yields on your investments
  • Curve Finance, the largest decentralized exchange for stablecoins

Ethereum accounts for just under 60% of the value of the assets that are locked on such applications. 

2. Tokens

The second thing that’s cool about Ethereum is that anyone can issue a token on top of it.

I could issue an ElementalCrypto (EC) token if I liked.

It could be a meme coin, or I could give it utility by asking people to pay me in EC tokens to read this website.

Tokens printed on top of Ethereum are known as ERC-20 tokens.

However, you can also mint NFTs.

What’s special about non-fungible tokens is that they represent uniqueness.

Just like there can only ever be one Mona Lisa, an NFT assigns unique provenance to a digital work of art.

NFTs can also be used for ticketing, digital identities, and a lot more. 

The largest and most popular NFTs were first issued on Ethereum. 

Ethereum Consensus Mechanism

When Ethereum first launched, it used a proof of work consensus algorithm just like Bitcoin did.

However, in September 2022, Ethereum switched to a Proof of Stake consensus Mechanism.

In a PoS system, validators are chosen based on the amount of cryptocurrency they have staked, which is a minimum amount of coins locked into a smart contract on the blockchain.

The validators with larger stakes have a higher chance of being selected to validate new blocks and earn transaction fees.

Suppose a validator fails to validate a transaction properly. In that case, they may lose some or all of their stake as a penalty, known as slashing. 

Anyone can stake on the Ethereum network. As an investor, you can delegate your ETH to a validator, and they will share the rewards with you. 

ETH Supply

Ethereum does not have a fixed supply. Instead, its supply grows by about 2% per year to reward validators with new ETH.

This is a major reason why Ethereum is not considered a store of value. 

The native coin of Ethereum is ETH.

You can think of ETH as a medium of exchange in the Ethereum ecosystem.

An analogy I often use is to compare it to the tokens you buy to enter a theme park. In order to go on all the amazing rides available on the Ethereum platform, you need to pay in ETH. 

Why Does Bitcoin Maxis Criticise the Ethereum Blockchain?

Bitcoin Maxis

Hardcore Bitcoin fans don’t like Ethereum.

They feel it is nonsense and that one could build better and faster apps on Amazon web services rather than a clunky blockchain.

A key criticism Bitcoiners leverage against Ethereum is the Hard fork and DAO hack.

I’ll explain this briefly, but you can read about it in more detail in my explanation of Ethereum.

In 2016, a group of ETH enthusiasts decided to try an experiment.

They would collect a pool of funds. Then, members of the pool could vote on how those funds would be invested.

The problem is that the Decentralised Autonomous Organization (the DAO as it was called) was hacked. As the hacker was bleeding the funds of its ETH, the Ethereum community voted to scrap the old blockchain and start a new one.

This is like saying “hey, everyone, delete your files and start anew”.

Except once the drama was over, a group of miners continued to mine transactions on the old blockchain.

This blockchain is now known as Ethereum Classic and still, to this day, it has a market cap of $3.5 billion. 

Environmental Concerns: Bitcoin vs Ethereum

Bitcoin requires significant computational power, which translates into a lot of energy consumption.

According to the CBECI, Bitcoin is estimated to consume 67,000 GWh to 240,000 GWh, while Ethereum consumes 7 GWh.

However, about half of Bitcoin’s energy consumption is from renewable energy sources because these are the cheapest.

Also, bitcoin mining is being applied to innovative use cases that actually reduce greenhouse gas emissions.

For example, it is often the case with oil plants that they need to flare gas. This is emitted in the air, and as we all know, methane is about 80 times worse than CO2.

However, by setting up a Bitcoin mine on the spot, you can harness that wasted gas, convert it to electricity, and mine Bitcoin.

Bitcoin can also be mined when the grid is not maxing out solar and wind power projects.

This energy is wasted, but if you use it to mine Bitcoin, it makes the renewable energy project more profitable.

Which means more can be developed. 

Market Caps Compared

Difference between Bitcoin and Ethereum blockchain

A good way to compare two blockchains is to look at their respective market cap.

Market Capitalization is the price of the coin times its circulating supply.

At the time of writing, the market cap of Bitcoin was $1.3 trillion, while the market cap of Ethereum was $422 billion.

The total market cap of all digital assets is $2.57 trillion. Bitcoin accounts for 50%, while Ethereum accounts for another 15%. 

Bitcoin vs Ethereum Transaction Speed

Ethereum can process about 14 transactions per second, while Bitcoin can do about 7.

However, both of these are much lower than VISA or MasterCard, which can process 24000 transactions per second.

To address this issue, both Bitcoin and Ethereum have second-layer blockchains that bundle transactions faster and send them for verification back to the main blockchain.

These are known as Layer 2 blockchains. Popular L2 on Ethereum and Arbitrum, Optimism, and Base, while the most popular L2 on Bitcoin is the Lightening Network. 

FAQs

What is the main difference between Bitcoin and blockchain?

Bitcoin is two things. The Bitcoin blockchain network uses blockchain technology to execute and validate transactions in a decentralized, trustless, peer-to-peer manner. Bitcoin is also the native coin of the Bitcoin network. A blockchain is a publicly available open ledger where anyone can participate to view and verify transactions. 

Is it better to have Bitcoin or Ethereum?

Bitcoin is considered a store of value. If it were to replace gold as a store of value, BTC’s price would soar to $700,000. Ethereum is the second-largest cryptocurrency and accounts for 60% of the total value locked on decentralized apps. It is the largest blockchain platform in terms of the number of apps built on top of it and is expected to continue to dominate the market. Both Ethereum and Bitcoin are considered solid long-term bets if you have a long-term horizon. This is not financial advice. 

Do all crypto use the same blockchain?

No different crypto coins use different blockchains. For example, if you try to send Ether to a Bitcoin address, you will lose your ETH because the two blockchains do not speak to each other. 

Why is Bitcoin not a blockchain?

The Bitcoin Network uses a blockchain. Miners on the Bitcoin network are rewarded for verifying transactions and adding new blocks of data to the previous chain of blocks. Hence, the term blockchain. At the same time, lower-cap Bitcoin refers to the native currency of the Bitcoin blockchain. 

Is blockchain just Bitcoin?

Now, there are many different types of blockchains. A coin can live on its own blockchain ( ETH, SOL, BTC), or it can live on many blockchains (USDT, USDC). You can also have public blockchains,  permissioned or private blockchains. For example, a group of banks could build a blockchain that only they have access to. The whole point of a blockchain is that it is transparent and that anyone can check the transactions. 

What blockchain is better than Ethereum?

ETH holds the leading position in terms of market cap and total value locked. However, contenders that claim to be faster and better are Solana, Cardano, and Polkadot, to name a few. 

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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