What Are the Main Differences Between Bitcoin and Ethereum?

Published: 4th July, 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 article highlights the key differences between Bitcoin and Ethereum.

Differences Between Bitcoin and Ethereum at a glance

Bitcoin Ethereum
Limited Supply No Cap
Proof of Work Proof of Stake
Founded by Satoshi Nakamoto Founded by Vitalik Buterin and 7 others
You used to no be able to build app on top of it. You can build apps on top of it
$1.3 trillion market cap $400 bn market cap
You can mint BRC-20 tokens, ordinal NFTs and Runes (all very recent innovations) You can mint ERC-20 tokens and ERC-721 NFTs
Consumes the energy of a small country 23,000 times more energy efficient
7 transactions per second 14 transactions per second
lower transaction fees higher transaction fees
digital gold distributed computer
Main Layer 2 solution is the Lightning Network Layer 2 solutions such as Arbitrum, Optimism, and Base
Main barometer of crypto market -
Spawned Litecoin, Bitcoin Cash, Bitcoin SV, Dogecoin Spawned other platforms such as Solana, Cardano, Polkadot
- Split into Ethereum Classic and Ethereum after a major hack
Store of value Wider range of applications
Store of value Wider range of applications
55,000 nodes 14,000 nodes

Also, see the difference between crypto and bitcoin.

17 Key Differences Between Bitcoin and Ethereum

What Are the Main Differences Between Bitcoin and Ethereum?

1. Bitcoin has a limited supply; Ethereum doesn’t

The supply of Bitcoin is fixed at 21 million.

The Bitcoin blockchain has already minted 19.8 million Bitcoins, and the rest will be issued over time until 2040.

The supply of Ethereum, on the other hand, is not fixed.

Ethereum’s supply is 122 million and is growing 0.4% per year. 

2. Bitcoin uses Proof of Work, while Ethereum uses Proof of Stake

Bitcoin and Ethereum use different consensus mechanisms.

A blockchain is just a series of files stringed together. To add new blocks, network participants must follow certain rules to come to an agreement.

Bitcoin consensus mechanism

In the case of Bitcoin, they use a Proof of Work (PoW) consensus mechanism.

In the PoW system, participants compete to solve a difficult mathematical puzzle.

The first to solve it is allowed to add a new block to the blockchain. In return for doing so, they receive rewards in the form of new Bitcoins plus transaction fees.

At the time of writing, the reward is 3.125 BTC.

The reward gets halved every four years.

Once all Bitcoin has been minted, miners will be rewarded with transaction fees only. 

On the other hand, the Ethereum blockchain uses a Proof of Stake (PoS) consensus mechanism.

Ethereum consensus mechanism

With a PoS consensus algorithm, participants put up collateral in the form of ETH.

The more collateral they lock up, the more likely they will be selected to add a new block to the blockchain.

Validators are rewarded in newly minted ETH plus transaction fees.

What’s special about Ethereum is that anyone can stake their ETH to earn a return. At the time of writing, the APY for staking ETH was 3.4%. 

3. Different founders

Bitcoin was created by an unknown group or person known as Satoshi Nakamoto.

Satoshi’s last email was sent in April 2011, and they have not heard from them since. The wallet that stores Satoshi’s first Bitcoin has remained untouched. 

The Ethereum network was conceptualized by Vitalik Buterin, a 17-year student in Canada who was studying cryptography at the time.

He thought Bitcoin was cool but very good at one thing only: being a superior form of money.

Vitalik thought that blockchain technology could have wider applications, and this is how he came up with the Ethereum whitepaper.

He founded Ethereum alongside eight other people. Most notable of these are Charles Hoskinson, who moved on to create Cardano, and Gavin Wood, who wrote the code for Ethereum and later left to set up Polkadot. 

4. You can build apps on top of Ethereum. 

Ethereum allows developers to use smart contracts to build apps.

This has spawned the creation of thousands of apps.

You may have heard of Uniswap, Lido, Maker, Aave, Eigenlayer, Pendle, or Ethena.

So, in a way, the Ethereum platform is like an Android or iOS platform but for blockchains.

The apps that are built on top of Ethereum are autonomous and decentralized. While a team has built the code, there is no central entity that controls it.

Instead, participants can vote using the app’s governance token to change the app’s features and parameters. 

Having said that, Bitcoin has evolved.

The recent Taproot upgrade means inscribing Bitcoin transactions with additional data is now possible.

This is stoking the creation of a new decentralized finance ecosystem built upon the Bitcoin network. 

5. Bitcoin is three times more valuable than Ethereum

Ethereum Vs Bitcoin

Bitcoin’s market capitalization is $1.3 trillion, making up 50% of the total crypto market cap.

Ethereum’s market cap stands at $400 Billion and makes up 15% of the total crypto market cap.

Market cap is the price times the volume of circulating coins. It is a good way to compare the value of different digital currencies.

6. You can mint tokens on Ethereum

One of Ethereum’s major innovations was that anyone could mint their own token. This can be a meme coin that has no use, or it can have utility within the protocol that has issued it.

For example, you may need it to vote on community proposals. Or it might be used as a medium of exchange in the protocol’s ecosystem. E.g., currency within a game. 

In a similar vein, you can mint non-fungible tokens (NFTs).

We saw the massive popularity of NFTs in the bull run of 2020-2021.

Most of these NFTs were minted on Ethereum. 

Bitcoin has been playing catch up, but it is now possible to mint NFTs and fungible tokens on the Bitcoin blockchain using BTC-20 (ordinals) and Runes protocols.

A lot of meme coins have been minted, but tokens with real utility such as the $NUSD stablecoin are only just starting to emerge. 

7. Energy consumption

Bitcoin mining consumes 23,000 times more energy than Ethereum.

The complex mathematical problems required in Proof of Work require much computational power.

Bitcoin miners purchase special machines called ASICs that can perform these calculations quickly.

ASIC miner
An ASIC miner

However, these machines consume a lot of electricity.

Bitcoin consumes more energy than Austria or Switzerland; however, 50% is from renewable energy sources.

In comparison, Ethereum consumes very little energy. 

8. Ethereum has a faster transaction speed

Ethereum can process about 14 transactions per second compared to Bitcoin, which can only process 7 transactions per second.

These numbers are very low compared to other cryptocurrencies, such as Solana, which can process 65,000 transactions per second. 

9. Ethereum is more expensive

Transactions on Ethereum tend to be more expensive despite the fact that they are faster.

The reason is that the Ethereum ecosystem of dApps is massive, and every time someone wants to transact on them, they need to pay transaction fees in ETH.

This results in the Ethereum becoming congested, which leads to higher fees.

A transaction that might cost less than a dollar on Bitcoin might cost tens of dollars on Ethereum. 

10. Bitcoin is a store of value

Due to its limited supply, Bitcoin is considered a good store of value despite its volatility. Many people like to claim that Bitcoin is digital gold. 

11. Ethereum has many Layer-2 side chains

In order to overcome the congestion issues on Ethereum, several side chains have emerged.

These layer-two solutions bundle transactions on their own blockchain before they send them to be further verified on Ethereum.

By batching transactions, these platforms can process transactions much faster. Popular layer two solutions are Arbitrum, Optimism, and Base. 

At the same time, Bitcoin has developed its own layer two solutions called the Lightning Network.

12. Bitcoin is the leader

Bitcoin is the leader

Ethereum and other cryptocurrencies are very dependent on Bitcoin’s price movements.

Whenever Bitcoin reaches an all-time high, other digital assets pick up in value.

Conversely, if the value of Bitcoin drops, then Ethereum and the rest of the market will drop. Bitcoin is the main barometer of the crypto market. 

13. They have spawned different cryptocurrencies

Shortly after Bitcoin, a bunch of new cryptocurrencies emerged.

These include Litecoin, Dogecoin, Bitcoin Cash, and Bitcoin Satoshi Vision.

Apart from Dogecoin, they all wanted to be a faster, lighter, and more scalable version of Bitcoin.

While many of these coins have a substantial market cap and large communities, none have managed to replace Bitcoin. 

Ethereum, however, has its own set of contenders.

Cardano, Polkadot, Solana, Aptos, Cosmos, and many more are all claimed to be better and faster than Ethereum.

However, Ethereum has locked in the network effect as a first mover in this space. It is very hard to replace an incumbent with network effects, even when your tech stack is better. 

14. Different native tokens

The Bitcoin blockchain is powered by Bitcoin coins, denoted as BTC, while Ethereum is powered by Ether tokens (ETH).

15. Ethereum has been hacked

Shortly after it launched, some people in the Ethereum community created the first Decentralized Autonomous Organization (DAO).

Participants could exchange ETH for DAO tokens and vote on how the ETH would be used.

It was the first time the general public could participate in such a venture.

However, shortly after it launched, the DAO was hacked. The hacker started draining DAO of its ETH.

In order to prevent the hacker from winning, the Ethereum community decided to create a hard fork in the blockchain.

This was equivalent to getting rid of the old blockchain and starting anew.

However, once they made the fork, they found that miners continued to mine the old fork.

This is now called Ethereum classic, and there are still people who, to this day, validate transactions on it. 

16. Ethereum has a wider range of applications

While Bitcoin is a digital store of value, Ethereum is a currency that powers various applications.

From digital identities to supply chain management, Ethereum is a much more versatile platform.

17. Bitcoin is more decentralized

A key measure of how robust a network is is how many participants are validating transactions.

Bitcoin has close to 55,000 nodes, while Ethereum has about 14,000. 

FAQs

Should I buy ETH or BTC?

Ethereum has seen higher annualized returns than bitcoin, which started later and has a smaller market cap. Bitcoin maxis believes Bitcoin to be a good store of value due to its limited supply. On the other hand, Ethereum has locked in its network effects, making it hard for other coins to compete against it. In a podcast with Tim Ferris, venture capitalist Naval Ravikant recommends that people who are clueless about crypto invest in Bitcoin and Ethereum in the long term. 

Is Ethereum the next Bitcoin?

Ethereum will not win the store of value narrative because it does not have a fixed supply. However, many believe that Ethereum’s market cap will exceed that of Bitcoin at some point in the future. They call this event the “flippening”. Whether this will happen or not remains to be seen.

What is the point of Ethereum?

Ethereum uses a Turing-complete programming language, which makes it much more general-purpose. While Bitcoin is only a currency, Ethereum allows you to build various applications on top of it. Examples includes lending and savings apps, a marketplaces, insurance providers, voting platforms, computer games, and more. 

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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