What is the difference between Ethereum and Bitcoin

4 Months ago / Wiki / For beginners

Bitcoin and Ethereum are two most popular cryptocurrencies. Together they are responsible for more than a half of total CryptoMarket Capitalization. From the very first sight Ethereum may look the same as Bitcoin, but despite having something in common, they have more differecies than similarities, due to some innovative features of Ethereum and we would try to put some light on this.

Formal speaking Ethereum is a blockchain-based  platform for creating and deploying decentralized applications (Dapps). It is under permanent development by independent programmers world wide. It is important that the platform is decentralized and open source, so that no one can control the network.

 

Why are they similar

Ethereum network has the same functionality as Bitcoin in terms of being a digital currency, with ETH (Ether) token to transfer value. When using both of them you control value (money) with private keys. And both networks stores all history of transactions.

The identical principle lies in grouping transactions into blocks by miners. More over for every successfully mined block (basically for dedication of their computation power for solving complex mathematical problems – the so called Proof-of-Work principle), the miners are rewarded with ether, this also looks very similar to Bitcoin.

This is the point where the things start to be different.

 

What is the difference

Bitcoin offers one particular application of blockchain technology, a peer to peer electronic cash system that enables online Bitcoin payments. In fact, Bitcoin is only one of several hundred applications that use blockchain technology today. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.

As one said - Blockchain is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.

Ethereum provides developers with the tools to build decentralized applications and to use all the power of blockchain technology in every sphere (any centralized services can be decentralized using the Ethereum platform ) you can think of (some are more suitable, while other less).

While bitcoin aims to disrupt PayPal and online banking, ethereum has the goal of using a blockchain to replace intermediary of third parties — those that store data, transfer mortgages and monitor complex financial instruments

Here comes another difference - you as a user of Ethereum, will have a contract account as well. This is called Smart Contract and it store a code which is triggered with transactions on the network.

Smart contract is just a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.

There is a feature of contracts so that traditional software can interact by using Application Binary Interface (ABI), similar to API. That is what valuable among developers. An easy example – think of it as of Facebook (which allows to create content/groups etc). Ethereum is similar in a way – it gives you ability to digitalize peoples financial instruments.

 

Among other differences

  • - The size of the block. The Bitcoin network has a limitation upon the maximum size of the block to prevent blockchain from growing too fast. Actually, there are no hard limitations on the block size in the Ethereum, but there is a limitation on the amount of gas that can be spent in one block, but it can be increased over time.
  • - While in Bitcoin you pay a simple transaction fee, in Ethereum you pay for both computation and memory storage when making transactions. There is a special term «Gas», this is used to measure the complexity of the computation, protecting network from hackers. This is also a reward for miners.
  • - Block mining time - The Bitcoin network is programmed to mine Bitcoins every 10 minutes. This time for Ethereum is reduced to 14 seconds, which makes the transaction settlement speed faster.

As we have seen Ethereum is a much broader tool, which is a platform to create any decentralized application, even the second Bitcoin. But Bitcoin, being the first on the market has a wide support behind and remains cryptocurrency #1.