What Is Ethereum and How Is It Different from Bitcoin?

For investors, it is important to understand the main differences between Bitcoin and Ethereum. Ethereum is growing in popularity and is constantly compared to Bitcoin. Still, they are in fact different types of projects.

Bitcoin is a cryptocurrency operated by a decentralized authority and there are no physical Bitcoins. Bitcoin is distributed over a public ledger called blockchain. It is continuously growing as completed blocks are added to it. This allows users to work faster, more efficiently and with a reduced risk when compared to traditional currencies.

Ethereum is also running on blockchain and is used for two purposes: it is traded as a digital currency (such as Bitcoin) and it is used to run applications and to monetize work.

There are four most commonly mentioned differences between Bitcoin and Ethereum. First and the most important, Bitcoin and Ethereum differ in purpose.

While Bitcoin is created as an alternative to regular money (digital currency), Ethereum is developed as a platform which facilitates peer-to-peer contracts and applications inside its own network. So, Ethereum is not just a digital currency (Ether). Its blockchain contains transactions and the results of executed smart contracts. These smart contracts are compatible with any wallet. Since executing smart contracts has a cost, node owners are compensated with Ether. Given the fact that more complicated smart contracts cost more to execute, users are motivated to make more efficient smart contracts. Ethereum’s smart contracts are cheaper and more secure than traditional contracts.

Bitcoin and Ethereum also differ in some technical ways. For example, the programming language. Ethereum uses Turing complete and Bitcoin uses a stack-based language. Even though Turing complete language has some advantages, it also brings security complications.

Block time is another technical difference. Ethereum transaction is confirmed in seconds compared to minutes for Bitcoin’s average block time of 10 minutes.

Finally, Bitcoin and Ethereum cost their transactions in different ways. The reward for mining Bitcoin is currently valued at 12.5 Bitcoins, meaning the total supply of Bitcoins will eventually reach 21 million and stop (it has higher holding than spending value). Ethereum rewards miners with 5 Ethers given for each block. The amount of Ether earnable through mining is capped at 18 million per year, so there will always be new Ether entering circulation (higher spending value).



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