Lesson 4: Bitcoin or Ethereum? Same musical sheet, different melody
Even though the two most popular cryptocurrencies are both blockchain based, they have their differences. Ranging from their creation or value to their issue or the consensus profile they use, Bitcoin and Ethereum are battling to rule the crypto scene.
American football and rugby, pizza and meat pie, yoga and pilates. As much as any two sports, dishes or fitness pursuits share many things, they also differ in many ways. The same holds for Bitcoin (BTC) and Ethereum (ETH): both are blockchain based, but, whereas Bitcoin has basically been developed to function as a means of digital payment, Ethereum seeks to become the quintessential platform when it comes to developing and distributing decentralised apps, particularly financial sector ones (DeFi). Both of these most popular cryptocurrencies share certain features, but also display quite a few differences.
How did they come about?
Let’s start at the beginning. Back in 2009, Satoshi Nakamoto, the Bitcoin creator, started the cryptocurrency revolution. As is the case with the famed British graffiti artist, Banksy, nobody really knows who Nakamoto is. He left Bitcoin in the community’s hands some time ago.
Ethereum, on the other hand, was created by a team of developers, among which the programmer and writer, Vitalik Buterin, born in Russia, brought up in Canada and currently living in Switzerland, is the most well-known.
Bitcoin was developed completely openly. Satoshi Nakamoto neither asked for nor raised funds. The original group of developers were unpaid. Today, only a few of them receive a salary courtesy of individual donations from foundations and organisations that support the crypto world.
Ethereum developed after an initial offer of money was made in 2014 –a process known as an Initial Coin Offering (ICO)–, which raised $18 million. Developers, designers, translators and other key actors in making the project a reality were paid from this capital.
Bitcoin is a decentralised cryptocurrency. It is the network with the most nodes, miners, developers, processing power and forks (when the nodes decide to make changes to the software).
Ethereum, on the other hand, is more centralised by its developers, who map the direction to be followed by the design of the blockchain.
To date, the Bitcoin token has always been worth more than the Ethereum one. In 2023, a BTC is priced at €25,651, whereas an ETH stands at €1,704. Apart from the fact that the Bitcoin is better known and more widespread, one of the reasons behind this price difference is the issuance model used.
Bitcoin has a limited number of coins: 21 million to be exact. At present, 90% of the total has already been issued.
The Ethereum issue system knows no limit and is inflationary, though it has control measures in place such as token burning to avoid inflation rising over 2% a year.
Another of the big differences between Bitcoin and Ethereum lies in their consent protocols. Bitcoin uses the Proof of Work (PoW) model, which is a mining model only open to application-specific integrated circuit (ASIC) miner devices, which are basically powerful computers that perform very specific functions. Miners receive a reward when they manage to be the first ones to solve the calculation that validates a new block.Since September 2022, after ‘The Merge’, Ethereum has been using the Proof of Stake (PoS) model, which has cut energy costs by 99%, as transaction validation is no longer generated by a complex mathematical calculation. Anybody that wishes to be selected to add blocks to a PoS blockchain must stake a certain amount of their crypto coins as collateral. Selection, or the possibility of being selected, is random, though those staking the bigger amounts of crypto coins have a better chance of being selected.