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Bitcoin and Ethereum are the two biggest giants of the cryptocurrency world and each serves a different purpose. The key difference is that Bitcoin is designed to be a currency, while Ethereum is a network of applications.
While they share some similarities, Bitcoin and Ethereum are two very different blockchains with distinctly different goals. They should each be thought about in their own regard, rather than compared like Coke and Pepsi.
Bitcoin is the world's first cryptocurrency and blockchain, which exists primarily to serve as a borderless digital currency. As far as modern blockchain technology goes, it is rather old and clunky, but that's all it needs to get the job done. When people talk about Bitcoin, they are either talking about the coin itself (also known as BTC) or the network as a whole, on which Bitcoin transactions are made and recorded.
Ethereum on the other hand aims to be a network of decentralised applications (dApps) powered by its native cryptocurrency Ether (ETH). These dApps look similar to websites on the Internet, but instead of being hosted on a physical server owned by a company, they are hosted on a smart contract on Ethereum. Smart contracts also play host to a whole ecosystem of tokens, which are additional cryptocurrencies hosted on the Ethereum. In 2020 Ethereum began the transition from proof-of-work mining (like Bitcoin) to proof-of-stake in order to drastically speed up the network.
A smart contract is a type of autonomous decentralised application.
Smart contracts are one of the reasons everyone’s so excited about cryptocurrencies and the blockchain.
It’s like having a robot that can do things automatically and which theoretically can’t be hacked or tampered with.
For example, someone could put $500 into an account guarded by a smart contract and set it up to send $5 to someone each year for their birthday for the next 100 years.
They can theoretically do this with 100% certainty that the money will be sent exactly as programmed and 100% certainty that no one can ever tamper with that program or steal the money.
Without smart contracts, you’d have to give the money to someone else and then trust them to send it onwards, even after you’re gone.
The blockchain is common to both Bitcoin, Ethereum and (almost) all cryptocurrencies. The decentralisation of the blockchain system is what makes it 100% reliable and tamper-proof.
But being able to program various functions into the blockchain, like sending $5 a year for 100 years, is the smart contract in action. That’s what Ethereum added.
While Bitcoin also allows for simple programmable actions similar to smart contracts, Ethereum was specifically designed to allow an extremely flexible range of smart contracts.
As you can imagine, smart contracts have enormous implications for businesses in almost any industry. A lot of the new cryptocurrencies being created these days are offering built-in smart contract technology.
There are a lot of similarities other than the programming.
Also, both coins have scaling problems. Because they’re so old, both Bitcoin and Ethereum are having trouble with being too popular and having too many people using them.
Having too many users means both can experience slower transactions and higher transaction costs. To solve this, both are also introducing their own different solutions to this problem.
Over the years both coins have gone their separate ways, but their intended solutions to the scaling problem will make them even more different.
Over the years Bitcoin has had offshoots that were specifically designed to solve its scaling problem. Litecoin and Bitcoin Cash are two well-known examples.
But the Bitcoin as we know it today resisted those hard forks and remained unchanged. Instead, it introduced two solutions called “SegWit” and the “Lightning Network”.
Ethereum’s smart contracts are extremely useful, but can also slow down the network. Especially when there are a lot of complicated smart contracts with a lot of different steps.
To accommodate this, Ethereum is undergoing a major upgrade to its protocol called ETH 2.0. This upgrade includes:
One of the main differences is that Bitcoin is capped at a supply of 21 million. There will never be more than 21 million Bitcoin in existence. It's expected to reach this limit by around 2140.
Meanwhile, ETH has an unlimited supply, but the creation of new coins is very tightly controlled to keep inflation from ruining the coin's value.
Some other differences are found in the way Bitcoin and Ethereum are growing over time and the other coins and blockchains that they've started working with.
For example, a system called Rootstock is being developed as an "attachment" for the Bitcoin blockchain, which allows smart contract operations off the side of Bitcoin.
Meanwhile, Ethereum has developed its own industry standard, called ERC20. This is like a set of measurements for cryptocurrency, to allow for greater compatibility between multiple currencies.
These standards are very useful. Just like a train needs to be exactly wide enough to ride on its rails, cryptocurrencies need to have exactly the right programming to fit into wallets and be easily transferred.
By creating the ERC20 standard, coins can start off with the right match and more easily become popular and widely used. So far, countless new ERC20 tokens have been built on Ethereum.
Over time, Bitcoin and Ethereum are becoming more compatible in some ways. For example, with smart contracts that let you "import" Bitcoin onto Ethereum standards or more easily trade between Bitcoin and Ethereum.
There are also many planned “cross-chain” developments. These are designed to let people connect different blockchains together and transfer coins more freely among them.
Bitcoin and Ethereum started off being very similar and then got very different over time. But now they’re both coming back to meet in the middle with similar features and more easy integration between each other.
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