When was the last time a technology became so important that it had every government of the world talking about it? Do you remember having a conversation with your dad on AI, Cloud computing, or something similar? Then what is it about Bitcoin and Ethereum that has taken over the world? And if you happen to be a part of any conversation around this realm, we are sure that a question regarding Bitcoin Vs. Ethereum would have popped up.
Well, if you stuttered a tad bit at that moment, it’s time to redeem yourself. Today, we bust some of the biggest myths of the whole debate between Bitcoin and Ethereum. In a very neutral fashion, we will talk about the birth and journey so far. And we’d also touch upon the pros and cons of these cryptocurrencies. Read on!
What is Bitcoin
The year was 2008. The world was going through the worst recession of all time. In the middle of this chaos was floated a whitepaper. It was titled; Bitcoin: A Peer-to-Peer Electronic Cash System. Published by an unknown entity, none could envisage a dorm room experiment to generate life-changing wealth for its early adopters.
At its heart, Bitcoin is a digital currency running without an intermediary. Allow me to explain. Say you send some money to your friend via UPI. For you, it’s a push of a button; however, it sets off an elaborate tango in the background. This dance involves partners like your bank, the receiver’s bank, and the UPI platform. Now, you can imagine, if you send this money overseas, the kind of ruckus it would create.
While we understand and appreciate the role played by these intermediaries, there’s some problem here. These intermediaries require time for validation and, of course, charge us money to do that. In essence, you end up with a slow and costly transaction system.
Bitcoin, on the other hand, is based on blockchain technology. It is an immutable ledger that allows you to share value instantly at minimal cost because you don’t have to cater to these middlemen. Just because Bitcoin is decentralized, it is independent of fiscal policies. That is why it has attained the status of ‘store of value’ in the past, as it acts as a hedge against inflation.
Let us discuss some other interesting facts about Bitcoin.
Bitcoin was founded by something called ‘Satoshi Nakamoto’. I referred to Satoshi as ‘something’ because it is a pseudonym. In reality, no one knows who Satoshi Nakamoto is. If he is a man, a woman, or a group of people is still a mystery.
At times crypto works very differently than stocks. Usually, you would be skeptical of a company that has no founder. Because Bitcoin has that entire narrative around decentralization, it is reassuring to know that there is no founder. It sends a message that even the founder cannot steer the project in a particular direction.
B. Launch date
Bitcoin was launched on 3rd January 2009. Nakamoto mined the first block, called the genesis block, during the time. If you are wondering, Bitcoin had no economic value at that point. Yes. Each Bitcoin cost $0.
If you think there’s no way you could have known about it then, it still hovered at less than $0.40 till 2010.
C. Market cap
Ever since its launch, Bitcoin has maintained the top position in terms of market cap. This is despite thousands of other cryptocurrencies popping up in the last five years. Bitcoin’s market cap had hit 1 trillion dollars at an all-time high.
As of 15th Sept, the market cap is hovering around $385 billion.
D. Consensus mechanism
A prudent question to ask is how blockchains remain accurate and secure if there is no intermediary to look after them. Thanks to nodes (or computers) that help in doing that. The way it works is that all the nodes constantly agree on the state of the network periodically (typically after every block).
This agreement can be achieved in multiple ways. One way is where everyone tries to solve a mathematical problem, and the first one to solve it wins some rewards. In other words, some work (by deploying computation power, hence electricity) must be done to ensure that a random Joe does not claim their version of the network to be true. This way, you can always pinpoint that the chain with the most significant amount of work done on it is accurate.
And as the description suggests, this consensus mechanism is known as proof-of-work.
What is Ethereum?
Touted as the world’s computer Ethereum isn’t magic. However, it is no less, either. Now imagine if Satoshi restricted his vision of actualizing the world’s first decentralized money. Taking cues from this, a then 17-year-old gentleman, Vitalik Buterin, thought if money can be run without an intermediary, why not everything? Hence, Ethereum was born.
The most significant innovation of Ethereum is EVM or Ethereum virtual machine. This is a virtual environment that enables smart contracts. Smart contracts are a piece of code that can automate the ‘if this, then that’ type of conditions in an irreversible and self-executing manner.
Ethereum is the world’s first smart contract compatible, decentralized, peer-to-peer network that can securely run and verify code. Time to explore some interesting nuggets about this mighty cryptocurrency now.
Vitaly Dmitriyevich Buterin, more commonly known as Vitalik Buterin, is the wizard who weaves this magic. Having roots in Russia, Vitalik spent most of his life in Canada. He was involved with cryptocurrency from the beginning and co-founded Bitcoin magazine.
Fun fact: Before giving his everything to Ethereum, Vitalik wanted to get his hands dirty by owning some Bitcoin. But he didn’t have the capital to invest or mine then. So he started writing blogs for a publication in return for 5 BTC per blog. It turns out that they are one of the most expensive blog posts ever written.
B. Launch date
Vitalik penned down the Ethereum whitepaper in 2013 and shared it with some of his friends. After a series of re-shares, about 30 people reached out to him to explore this idea further.
The project was publicly announced in January 2014, with the core team consisting of Vitalik Buterin, Mihai Alise, Anthony Di Iorio, Charles Hoskinson (Founder- Cardano), Joe Lubin, and Gavin Wood (Founder-Polkadot).
A few months later, the team decided to raise money through the first-ever ICO (initial coin offering) in the crypto space. Having successfully raised 31,000 BTC (roughly $18M at that time) against the sale of ETH, a new era of blockchain began. Soon after, the Ethereum team formed the Ethereum Foundation, a non-profit organization based in Switzerland whose sole task is to oversee Ethereum’s development.
C. Market cap
Standing tall at a market cap of ~180 billion, as of 16th Sept 2022, Ethereum has held the position of the second most valuable cryptocurrency in the market. The strength of Ethereum and its popularity has often sparked the conversation around ‘flippening’. Flippening is the hypothetical (as of now) event of Ethereum flipping Bitcoin to become the world’s largest cryptocurrency by market cap.
D. Consensus mechanism
This is a perfect time to discuss this. We say this because Ethereum just underwent the largest transition in engineering history. It switched its consensus mechanism from proof-of-work to proof-of-stake on15th Sept 2022.
This event is marked by the name ‘Merge’. And for those who have no freakin idea what this means, here’s a wonderful analogy to help you out.
Imagine Bitcoin as a young teenager who wants a car to get around. So he decided that the most essential part of a car is the engine. And this engine must have these three capabilities.
- Reliable- Proven to work.
- Strong- Powerful
- Safe- Should not explode
So he gets a muscle car.
Fast forward to a couple of years later. Bitcoin has a sibling called Ethereum. Ethereum wants a car as well, but it has another criterion. Apart from the engine being reliable, robust, and safe, it also wants it to be
- Eco friendly
However, it cannot afford the electric car as of now. So he has to do with a similar muscle car his elder brother got.
Fast forward half a decade and this younger sibling has made some money. It can now afford the new engine.
But here’s the problem. The car cannot stop while you change the engine. So how do you swap the engine without stopping the car?
Step1: Build a duplicate car
Step2: Run that duplicate car in parallel to your original car at the exact same speed.
Step3: Swap the engines at a critical point
And if you get what we just mentioned above, you are covered. That is exactly what is happening in this ‘Merge’.
This duplicate car here is known beacon chain.
The Beacon chain has been running in parallel to Ethereum PoW for the past two years. All the transactions on Ethereum PoW are copied to this chain.
The merge is just the critical point where these engines will be swapped. In other words, the PoW chain will merge with the PoS chain.
With this little tweak, Ethereum’s energy consumption has decreased by 99%. That is like switching off the power grid of Finland for once and all.
Key Differences Between Bitcoin and Ethereum
So with all this know-how about these two amazing use cases of blockchain technology, what are the key differences? In the words of Vitalik Buterin, if Bitcoin is a calculator, Ethereum is a smartphone. It does sound like Coke and Pepsi of cryptoverse, isn’t it? Which of these blockchains are built to last long? Let us talk about this in detail.
|Basics||World’s first peer-to-peer decentralized cryptocurrency. A form of digital gold that acts as a hedge against inflation.||The community-run technology powers the cryptocurrency ether (ETH) and thousands of decentralized applications.|
|Block-time (Time taken to create one Block in the Blockchain)||10 minutes||12-14 seconds|
|Market Dominance (Market cap of asset/total market cap of the industry)||39.3% (As of 16th September)||18.71% (As of 16th September)|
|Token Economic Model||deflationary with reducing the rate of inflation tending towards zero||Inflationary|
|Founder||Satoshi Nakamoto||Vitalik Buterin|
|Recent Upgrades||Taproot Upgrade (2021)||The Merge (2022)|
|User Transactions||260,000 daily||1.2 Million daily|
Advantages and Disadvantages of Bitcoin & Ethereum
Just like yin and yang, there are positive and negative sides to each of these cryptocurrencies. It is always smart to evaluate both protocols’ advantages and disadvantages before taking sides.
Let’s start with the positives first.
|Bitcoin Pros||Ethereum Pros|
|World’s first decentralized, state-free money.||Greener technology due to a different consensus mechanism: proof-of-stake|
|Hedge against inflation.||Enabling a world of decentralized software|
|Store of value||Most popular chain for DeFi with a total of $31 billion of value locked as of 16th September 2022.|
|Ensures total transparency while maintaining anonymity||Has the world’s largest developer base|
|Globally accessible and tradable at all times||Capable of running smart contracts|
|Driving financial inclusion||First mover advantage that has led to the most loyal and most robust community to exist|
And at the same time, let us also talk about the cons of these two giants.
|Bitcoin Cons||Ethereum Cons|
|Energy intensive. Consumes electricity equivalent to the country of Norway annually.||Extremely high gas fees. The problem is so rampant that it has a dedicated section of memes on most social media.|
|Slow TPS and finality. If you buy a coffee at a store with Bitcoin, you might have to wait for 40 minutes before you can leave because that’s the time it takes to make sure that your transaction cannot be reversed.||Inflationary. There is no cap to the number of Ether that can be minted by the Ethereum foundation.|
|Runs a risk of negative government regulation.||Scalability problems. These might go away in upcoming upgrades.|
|High cost of usage|
Bitcoin or Ethereum: Which One Is Better?
Bitcoin and Ethereum are OG cryptocurrencies in their own domain. Understanding which of them is better depends on your use case. If you wish to transfer value safely across borders, Bitcoin is your friend. If you want to create a decentralized application that performs various functions, Ethereum is your go-to platform.
When it comes to investing, both cryptocurrencies are immensely popular. Comparing them in terms of putting your bets would be like comparing gold and silver. Both are precious metals and have given good returns in the past.
As far as future prospects are concerned, Ethereum has a long development roadmap that instills confidence in the mind of an investor. The same goes for Bitcoin. It has now become this well-oiled machinery where institutions have begun to invest.
How to Invest in Bitcoin and Ethereum
Gone are the days when you had to go out of your way to invest in cryptocurrencies. These days, cryptocurrencies, especially Bitcoin and Ethereum, are available on all key crypto platforms.
And if you have already decided to invest in these top-notch cryptos, why stop there? It is sensible to invest in a theme of all cryptos that have high adoption and have made it in life. Don’t worry. I am not asking you to nitpick these cryptos. Coin Sets allow you to invest in a basket called Blue-Chip crypto. You can take positions in all these dominant players with a click of a button.
Bitcoin and Ethereum are known for the disruption they have brought in their individual domains. While one transforms economics and finance, the other virtually impacts everything else. Given their popularity and usage, both of them are here to stay. And the best part? It is all up for grabs. Anyone can join the party.
1. Can Ethereum beat Bitcoin?
The conversation around flippening or the event of Ethereum surpassing Bitcoin has been brewing for a long while. However, both of these cryptos are not competing right now. While Bitcoin is a store of value and a turbo-charged medium of exchange, Ethereum tends to democratize data and build a decentralized economy. Will Ethereum’s market cap ever surpass Bitcoin? Only time will tell. For now, one should invest in both rather than taking sides.
2. Can Bitcoin run on Ethereum?
Bitcoin is meant to run on the Bitcoin blockchain only. However, there is a workaround. Think of it as taking a Bitcoin and putting it in a wrapper that is compatible with Ethereum. This wrapped version of Bitcoin is called wBTC and is widely used in the DeFi space on Ethereum.
3. Is Bitcoin more valuable than Ethereum?
The real value of an asset lies in its usage. Bitcoin’s value is derived from its scarcity, whereas Ethereum would become more valuable when more DApps are built on it, and the demand increases.
4. Is Bitcoin better or Ethereum for the long term?
Cryptocurrencies are dynamic in nature. Therefore, taking sides can be problematic. Given the long-term prospects, Ethereum has a good roadmap, as do organizations building on Bitcoin. Both of these cryptocurrencies have proved themselves to be the best in their domain and have good long-term prospects.
5. How many Ethereum are left?
Ethereum is an inflationary asset. There is no cap on the number of Ethereum that can exist. Therefore, it is not possible to predict the quantity of Ethereum left. However, roughly 18 million Ether are mined every year.