Bitcoin vs Ethereum: What are the Key Differences?

In this article, we will explore the key differences between Bitcoin and Ethereum

Bitcoin and Ethereum are often compared as the leading cryptocurrencies in the market. Both of them use blockchain technology to enable peer-to-peer transactions without intermediaries. However, Bitcoin and Ethereum have different visions, goals, and features that make them distinct from each other.

Purpose: Bitcoin's main purpose is to serve as a store of value and a medium of exchange. It is designed to be a digital gold that can be used as a global payment system and a hedge against inflation. Bitcoin's core features are its limited supply of 21 million coins, its high security, and its censorship resistance. Ethereum's main purpose is to serve as a platform for decentralized computing. It is designed to be a world computer that can run various applications that are powered by smart contracts.

Smart Contracts: Bitcoin has a limited scripting language that allows for some basic forms of smart contracts, such as multi-sig transactions or time-locked transactions. However, Bitcoin's smart contracts are not as expressive or complete as Ethereum's smart contracts, which can support complex logic, data structures, and computations. Ethereum's smart contracts are written in various programming languages such as Solidity or Vyper, and can be used to create dApps that range from decentralized finance (DeFi) to gaming to social media.

Transactions: Bitcoin transactions are mainly for transferring value from one address to another. They consist of inputs, outputs, amounts, signatures, and fees. Bitcoin transactions are validated by miners who compete to solve cryptographic puzzles and earn block rewards and transaction fees. Bitcoin transactions are relatively slow, taking an average of 10 minutes to confirm on the network. Ethereum transactions are more diverse and can include not only value transfers but also function calls to smart contracts or contract deployments. They consist of nonce, gas price, gas limit, value, data, signature, and fees.

Mining: Bitcoin uses a consensus algorithm called Proof-of-Work (PoW), which requires miners to use their computational power to secure the network and process transactions. PoW is energy-intensive and prone to centralization due to the dominance of large mining pools and specialized hardware (ASICs). Ethereum also uses PoW currently, but it uses a different algorithm called Ethash, which is designed to be more ASIC-resistant and favor GPU mining. However, Ethereum plans to transition to a new consensus algorithm called Proof-of-Stake (PoS).

Scalability: Bitcoin has a scalability problem due to its limited block size of 1 MB and its low transaction throughput of around 7 transactions per second (TPS). This leads to network congestion and high fees during periods of high demand. Bitcoin's scalability solutions include layer-2 protocols such as Lightning Network or sidechains such as Liquid Network that enable faster and cheaper transactions off-chain. Ethereum also has a scalability problem due to its high network usage and its low transaction throughput of around 15 TPS. This also leads to network congestion and high fees during periods of high demand.

Value: Bitcoin's value is mainly derived from its scarcity, security, and network effect. It is often seen as a store of value, a hedge against inflation, and a digital gold. Bitcoin's price is determined by the supply and demand of the market, and it is influenced by various factors such as adoption, regulation, innovation, sentiment, and events. Ethereum's value is mainly derived from its utility, functionality, and network effect. It is often seen as a platform for innovation, a fuel for dApps, and a digital oil.