In the last decade, cryptocurrency has seen many ups and downs. But, since these ups have outnumbered the downs, it has proven to be a great investment opportunity for all the investors who are looking to trade in cryptocurrency. However, figuring out which digital currency to invest in from the hundreds that are present today is one daunting task. In this article, you will learn some of the key points on how to gauge Bitcoin vs Ethereum based on their purpose, price history, transaction fees, block size, and demand & supply.
Bitcoin and Ethereum currently are the two well-known names in the cryptocurrency market. If someone were to seek the advice of an expert about which cryptocurrency to invest in, these two names would surely come up first in the discussion.
The best way to understand why these cryptocurrencies have become as popular as they have is by thinking of someone who spent less than a hundred rupees on a Bitcoin a decade ago and simply kept it for all these years. You will understand how that person is now a multi-millionaire just because of that meagre investment he/she did ten years ago. To say that the Bitcoin price has gone up is an understatement.
Bitcoin were the very first cryptocurrencies that were simply meant to be units of exchange, with fluctuating values, backed by a network of computers, forming a decentralized power instead of a centralised authority. It is rather similar to regular monetary currency at its core, but still really different!
However, with increased technological advancements taking place with each passing day, the newer cryptocurrencies like Ether came with more complex designs like the Ethereum blockchain. Ethereum blockchain is a software platform — an operating system that runs on the blockchain, with Smart contracts. Ether is used by Ethereum not only as a digital currency like Bitcoin but also to run applications and monetize work inside Ethereum.
5 key differences between Bitcoin and Ethereum
With a massive surge in Bitcoin and Ethereum price and demand today, both Bitcoin and Ethereum are amongst the two highest-selling cryptocurrencies in the world. Both of them are similar in many ways; they are decentralized and take the assistance of a blockchain for its distribution. However, some points make them dissimilar from each other. Due to various similarities, people tend to get perplexed as to which cryptocurrency to choose out of these two alternatives and look for options to evaluate Bitcoin vs Ethereum investments.
To make this selection easier, it is always advised to evaluate the cryptocurrency option you are willing to consider. These vary on various important factors like price history, transaction fee, block size, demand,-supply, and overall purpose of your investment.
Difference between Bitcoin and Ethereum based on the purpose
When we talk about their purpose, the battle of Bitcoin vs Ethereum is not a very complicated one. Even though the two are similar in some respects; the overall purposes of the two have some clear distinctions as well. Bitcoin and Ether by Ethereum are essentially cryptocurrencies and serve the basic purpose of a cryptocurrency, which is to be a medium of exchange in a digital or virtual medium that is secured using cryptography.
Although either Bitcoin or Ethereum can be used as an alternative to present currency, Bitcoin is, in essence, an alternate currency. Bitcoin is essentially a digital currency, and it was designed with the intent of its actual value to be fluctuating. This fluctuation has been mostly positive since its launch in 2009, and many people have been the beneficiaries of high returns on what they initially paid for. This means Bitcoin can also serve the purpose of being an investment you can expect good returns from.
Whereas, Ethereum has a more complex design. Even though all the cryptocurrencies since Bitcoin, have been launched in a somewhat similar manner, some of them are designed to make them equipped for other functions as well. The Ether, which is operated by the Ethereum blockchain, can serve more purposes than being only a form of currency. This is because the Ethereum blockchain is a lot different and more complex than the Bitcoin blockchain.
Ethereum enables peer-to-peer transactions and is also a ledger technology. It can be used as a programming language and operating system all by itself. Meaning, it can be used to build new programs. This makes it more advanced from a technological point of view. This rapid pace of technological development and its importance in the current times makes Ether a good investment option.
Difference between Bitcoin and Ethereum based on price history
Ever since Bitcoin first came out in the year 2009, its trading and value have been unpredictable. However, because of the success already seen by Bitcoin and the other popular predecessors of Ether, when Ethereum was first launched in 2015, it achieved a stable price for the first year. It has fluctuated a lot since then but not drastically.
The initial or opening Bitcoin price was 0.0008 US Dollars reaching 0.08 US Dollars by the end of the same month. Needless to say, the people who bought it then did not know that they made a very wise investment.
When Ethereum’s cryptocurrency Ether or ETH was first launched to the cryptocurrency market in the year 2015, the Ethereum price was 2.77 USD, which instantly dropped to 0.68 USD in the next three days.
The Initial Years:
After its launch, for the first few years, the performance of Bitcoin or the Bitcoin price was relatively flat. Like in 2011, when it went from 1 US Dollar in February to 30 Dollars in June to back to 2 Dollars by the end of the year. Such inconstant trends continued till the year 2013.
On the other hand, Ethereum price did not see a downfall since its inception. Moreover, in 2017, the prices of Ethereum gained an astonishing hike of 10,000 per cent, making it stand equivalent to Bitcoin and the second-biggest name in the digital currency world after Bitcoin.
Presently the value of Bitcoin is more than the value of Ethereum.
Difference between Bitcoin and Ethereum based on transaction fees
Just like the actual value of the digital currency fluctuates from time to time, depending on various market factors, the transaction fees of Bitcoin vs Ethereum also keeps on fluctuating. All the transactions of a cryptocurrency get lined up in a memory pool which are commonly known as mempool. The cryptocurrency miners can set these transactions aside in the blocks that are already mined.
A cryptocurrency transaction gets fulfilled right at the point it reaches the block. Since mining of cryptocurrency is an extremely important task, the miners must charge the appropriate transaction fees from the investors.
Bitcoin Transaction Fees:
In the case of Bitcoin, the miner’s levy charges or transaction fees on every transaction that takes place in the cryptocurrency’s trading. If any trader wishes that their transactions should take less turnaround time, then they can make a payment of large transaction fees to process the transaction quickly.
This process of paying larger transaction fees is known as the incentivization of miners. Hence, it becomes very evident that the speed of transaction execution is directly proportional to the amount of the transaction fees. The more transaction fees a person pays, the quicker the transactions get validated and added in a block.
Ethereum Transaction Fees:
Ethereum trading uses an A-gas system in place of transaction fees. In simpler words, it can be inferred that the transaction fee is known as A-Gas System. A-Gas in Ethereum trading can be termed as a system that estimates the volume of computational effort needed to perform specific operations. All the self-executing contracts that operate in the Ethereum Virtual Machine (EVM) are encrypted with solidity.
Solidity is a high-level programming language for the implementation of a self-executing contract in Ethereum trading. Additionally, Ethereum is intending to shift completely to Viper (a Pythonic programming language that focuses on Ethereum Virtual Machine) for getting more solidity in the coming future. Each block of code in solidity necessitates a specific quantity of gas or (transaction fees in simpler terms) to compute the trading of Ethereum in the cryptocurrency market.
Difference between Bitcoin and Ethereum based on block size
One of the most controversial and the most tricky aspects of a cryptocurrency is the block size. It can also be inferred that this is the term that has separated the entire Bitcoin community and made Bitcoin and Bitcoin Cash different from each other.
Block Size of Bitcoin:
For protecting Bitcoin from a spam transaction, its founder initially set a limit on the block size of a Bitcoin to 1 MB. However, over time, these Bitcoin gained a lot of popularity, which demanded a lot more scalability than before. One section of the investors was in favour of increasing the block size of Bitcoin to 2 MB, while some people did not want the size of blocks of Bitcoin to increase, as they were in favour of implementing the Segregated Witness Mechanism (an implemented soft fork).
The reason why many people were not in favour of increasing the block size was simple. If the block size was increased, the transaction fees would get lowered, as more transactions would take place at a lower price. If the prices of the transaction got lowered, many Bitcoin miners would suffer a huge loss, and they might get de-incentivized, resulting in the reduction of the overall hash rate of Bitcoin.
Many traders in the Bitcoin investment community feel the use of Bitcoin should not be done regularly as they have more value than a normal daily currency. Using Bitcoin daily will mandate the increase of its block size, creating a need for hard fork in the interface.
Many members of the community feel that the process of Segregated Witness will increase the block size without the requirement of a hard fork, keeping the price of a Bitcoin intact. The most significant concern that individuals hold when it comes to the block size variation of a Bitcoin is that so many things are going to be transformed at that very time, which will create substantial disruption.
But, the investors who were in favour of the increase of block size feel that this is an unfounded concern that would disappear or dispense with time. However, this debate amongst the investors on the block size of Bitcoin resulted in the split of this cryptocurrency into two parts: Bitcoin and Bitcoin Cash. While Bitcoin activated and adopted the Segregated Witness, the Bitcoin cash increased the block size to 8 MB.
Block Size of Ethereum:
Unlike Bitcoin, the size of blocks of the Ethereums is computed or estimated by the quantity of each of the blocks that can accumulate in themselves as Ethereum carries A-gas system in place of transaction fees. In the trading of Ethereum, one block can contain up to 6.7 million of in it. Hence it is clear that only a limited transaction can take place per block of Ethereum, which is, up to 6.7 million. It must also be noted that one transaction can consume 21,000 units of gas per block.
Difference between Bitcoin and Ethereum based on demand and supply
The basic point of distinction between Bitcoin and Ethreum is the fact that Bitcoin is simply a digital currency, while Ethereum is a technology of the ledger that is employed by organizations to create novel programs and interfaces. Both Ethereum and Bitcoin function on blockchain technology. However, it has been observed that Ethereum is far more technologically advanced than Bitcoin
When speaking in terms of demand and supply, the significant point of distinction is that the Bitcoin supply is limited to 21,000,000 coins, creating an equilibrium between the demand and supply. This is healthy for the store value of a Bitcoin. However, this limitation does not exist in the case of Ethereum.
Ethereum is continuously getting produced, and this is the reason for lesser demand that will further slow down the supply of Ethereum shortly. This constant supply of Ethereum is the sole reason why only 60 per cent of Ethereum got mined since its inception, while on the other hand, more than 80 per cent of Bitcoin have already got mined; all due to its demand and supply management.
Yet another aspect is adding to the demand for Bitcoin in the halving event that takes place every four years. This process halves the reward value of miners, which slows down the supply chain. Halving also halves the inflation rate of the cryptocurrency while increasing demand for Bitcoin and Bitcoin price in the market.
To cut this long story of Bitcoin vs Ethereum short, it can be summarised that both Ethereum and Bitcoin are the most important and indispensable part of the digital currency market that brings tremendous value to the cryptocurrency interface. Both hold different functionality, and it is not suitable to compare these two.
While the main objective of Bitcoin is to serve as an alternative to the standard money, Ethereum is created to become a place that will promote applications and online file-swapping (peer-to-peer) contracts through the employment of its currency system.
Hence, it can be easily concluded that both Ethereum and Bitcoin are distinct versions of a digital currency that embraces the blockchain technology (with Ethereum holding a more superior technology), driven by distinct purposes, and both are competing in the market.
1. Will Ethereum beat Bitcoin?
Keeping in mind the present situations, it is anticipated that there is ample room for both Bitcoin and Ethereum to grow. Therefore, Ethereum taking over Bitcoin is a mystery as of now.
2. Which cryptocurrency is best to invest in at present?
Global economies are still recovering from the Covid-19, and keeping in mind the present situation; The whole crypto space is in a nascent stage. Bitcoin could be currently seen as the best one due to its longevity and stability over other cryptocurrencies. However, will any crypto with real utility value will flip bitcoin to be the better one is a question that time will answer.