08 Aug 2023

Bitcoin vs Ethereum: What Sets ETH Apart from BTC?

As the world of digital currency evolves, two giants, Bitcoin (BTC) and Ethereum (ETH), continue to dominate the market. Each offers unique features, attracting different types of investors. However, Ethereum takes the lead despite being the second highest cryptocurrency by market capitalization. According to 2022 stats on Coinmarketcap, ETH surpassed the fiat store of value metric by 141% and BTC recorded a 41% higher store of value compared to fiat.

Ethereum blockchain technology versus Bitcoin

Both Bitcoin and Ethereum utilize blockchain technology, a decentralized system enhancing security and transparency. However, Ethereum's blockchain offers something unique: Smart Contracts. These self-executing contracts with the terms of the agreement directly written into code lines enhance Ethereum's functionality, enabling the creation of decentralized applications (DApps).

Ethereum works like a world computer on which decentralized applications (DApps) can be created. On top of Ethereum developers can create their own applications with its own native token. Ethereum Request for Comment 20 - ERC-20 is the fungible token that is used as a mechanism to make these applications operationable. The fungibility of these tokens is what makes Ethereum the doorway for financial freedom for many people. In comparison to Ethereum, Bitcoin on the other hand is used for peer to peer payments.

Speed and decentralization of Ethereum

In terms of transaction speed, Ethereum comes out on top. Bitcoin's block time stands at 10 minutes, while Ethereum's is approximately 15 seconds, leading to faster transaction confirmation. Ethereum moved from proof of work to proof of stake consensus mechanism in September 2022. Currently, an individual needs to have 32 ETH to be eligible to become a validator on the network. The transactions are confirmed by validators on the network. In case of any suspicious activity detected on the network, a fraction of the validator’s deposit is slashed. On Bitcoin, these transactions are broadcasted to all nodes for confirmation making the transaction confirmation system slow. Bitcoin may score high on decentralization but on speed it is yet to beat Ethereum.

Tokenomics of Ethereum and Bitcoin

Bitcoin has a capped supply of 21 million coins, instilling scarcity akin to physical assets like gold. Ethereum, conversely, has no maximum supply limit, creating a continuous flow of tokens, which might lead to differences in supply-demand dynamics and long-term investment strategies. However, this made the token become inflationary in some aspects. However post Ethereum’s merge with Beacon chain, the asset has been successful in becoming a deflationary asset.

Developments: Sustainability & Innovation

Ethereum's transition to ETH 2.0 aims to solve significant blockchain challenges like energy consumption, scalability, and security. This shift from Proof of Work to Proof of Stake consensus mechanism will make Ethereum more sustainable and might drive further innovation in the crypto space.

With the upcoming Dencun upgrade - the concept of Sharding will be introduced to the network which will pave the way for scalability in transactions made on Ethereum. Dencun’ is a joint term for two major Ethereum upgrades – Cancun, which is the upgrade to Ethereum’s execution layer (EL), and Deneb, which refers to the consensus layer (CL) upgrade. This upgrade is expected to happen in the last quarter of 2023.

While Ethereum has seen a range of developments in the last few years, Bitcoin has also witnessed some major developments in the last few years. In early 2023, Bitcoin developers and enthusiasts introduced BRC tokens. Similar to ERC-20, BRC tokens can be devised using the ordinals protocol and can be minted by anyone on the blockchain. This recent experiment opened a hallway for NFT artists to mint NFTs on the Bitcoin blockchain.

Wrapping up

As an investor, understanding the differences between Bitcoin and Ethereum can help guide your cryptocurrency strategy. Both have their strengths, and the choice between BTC and ETH depends on your investment goals, risk tolerance, and belief in the potential of their respective technologies. Remember, investing in cryptocurrencies comes with risks, and it's vital to do your research and consider seeking advice from financial advisors before making decisions. The future of crypto is exciting, and being part of it requires a solid understanding of the landscape.