As of 2022, about 56% of American adults have invested in cryptocurrency. It appears that 46 million more people will join their ranks over the next year. If you’re planning to be one of them, learning about common types of crypto is an essential first step.
Here, we’re going to talk about the differences between the two most common types of cryptocurrency. Read on to learn the basics of Bitcoin vs Ethereum so that you can make a smarter investment.
The Basics of Bitcoin (BTC)
Bitcoin was the first form of cryptocurrency made available to the general public. In fact, it was the first cryptocurrency invented, meaning that it pioneered every other type of unregulated digital currency that’s available today. It remains the most popular digital asset in the world.
This innovation took place in 2009 when Satoshi Nakamoto decided to create a type of currency that wasn’t regulated by a central bank. Unlike fiat cash, Bitcoin had no central authority. It therefore was more secure.
Bitcoin has no physical form but rather exists digitally on a blockchain network. This blockchain is a shared ledger that records all Bitcoin transactions.
Whenever someone makes a transaction with Bitcoin, crypto miners seal off the block that that Bitcoin attaches to. This concludes a secure transaction. The data from the transaction is recorded on the blockchain, which contains a history of every Bitcoin transaction ever made.
Ethereum (ETH): A Short Guide
Like Bitcoin, Ethereum is a type of digital asset. It also is unregulated by a central bank or government, and it doesn’t have a physical form. Additionally, it uses blockchain technology similar to Bitcoin, though this blockchain is different from Bitcoin’s.
Ethereum was launched in 2015. The creator’s goal was to make cryptocurrency more secure by using smart contracts and decentralized applications. It tracks transactions for each coin so that no one can use the same coin more than once by the same person. This prevents someone from using the same coin twice to cheat the system and get more money.
However, Ethereum wants to be more than just money. Bitcoin is just a payment method. Ethereum is intended as a “decentralized world computer.”
It’s a platform that developers use to create decentralized applications. Many hope that it can be used as a more secure form of the cloud. Developers have already done a lot with it including building self-executing contracts and minting NFTs.
The Main Differences Between Bitcoin vs Ethereum
Bitcoin is a credible, tried-and-true alternative to fiat currencies. It’s a widely accepted payment method online and in stores. Major credit card companies and eWallet services like PayPal are creating easier ways to pay with Bitcoin.
Ethereum is also an accessible payment method, though it is less widespread. However, many people prefer to take advantage of Ethereum when allowed to do so because it lets people build smart contracts. These contracts allow for the purchase of not only money but anything that has investment value like real estate or stocks.
Transactions and Recording
Transactions are also recorded differently in the ledger.
For example, imagine that Matthew exchanged digital currency with James.
A Bitcoin transaction would simply record that this Bitcoin was “sent from Matthew to James.”
An Ethereum ledger is more specific. It would say “sent from Matthew to James on January 31, 2023. James’ balance: <10 ETH.”
As you can see, Ethereum’s blockchain records more information than Bitcoin’s does.
In addition to this, the supply cap for Bitcoin vs Ethereum is different. While there are only 21 million Bitcoins in total available for mining, there are 18 million available Ethereum coins available every year.
We’re unlikely to ever hit the Bitcoin cap because of the way mining works. Ethereum auto-generates annually. This distinction does not really matter practically, but it’s nice to know.
Proof-of-Work vs Proof-of-Stake
Bitcoin is a proof-of-work currency. It comes into circulation and “achieves consensus” when miners use labor and computational power to generate new blocks. They need to sit there and use electricity to work for Bitcoin and prove that they mined it before a new block is created.
There are several advantages here:
- The consensus mechanism is shown to scale
- It’s extremely secure because of its costs
- Proven tamper-resistant (while proof-of-work has not been tested enough)
- The network is more decentralized
Ethereum is a proof-of-stake currency. It uses less computational power and electricity because participants stake crypto behind the new block they’re trying to create. This stake means that a new block can come into being.
There are also benefits to this:
- Fewer environmental harms
- Creates economic incentives for block approval
Your preferred method will depend on your specific needs.
Which Is Right for You?
Bitcoin and Ethereum software are extremely different. Bitcoin is a tried-and-true technology while Ethereum is cutting-edge. Bitcoin is an easily-understandable alternative to fiat money while Ethereum is more versatile and still developing.
Generally, you should invest in Bitcoin if:
- You’re looking for something extremely stable
- You’re an investor looking for a tried-and-true investment
- All you want to do is make financial transactions
- Something more mainstream feels more accessible
Ethereum is the superior alternative when:
- You want more traceable transactions that store more information on the blockchain
- You want to interact with decentralized finance and NFTs
- You’re worried about the environmental ramifications of proof-of-work mining
- You want to try proof-of-stake strategies
Make sure to consider these points carefully before you start earning crypto online.
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