How Ethereum Differs From Bitcoin

It is one of the most frequently asked questions among the folks who are new in the cryptocurrency space — how Ethereum differs from Bitcoin. And we can’t provide a simple, one-sentence answer, except that that Bitcoin is older — in fact, the first — cryptocurrency ever made.

We opted to provide a thorough explanation in this 5-point article. If that’s not enough for you, don’t hesitate to contact us or leave a question below. Let’s roll…

1. New kid in town

While Bitcoin has been around since early 2009, the Ethereum system went live on July 2015 and has ever since captured the imagination of the cryptocurrency fans, and the wider community. As a new cryptocurrency in the market heavily dominated by Bitcoin, Ethereum had to introduce some novelties in order to be able to compete.

Vitalik Buterin, a programmer involved with Bitcoin, wrote a white paper in late 2013 with a goal of building decentralized applications that would work in the Bitcoin Network. He, however, failed to convince other members of the community and then proposed development of a new platform with a more general scripting language. And so Ethereum was born.

2. Different technology

Because Ethereum supports running of apps in the blockchain, it had to use a different technology. If you’re a non-tech user like me, all you need to know is that the Ethereum system includes the Ethereum Virtual Machine (EVM) which enables running of smart contracts on the platform. These EVMs are designed to be isolated from the network, file system or other processes of the host computer system. Every Ethereum node in the network runs an EVM implementation and executes the same instructions.

As for the smart contracts, they are defined as “deterministic exchange mechanisms controlled by digital means that can carry out the direct transaction of value between untrusted agents.” As such, they can be used to facilitate, verify, and enforce the negotiation or performance of economically-laden procedural instructions. Ethereum’s smart contracts are treated as autonomous scripts or stateful decentralized applications that are stored in the Ethereum blockchain for later execution by the EVM. Instructions embedded in Ethereum contracts are paid for in ether.

3. Faster transactions

The speed of transactions is much higher for Ethereum than that for the Bitcoin thanks to the sophisticated Ghost protocol it uses. Ethereum’s block time is in the 10 to 12-second range, whereas the block time for Bitcoin is basically 10 minutes. This in turn makes the Ethereum platform better for handling a large volume of transactions. Speaking of which, as of January 2016 – the Ethereum protocol could process 25 transactions per second.

To be fair, some other cryptocurrencies are even faster than Ethereum — like Ripple which was designed with financial institutions in mind — but they are not as popular as Ethereum.

4. Decentralized applications (Dapps)

Dapps make all the difference. While Bitcoin is still king of the cryptocurrency market, Ethereum is steadily gaining traction with many of the world’s biggest corporations and banks jumping on board to support the new platform. Most notably, they like the idea of using the blockchain technology beyond peer-to-peer money transfers, to also be able to run apps in the system.

Among those interested to take advantage of Ethereum are such names as Microsoft, IBM, JPMorgan Chase, Deloitte, Toyota and many others. These companies, and many others including startups and research groups, have formed the Enterprise Ethereum Alliance (EEA) in March 2017 to “coordinate the engineering of an open-source reference standard and private ‘permissioned’ version of the Ethereum blockchain that can address the common interests of enterprises in banking, management, consulting, automotive, pharmaceutical, health, technology, mobile, entertainment, and other industries, while working with developers from the Ethereum ecosystem.”

While Bitcoin has its own vast eco-system, it is mostly centered around financial transactions, in an effort to make them more affordable and available to people all around the world.

5. Unlimited supply

As you may know, Bitcoin’s monetary policy is based on artificial scarcity at the cryptocurrency’s inception that there would only ever be 21 million bitcoins in total. The new bitcoins are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.

In comparison, Ethereum doesn’t have such limitation, which in turn could make it a more favorable candidate for the global currency. While Bitcoin could still have its future as the “digital gold” (due to its limited availability), Ethereum could emerge as a cryptocurrency of choice for everyday transactions. This would also make Ethereum worth less than Bitcoin, but its capitalization could easily surpass that of Bitcoin.

Conclusion

As you have seen, Ethereum is similar but also different than Bitcoin. As such, we tend to think it has a bright future ahead, but chances are — it will prosper alongside Bitcoin. Also, we think the world needs more than one cryptocurrency, and at the end of the day – we may even see a few dozen of them competing against each other. From what we can tell, both Bitcoin and Ethereum are well poised to get to and remain at the top of that chain.

So are you willing to bet in this market?