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What’s the Real Difference Between Bitcoin and Ethereum?

Cryptocurrency is only 13 years old. Bitcoin quietly changed the world in 2009 when it was released, and subsequently spawned an entirely new financial industry that exists independent of the modern baking system.

Not only is it changing the way people can transact and send money, but many of these emerging cryptocurrencies are proving to be the best investment vehicles of all time, with massive returns in short periods of time.

Aside from bitcoin, Ethereum tops the chart as the number two cryptocurrency of choice. But what is the difference between Bitcoin and Ethereum?

And why do bitcoin maximalists and Ehtereum nerds argue all the time on Twitter? Read on below to learn the true differences between bitcoin and Ethereurm, to see which one you should invest more money into.

What Is Bitcoin

Bitcoin is the world’s first cryptocurrency and is currently the most valuable. While its code made be the least efficient, it’s going to be around a long, long time.

After all, it spawned a $3 trillion industry, has been deemed legal tender in El Salvador and is seeing major companies and financial firms investing in it. So what is bitcoin all about?

Bitcoin’s History

In 2009, the first batch of 50 bitcoin was mined by someone called Satoshi Nakamoto. To this day, no one knows who this person, or group of people, is.

They released a whitepaper a few months prior, detailing a peer-to-peer electronic cash system that wouldn’t rely on intermediaries like banks to facilitate the transfer of funds.

In those early days, many notable figures began mining and collecting bitcoin, such as Nick Szabo.

It wasn’t until 2010 that the first bitcoin transaction happened. Someone agreed to trade 10,000 bitcoins for two pizzas, which cost around $25.

Since then, bitcoin grew organically, as very few people understood the value of the cryptocurrency at the time.

Eventually, early supporters and developers formed the Bitcoin Foundation, which helps direct the direction of the cryptocurrency, keeping the network secure, and making updates to the open-source protocol.

Early bitcoin exchange websites, such as Mt. Gox, facilitated the majority of early purchases and transactions, but later disappeared after facing countless technical issues, security flaws, and legal charges.

Eventually, the cryptocurrency exchange called Coinbase was born and has grown to become one of the most prominent cryptocurrency exchanges in the world.

In September 2021, El Salvador become the first country to declare bitcoin to be legal tender, putting it on par with the US dollar. On the other side of the planet, the government of China has announced a bitcoin and cryptocurrency ban more than 10 times.

Bitcoin Transaction Validation Method

There are different ways that the blockchain of a cryptocurrency remains decentralized and secure. In order to prevent any individual or group to seize control of the network, blockchains require many different people to validate the transactions across the world.

But there needs to be an incentive for people to do this since it requires resources to validate.

Bitcoin uses the proof-of-work condenses mechanism. This means that each new block (which holds transaction data) gets mined by network validators. Every time a block gets mined, a group of transactions is completed and becomes permanent and irreversible.

Mining happens through the use of high-powered computers, and lots of electricity, that solve complex algorithmic equations. Whoever solves the equation first receives the block rewards, which is a bitcoin payment.

Many claims that proof-of-work is the most secure way to manage a blockchain and keep transaction data safe. But others criticize it as being resource-intensive and inefficient.

Bitcoin Tokenomics

Bitcoin has a limited supply. There will only ever be 21 million bitcoin. Around 18 million bitcoin exist thus far. But bitcoin mining is set to take place until the year 2140.

This limited supply, yet increasing demand, is what helps to drive up the value of bitcoin. So the currency can’t be devalued by inflation like fiat currency is when banks print money.

Bitcoin as an Investment

In the beginning, early users gave bitcoin away for free. Eventually, it cost a few cents to buy a bitcoin. Then, it cost a few dollars to buy a bitcoin, and the price just kept going up.

The year 2014 saw some huge gains, as bitcoin went from $13 per bitcoin to $700 per bitcoin. In 2018, bitcoin was worth $13,000 on average. And in November 2021, bitcoin hit an all-time high of $70,000.

Imagine if you were buying bitcoin in 2013, 2015, or even 2018. You’d be sitting on some serious gains.

Many experts say we can see Bitcoin cross the $100,000 in 2022. The general consensus is that the price will continue to appreciate over time, with no cap in place. It might be time to start investing in bitcoin and loading it up in your cryptocurrency wallet.

Bitcoin Uses

Bitcoin exists for peer-to-peer payments. But since it’s the first of its kind, it’s not very efficient.

With so many people buying and selling every day, the blockchain is congested. Individual bitcoin transactions and transfers can take upwards of 30 minutes or longer.

Network fees are quite low, especially compared to Ethereum. And you can use bitcoin to pay at many retailers and online merchants.

But other than purchases and investing, it doesn’t have many use cases.

What Is Ethereum?

Ethereum isn’t like bitcoin at all. Many people see it as bitcoin’s competitor, but they really aren’t playing the same game. Here’s why Ethereum is different.

Ethereum’s History

Ethereum was launched by a team of experts, including programmers Vitalik Buterin, Gavin Wood, and Charles Hoskinson.

Development began in 2014 and the network went live the following year. Vitalik Buterin, who developed the white paper for Ethereum, described that bitcoin was too narrow-minded, focusing only on creating a money system.

Vitalik dreamed of a blockchain that allowed other applications to build on top of it, benefitting from the decentralized nature of the blockchain.

From the get-go, Ethereum was to be the foundational building block of a decentralized world, full of applications that benefit businesses and consumers.

Ethereum Transaction Validation Method

Since its inception, Ethereum has also used the proof-of-work consensus mechanism to keep the network secure. That means that there are miners all over the world doing the same thing they do with bitcoin.

But because the Ethereum blockchain is much more efficient, it’s not quite as resource-intensive.

However, Ethereum is in the process of transitioning to the proof-of-stake model, called Ethereum 2.0. Once this change tasks place, there will be no more mining and no more electricity hogging.

Staking is the process of setting aside some of your ETH to become a validator node, which allows you to run the software that confirms transactions with other nodes.

The process creates a cryptocurrency and blockchain environment that is much more scaleable.

Ethereum as an Investment

Ethereum is six years younger than bitcoin, which is eons in the world of cryptocurrency. Still, Ethereum has seen incredible growth as well.

Ethereum launched via a crowdfunding campaign, called an ICO, or an initial coin offering. If you participated, you could’ve purchased one ether for $0.31.

If you bought on the first day after launch, you could have purchased one ether for $2.77. In November of 2021, it hit an all-time high of $4,891.

But because Ethereum is the foundational building block of an entire ecosystem of decentralized finance, Ethereum as a currency is going to remain in high demand and likely see huge price increases over the coming years.

Ethereum Tokenomics

Unlike bitcoin, Ethereum actually has a deflationary supply, rather than a fixed supply. That means that the amount of coins in circulation is constantly decreasing, helping to lower supply while increasing demand.

A percentage of all transaction fees are burned, which is the process of destroying ETH and removing it from circulation.

Speaking of transactions fees, it’s one of the biggest problems with Ethereum. During peak network activity, it is common to see fees of more than $100 per transaction.

However, Ethereum is slowly unveiling Ethereum 2.0, which will change how users participate with the network, which would alleviate the pain of transaction fees.

The Biggest Difference Between Bitcoin and Ethereum

The main difference between bitcoin and Ethereum, however, is the reason Ethereum was created in the first place. Ethereum is building an ecosystem where other applications can build on top of it.

Bitcoin exists as a peer-to-peer digital cash currency, and an investment vehicle. There’s not much else you can do with the network.

But Ethereum has created the foundational building block that allows other companies and developers to build unique applications on top of Ethereum, leveraging Ethereum’s network security.

Applications include decentralized crypto exchanges (DEX), lending and borrowing platforms, liquidity-providing platforms, and NFT marketplaces.

There are so many projects being built on Ethereum. When you bet on Ethereum, you aren’t just betting on a particular currency and its price. You are betting on an entire decentralized industry and all of the application’s building on top of it.

Ethereum is big now, and it’s going to be much bigger. It will be the foundation of so many important projects

Bitcoin is also big and will continue to be relevant, but it’s primarily used as a buy-and-hold investment vehicle since its blockchain wasn’t programmed for building.

Investing in Crypto

Now that you understand the main difference between Bitcoin and Ethereum, it’s time to decide where you’re going to put your money.

If you’re smart, you won’t answer that question though, you’ll just make crypto investments into both currencies. Both have proven themselves, and both are going to be around forever.

But they are fundamentally different and serve very different purposes.

Looking for more information to help you make better financial decisions? Head over to our blog now to keep reading.

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