Ethereum and Bitcoin are popular cryptocurrencies with the industry’s highest market capitalization values. These projects established themselves through constant technological innovation, making them less volatile by the year. ETH and BTC are considered the safest coins to invest in, and experts often advise investors to allocate a more significant portion of their portfolio to these cryptocurrencies than to altcoins or meme coins.
Still, despite their value, there’s ongoing competition between the two regarding which is best. While they have several similarities, Ethereum and Bitcoin are unique at the core. For example, the growing DeFi ecosystem influences the ETH coin price, while Bitcoin’s utility comes from its store of value features.
Let’s explore more about what differentiates Ethereum and Bitcoin.
How Does Bitcoin Work?
Bitcoin is the first cryptocurrency designed for real-world use, and it has been thriving since 2009. Its creator, Satoshi Nakamoto, created Bitcoin based on the proof-of-work consensus mechanism, which allows users to maintain the network through mining.
Bitcoin transactions focus on peer-to-peer technology, meaning they’re free of central authorities or third parties. Bitcoin has a limited supply coin of 21 million, which confers its value in the long term, considering that mining becomes more difficult every four years when halving occurs.
Worldwide users adopted Bitcoin as a preferred transactional option. Still, the mining problem caused several people to switch to alternatives due to consuming too much energy and contributing to climate change through carbon emissions.
How Does Ethereum work?
Vitalik Buterin, Ethereum’s creator, envisioned the project as a Bitcoin alternative, which is why Ethereum is an altcoin. He also wanted the project to be more than a store of value assets, establishing smart contracts and creating one of the vastest decentralized applications ecosystems.
Ethereum started with proof of work as well but changed to proof of stake for more efficiency and cost-saving staking processes. The change took place through the Merge update, after which the network became one of the most sustainable ones on the market.
However, Ethereum has had an ongoing issue with scalability. The roadmap update includes several changes to make Ethereum more scalable in the future and avoid network congestion and high gas fees, but the upgrade can be challenging to settle.
What Are Some Similarities Between Ethereum and Bitcoin?
Both cryptocurrencies have the potential to become the world’s first institutional decentralized currencies. Companies are already allowing customers to pay for their products and prices using BTC or ETH.
At the same time, Ethereum and Bitcoin operate on blockchain technologies and are decentralized currencies that can be used for or invested in for the same purposes. Both leverage smart contract functions, from Bitcoin’s Lighting Network to Ethereum’s Virtual Machine.
What’s more important is both cryptocurrencies have massive communities behind them that advocate for adoption and contribute to the networks’ integrity and safety. In addition, developers of their respective ecosystems usually propose frequent updates.
What About Differences?
The most prominent difference between Bitcoin and Ethereum is the consensus mechanism. Bitcoin mining requires users to buy expensive computational power to sustain the process, which consumes a considerable amount of electricity. This makes mining highly competitive and less profitable every four years when the mining reward is halved. The fourth halving, from 2024, reduced the reward to 3,125 BTC per block from 6,25 BTC.
On the other hand, Ethereum leverages staking, a totally different network-securing process. Users who want to contribute must stake their ETH coins in pools without the need for expensive hardware. The low entry barrier for beginners encourages many people to become stakers, and the process is much less energy-requiring than mining.
The difference in supply is also considerable. Bitcoin has finite supply-capped coins of 21 million, and it’s close to reaching its limit, but through halving, the coin gains value over time. On the other hand, Ethereum has an infinite supply of cryptocurrencies, but its value comes from the vast DeFi ecosystem.
Ethereum is also believed to be faster and more efficient than Bitcoin. Ethereum’s block time is an average of 15 seconds, and it can perform 30 transactions per second. On the other hand, Bitcoin mines a block in about ten minutes and has a transaction speed of 7 TPS.
So, Which One Is a Better Investment?
Generally, most investors choose both Bitcoin and Ethereum to bring more stability and value to their portfolios. While Bitcoin is an established coin on the market, Ethereum is backed by a continuously growing decentralized ecosystem with dApps, DAOs, and NFTs.
However, investors must allocate their assets correctly by researching various types of tokens that bring something new to the portfolio. So, investing only in Bitcoin and Ethereum might not be feasible in the long run.
Numerous altcoins on the market serve governance roles in the blockchain or are meant for in-game purchases. Investors can use them to balance the incoming value with the stability of BTC and ETH.
What About Volatility?
Both Bitcoin and Ethereum can be pretty volatile at times, especially when the bear market is in full force. Long-term investors can better withstand such changes because their portfolios are packed with serious investments spread over several months or years.
At the same time, traders or short-term investors are more exposed to volatility risks, so they must be better prepared to reallocate assets before bearish market movements. With tools like the Fear and Greed Index, investors can recognize changes in attitude toward certain assets and adjust their strategy accordingly and in time.
What Do You Think About Ethereum and Bitcoin?
Ethereum and Bitcoin are well-known cryptocurrencies on the market. They’ve contributed to a vast ecosystem in which asset classes and tokens have unique features. Ethereum’s smart contracts push for decentralization of networks, while Bitcoin’s store-of-value abilities can make worldwide payments faster and cheaper.
Many believe they have a lot in common but are inherently different based on their use cases. Hence, they could be used simultaneously to create a new era of finance and technological advancements.
