Up until recently, Bitcoin was the sole dominant cryptocurrency in the blockchain space. For most people that didn’t have an in-depth understanding of blockchain technologies, Bitcoin, blockchain and cryptocurrency were indistinctive terms.
In the last few years, there has been a major emergence of blockchain platforms and tokens of many kinds, from innovative cryptocurrencies with special uses to smart-contract-bound NFTs revolutionizing the concept of property.
Among the multiple blockchains and cryptocurrencies that have emerged in the recent boom, one, in particular, has come to defy Bitcoin’s supremacy as the biggest cryptocurrency, with a more sophisticated consensus mechanism that has made it the ideal option for non-fungible token coining, Ethereum.
For newcomers to the crypto world, and those who’d like to invest in Bitcoin or Ethereum, the main differences between the two cryptocurrencies are not always clear, and thus, it’s not clear which of these options will benefit them the most.
Here are the most important differences between Bitcoin and Ethereum.
Size and Market Caps
In strict investment terms, perhaps the most basic difference between Bitcoin and Ethereum relies on the size and market cap of each cryptocurrency.
As of today, Bitcoin’s market cap stands at around 365 million dollars. This is the total price of the coins that are circulating and in supply at the moment in which the measure is calculated.
Ethereum’s current market cap is a far lower 127 million dollars, which is no small amount but reflects an important difference with Bitcoin’s almost three times bigger market cap.
This difference in size comes largely from the fact that Bitcoin is much older and more popular than Ethereum.
Will Ethereum be Bigger than Bitcoin?
Despite Bitcoin still being almost three times as big as Ethereum in terms of their respective market caps, some experts believe that Ethereum will pass Bitcoin in the near future, getting the world to swap Bitcoin for Ethereum as the largest referent for crypto prices.
The reason for this is that Ethereum uses a more sophisticated method for validating transactions, known as the Poof-of-Stake consensus mechanism, which was created as a response to Bitcoin’s highly power-consuming Proof-of-Work.
This does not just make Ethereum much more scalable, but also more flexible when it comes to allowing for the development of platforms and non-fungible tokens in its network. As a result, it is not impossible for Ethereum to go as high as bitcoin one day.
Consensus Mechanisms: Proof of Work and Proof of Stake
One of the most important differences between the Bitcoin and Ethereum blockchains is the consensus mechanism that each of them uses to record and validate transactions.
Before we dive deeper into what this means, it is important to first understand some of the basic principles of how blockchain works.
A blockchain is a software that allows users to make transactions without requiring a dedicated central entity to validate and process them.
Public blockchains such as Bitcoin and Ethereum allow their users to voluntarily lend their own devices as nodes, providing the computing power for the system to operate, validate transactions, and record transaction data, being rewarded with the new tokens that emerge on the blockchain.
This decentralized dynamic for transaction recording and validation is what allows a blockchain to function without the need for central intermediaries, ensuring security by having no single point of failure. In Proof of Work (PoW) and Proof of Stake (PoS), this process is done in a different way.
Bitcoin and the Proof of Work (PoW) Consensus
In the PoW consensus mechanism that Bitcoin employs, users lend their devices as nodes to provide the computing power for the system to operate.
The way in which the system ensures security is by conditioning the ability to validate transactions to the resolution of an increasingly complex mathematical problem made to require high amounts of computing power, hence the name of the consensus mechanism
This type of mechanism ensures the security of the blockchain and the privacy of its users but comes at the cost of scalability since transactions require exceptionally high amounts of computing power.
To get a perspective of how the PoW mechanism affects scalability, one can look at how many transactions per second (TPS) Bitcoin does compared to the traditional Visa system. Whereas Bitcoin is able to process 4.6 TPS, Visa does about 1,700.
While it might make it sound like Bitcoin is a rather cumbersome system, this makes it a more decentralized and secure system, which comes at the cost of speed, since it allows anyone with capable devices to mine (provide nodes) and gives every miner equal chances to earn new tokens based on how much energy they provide.
Ethereum and the Proof of Stake (PoS) Consensus
The PoS consensus mechanism that the Ethereum blockchain employs was developed as a response to the scalability problems in PoW. In Ethereum’s PoS system, there is a network of validators who get chosen to be the nodes that validate transactions.
Instead of sheer computing power, the criteria to choose who validates transactions in a PoS network is a “stake”, or a contribution of a certain amount of cryptocurrency that is paid for a chance to be a validator and earn a reward.
This reward system ensures that the blockchain is able to run in a decentralized manner without requiring excessive amounts of computing power and energy, allowing much higher scalability than PoW systems.
Although PoS networks tend to be more efficient in terms of transaction speeds and power consumption, they are not as “decentralized” as PoW systems, as users get more chances to lend nodes and become validators based on how much cryptocurrency they own and how long they have been in the blockchain.
Pros and Cons of Bitcoin and Ethereum
Knowing the fundamental differences between how Bitcoin and Ethereum work, it is now time to assess how these differences reflect on the user experience.
Each of these blockchains offers some advantages and disadvantages over the other, which one should consider before deciding to participate in the blockchain, either as an investor, validator, or regular user.
The Bitcoin blockchain is built for the sole purpose of supporting its cryptocurrency, contemplated as an alternative to traditional currencies and banking methods.
Although there have been various applications built on the bitcoin blockchain as it has been updated, the platform wasn’t built from the ground up to be anything other than a ledger for a cryptocurrency, hence its scalability limitations.
With that in mind, it should be considered that Bitcoin is the oldest and biggest blockchain that exists, with the highest number of users and the most valued cryptocurrency in the market.
This represents various advantages, as its token has a higher mainstream appeal which translates as better opportunities to use it as a means of payment.
Likewise, despite Bitcoin requiring less energy to operate, making transfers in it tends to be cheaper than making them on Ethereum since the energy costs are assumed by the miners themselves, whereas Ethereum charges them on each transaction in the form of gas fees.
Hence, Bitcoin is likely a better alternative for simple monetary transactions and saving, but its lower scalability makes it less flexible and thus harder to use for any other purpose.
Ethereum’s more sophisticated consensus mechanism gives it an edge in scalability and flexibility compared to its older counterpart Bitcoin. Its higher flexibility makes it more prone to developing applications and protocols on the blockchain.
As a result, Ethereum has become the most popular go-to option for people coining non-fungible tokens (NFTs) and the base for multiple NFT and DeFi applications, some of the most popular of which include CryptoKitties and Metamask.
Therefore, Ethereum is the better option for users looking to explore the potential of decentralization and blockchain for purposes beyond banking, transactions, and other financial operations.
Is Ethereum More Energy Efficient Than Bitcoin?
In general terms, Ethereum is, indeed, more energy efficient than Bitcoin, as each Bitcoin transaction takes roughly 10 times as much energy as a single Ethereum transaction.
The debate doesn’t end there, however, as, despite Ethereum’s more sophisticated PoW system, when it comes strictly to mining, Bitcoin could take the spot for higher energy efficiency, as miners pay twice as much on average for energy used to mine Ethereum than what they pay to mine Bitcoin.
In other words, Ethereum’s transactions are more energy efficient, but the costs that miners pay for energy are lower on Bitcoin.
In terms of how much energy each of the two blockchains spends compared to their market cap, while Bitcoin’s market cap is almost three times as big as Ethereum’s, its blockchain only spends twice as much energy in total.
So the debate as to which of the two blockchains is more energy-efficient at the moment isn’t fully set. Nonetheless, it’s important to point out that Ethereum’s higher flexibility makes it far more scalable and allows it to reduce its energy consumption in the long term.
As a matter of fact, there is a planned upcoming upgrade for the Ethereum network that is estimated to cut its energy consumption by 99.95%.
This advantage in flexibility and scalability, however, comes at the cost of having more expensive transactions due to the blockchain’s infamous gas fees, in which prices vary depending on demand and are used to pay for the energy that the blockchain consumes.
Is Ethereum Easier to Mine than Bitcoin?
Although it takes more energy to mine a single Bitcoin than it does to mine a single Ethereum coin, that doesn’t necessarily make Ethereum easier to mine, due to its PoS system.
As it has been stated, anyone who has the computer power to provide a node for the Bitcoin platform can mine Bitcoin, however, there is a much higher entry barrier to mine Ethereum, as it does not just require computer power but a stake of ETH cryptocurrency.
The minimum amount of crypto required to participate in the staking process is 32 ETH, which is worth about U$54,200. When someone is chosen to lend a node but they don’t carry out the validation process correctly, their stake is partially or completely lost, and if they do the process correctly, a reward is earned.
This makes Ethereum overall harder to mine when it comes to the costs and risks involved for the miner, although the rewards can also be potentially higher.
Summarizing the Differences Between Bitcoin and Ethereum
In general terms, each of the two most popular blockchain platforms has its own advantages and disadvantages, which can be summarized as follows:
- Lower transaction costs.
- More decentralization.
- Ideal for banking operations.
- Higher cryptocurrency value.
- More mainstream appeal.
- Outdated consensus mechanism.
- Less flexibility for app development.
- Worse scalability.
- Slower transactions.
- More modern consensus mechanism.
- Lower power consumption.
- Higher flexibility for app development.
- More popular NFT platforms.
- Faster transactions.
- Higher transaction costs due to gas fees.
- Less decentralization.
- Lower mainstream appeal.
- Lower cryptocurrency value.
As we’ve seen, the two most popular blockchains in the market, Bitcoin and Ethereum, have very important differences which should be considered by new users thinking about investing in cryptocurrencies and NFTs or simply using them for their transactions.
While Bitcoin has been in the market for much longer, has a higher user base, and is a more valuable cryptocurrency, Ethereum possesses a more sophisticated consensus mechanism that allows it to be more scalable, and therefore, more likely to endure the passing of time.
Hence why some claim that it’s possible that Ethereum becomes the next bitcoin in terms of its overall mainstream acceptance and market cap.
Nonetheless, the answer to which of these two blockchain platforms is better will largely depend on the needs and expectations of each user. It should be noted, however, that there are but two options in the market, and new blockchains and tokens are emerging every day.
If you wish to learn more about Bitcoin, Ethereum, and any other cryptocurrencies in the market, and meet those involved in the growth and development of these platforms, you may visit Expoverse, the largest in-person mass adoption blockchain event in the world.