Bitcoin vs Ethereum. Their Difference and Benefits
Bitcoin vs Ethereum; these are two of the most popular cryptocurrencies in existence today. They have been around for a while now, but they still remain to be one of the best options available if you want to invest your money into cryptocurrency. In this article we will compare these two coins from different perspectives so that you can make an informed decision on which coin is better suited for you. We’ll also look at some other alternatives as well. So let’s get started!
What Is It?
First things first: what exactly is Ethereum? Well it’s actually quite simple really; it’s just another blockchain based currency like bitcoin or Litecoin. The difference between them however lies in how much power each has over their respective blockchains. For example, with bitcoin there isn’t any limit to the number of transactions per second that can occur within its network whereas Ethereum allows up to 15 TPS. This means that Ethereum is more suitable for large scale applications than bitcoin. However, both currencies share many similarities such as being decentralized and censorship resistant.
Ethereum Vs Bitcoin – What Are Their Differences?
So far we’ve established that both bitcoins and ethers are similar in nature. But why should anyone choose either over the other? Let’s take a closer look at the differences between the two.
Bitcoins vs Ethereum: Differences
Both bitcoin vs Ethereum use decentralized networks to operate. With bitcoin, miners validate new blocks by solving complex mathematical problems using specialized hardware called ASICs. These ASICs then receive rewards in form of newly minted bitcoins when they solve the problem successfully. On the other hand, Ethereum uses proof-of-work consensus algorithm known as “proof-of-stake” where users stake ETH tokens instead of mining. Staking involves holding onto certain amount of ETH tokens and waiting until someone else solves a computational puzzle before receiving reward. Once solved, the user receives the reward along with interest earned on staked ETH.
As mentioned above, both bitcoin and Ethereum use cryptographic algorithms to secure their transaction records. Both systems employ public key cryptography, asymmetric encryption techniques and digital signatures to ensure data integrity. PKC ensures that only those who possess private keys can decrypt messages sent through encrypted channels. Asymmetric encryption enables parties involved in communication to encrypt information without having access to the decryption key. Digital signature provides authenticity and non-repudiation properties to all communications.
3) Transaction Speed
Transaction speed refers to the time taken for a transaction to complete once initiated. Transactions involving bitcoin usually takes 10 minutes to confirm whereas Ethereum transactions typically take less than 2 seconds. While this may seem insignificant, it does mean that Ethereum offers faster confirmation times compared to bitcoin.
Scalability refers to the ability of a system to handle increasing load. Bitcoin was designed to process 7 transactions per second. In order to increase capacity, developers have introduced side chains which allow off chain processing of transactions. Side chains also enable smart contracts to be executed outside the main blockchain thereby allowing greater scalability. Ethereum's solution to scaling issues is sharding. Sharding divides the entire network into smaller groups. Each group operates independently but shares common rules and ledger across shards. It works similarly to traditional database management systems wherein different tables exist within one database yet maintain separate identities.
Ether costs $0.10 while bitcoin currently trades around $7000. This means that if you want to buy 1 BTC today, you will need to pay about $70. However, there are many ways to purchase bitcoin including exchanges like Coinbase or LocalBitcoins.com. If you don’t wish to go down these routes, you could always mine your own coins. Mining requires expensive equipment such as GPUs. The cost of electricity required to power these machines makes them impractical for most people.
While both bitcoin and Ethereum offer privacy features, Ethereum has been more proactive in protecting its users from prying eyes. For example, Ethereum allows users to create anonymous accounts. Pseudonymity prevents real world identity from being linked to account ownership. Furthermore, Ethereum supports ring confidential transactions whereby funds cannot be traced back to sender even after multiple transfers. Ring CTs provide anonymity by using an onion routing protocol. Onion Routing uses layers of encryption to route payments between participants. Once payment details reach destination nodes, they are reassembled at another node before reaching final recipient.
What Are the Benefits of Bitcoins?
1. Decentralization: Unlike central banks, bitcoins do not require any third party intervention to operate. All operations on the network are performed collectively by every participant. No single entity controls the supply of bitcoins nor can they manipulate prices. Therefore, no government agency can control the price of bitcoins.
2. Security: Since bitcoins are stored online rather than offline, hackers would face difficulties accessing user wallets. Moreover, since all information regarding transactions are publicly available, users can verify whether their wallet addresses were accessed without permission.
3. Low Transaction Fees: Because bitcoins are decentralized, fees associated with sending money are low. Sending money through conventional banking channels often involves high transfer charges. On top of that, some countries impose additional taxes when transferring large sums of cash. By contrast, bitcoin transactions incur negligible fees.
4. Instant Payments: With instant settlements, it takes only seconds to send money anywhere in the globe. Users simply enter the amount they wish to transfer along with receiver's address. After entering this data, the transaction gets broadcasted to the rest of the network. Within minutes, the money reaches its intended destination.
5. Global Accessibility: Due to global accessibility, anyone who owns a computer connected to internet can use bitcoins. In fact, one does not have to live within the borders of a particular country to utilize bitcoins. One just needs access to a web browser.
Benefits of Ethereum
1. Smart Contracts: A smart contract is a piece of code which executes automatically once certain conditions are met. It enables two parties to carry out pre-agreed terms without interference from outside forces. These contracts may include agreements related to financial services, property sales, stock trading, insurance policies, etc.
2. High Throughput Transactions: The throughput capacity of Ethereum far exceeds that of Bitcoin. This means that Ethereum processes many more transactions per second compared to bitcoin. To put things into perspective, as of January 2017, there were around 1 million daily active Ethereum addresses while less than 100 thousand bitcoin addresses were used each day.
3.Scalability: As mentioned earlier, Ethereum offers much higher scalability than bitcoin. While bitcoin operates on a fixed block size limit, Ethereum adjusts itself dynamically according to demand. If the number of transactions increases beyond what the system can handle, new blocks will get added to the blockchain thereby increasing the total volume of coins.
4.Lower Costs: Compared to other cryptocurrencies such as Litecoin or ripple, Ethereum costs significantly lower for miners to process transactions. For example, processing a single ether transaction currently requires about $0.10 worth of electricity and consumes approximately 0.6 joules of energy whereas bitcoin uses 10 times more power and generates 4x more heat.
5.Etherum has an open source platform which makes it easier for developers to build applications using the technology.
Frequently Asked Questioned
What Is Ethereum?
Ethereum is a cryptocurrency designed by Vitalik Buterin. It was released in 2013 but gained popularity after being listed at Coinbase in 2015.
How Does Ethereum Work?
The main idea behind Ethereum is to create a currency that runs on the same principles as the Internet Protocol. Just like IP works based on packets, Ethereum functions based on units called “ether”. Each ether represents a unit of account and stores value between users.
What is the Difference Between Ethereum Vs Bitcoin
There are several differences between these two currencies. First off, Ethereum is decentralized unlike bitcoin. Secondly, Ethereum allows for faster payments due to its high throughput rate. Thirdly, Ethereum supports Turing complete smart contracts while bitcoin doesn't support them yet. Finally, Ethereum is cheaper to mine than bitcoin.
Is There Any Risk Involved When Investing In Cryptocurrencies?
Yes! Like any investment, investing in cryptocurrencies comes with risks. You could lose your money if you invest in something that isn't legitimate. Also, some people have lost their life savings when they invested in bitcoins because they didn't know how to properly protect themselves against hackers. So always be careful before making investments.
In conclusion, I think that Ethereum is better suited for everyday use rather than bitcoin. However, both technologies offer different advantages so it's up to you whether you want to go with one over another. Personally, I prefer Ethereum since it provides me with greater flexibility and security. This is all about bitcoin vs Ethereum. Thank you for your time.