Understanding The Difference Between Bitcoin and Ethereum | The Investing Engineer

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Understanding The Difference Between Bitcoin and Ethereum

difference between bitcoin and ethereum

What You Will Learn:

  • ​A brief discussion on the definition of these two digital currencies.
  • The purpose of Bitcoin and Ethereum, its difference and its practical applications.
  • The speed and flexibility of transactions.
  • Bitcoin and Ethereum's economic models.

Finance and money in general is still being transacted via paper notes and coins, but with the advancement of technology, people can now transact by just using cards or an online payment system such as PayPal.

Cards made it possible for the most of us to transact through the wires without even handing out actual money. Around 50 years ago, people wouldn’t have thought that it could be possible, but then again, no one could really predict what technology can bring even in the next couple of years or so.

Now here comes a new type of payment option that was only first conjured in the 21st century - virtual currencies. Since the system is fairly new, users enjoy a rather unrestricted venue. The idea was propelled using peer-to-peer technology - much like how file sharing worked quite well for movies, music and other documents.​

When it comes to virtual currency, the most popular names would include Bitcoin and Ethereum. Some people think that both have more or less the same functions, but they actually operate in entirely different realms.

To fully understand the difference between Bitcoin and Ethereum, you need a primer as to what these things really are. Between the two, Bitcoin is the older one - being launched in 2009, while Ethereum did not come around until just around two years ago in 2015. Both are however considered crypto-currencies (or virtual currency) that use blockchain technology in order to function. So what is a blockchain?​

Experts say that a blockchain is basically a virtual spreadsheet that is shared throughout a network of database. These spreadsheets contain information (usually financial transactions) similar to a ledger - but the records are not placed in one digital central powerhouse, making it safe from hackers and cyber criminals alike.

Blockchain technology helps both Ethereum and Bitcoin function as currencies in the digital world. Like actual money, Bitcoins can be used for payment and trading - but only in the digital world.

Ethereum on the other hand can also be used for digital payment and trading transactions, but unlike Bitcoin, Ethereum allows users to implement Smart Contracts and Distributed Applications. This then leads us to the following differences:

Purpose​ Of Bitcoin And Ethereum

Essentially, Bitcoins are only made for the purpose of replacing actual money (notes and coins) for digital transactions. Ethereum on the other hand has a more complex purpose. As previously mentioned, Ethereum allows users to implement Smart Contracts and Distributed Applications that run without the risk of fraud and other privacy issues and cyber security threats. It functions more like a platform for developers who are in need of a working program to build and develop apps.

Like Bitcoin however, Ethereum can also be used as an alternative for payments and trading, but its primary function is the platform which allows distribution of apps and implementation of smart contracts. Smart Contracts allow developers to create their own virtual tokens that can either be distributed in the form of membership, virtual shares and assets.

It can also help users to crowd-source for funds, much like Kickstarter projects. Through the Smart Contracts function, users can create their own contracts and gather pledges from the online community. The money of course is held safely until the indicated deadline is reached.

If the target amount is not achieved, the money gathered will be immediately sent back to the contributors. It’s not just all about funding too, Ethereum can help you collect proposals and votes regarding your project or business idea - this means that young entrepreneurs can use them for professional connections and partnerships without the need of getting into traditional interviews and paperwork.

With Ethereum, users can ditch Kickstarter and even save on processing fees and other charges which could eat up around 10% of the total budget of the project. This is a better option especially for startup entrepreneurs who need all the funding it needs without sweating it all out on dodgy platforms and unreliable channels.

Speed​ Of Transactions

In terms of speed, Ethereum can process transactions faster - with only 12 seconds in block time approximately. They call this process the “Ghost Protocol.” Bitcoin on the other hand is significantly slower, because it clocks at 10 minutes in block time. Generally, Ethereum can approve and confirm transactions faster.

This is not exactly a deal-breaker for most users though, but Ethereum’s faster speed could benefit those who are into online business and projects that could involve large transactions between partners to partners or businesses to clients and vice versa. Bitcoin on the other hand is usually used for more personal transactions, so the volume by itself is not as large and complicated.


Through its Turning internal code, Ethereum can practically compute just about anything. That’s why some companies can use it as some sort of ledger. Bitcoin however is incapable of such function, since it is only limited to virtual payments and the usual business transactions.

Economic Model​

Bitcoin and Ethereum run on a different model. On the part of Bitcoin, rewards are halved every four years. In the case of Ethereum, no such rule is available - their model only releases the same amount of Ether year after year.

As for transaction costs, Ethereum took several factors to determine how much it should be. It usually depends on how complex the user’s computation is, and how much bandwidth or storage was used in the process. Bitcoin however is not so flexible when it comes to transaction costs, as it only relies on the actual block sizes that was used - and this could be an advantage for some users, considering that their rates stay consistent for the most part.

There is also a difference as to how they reward initial investors or miners in the system. Bitcoin’s earliest miners for example will possess the majority of coins in the future, while Ethereum’s miners (crowd-funders) will own 50% within five years. Also, Ethereum discourages pool mining - it is not however penalized, but it is not rewarded either.

As to public use and consumption, both Bitcoin and Ethereum are not used as widely as cashless transactions that require bank cards or ATM. Technically, they are not seen to replace cash or card payment transactions sometime in the near future. However, it cannot be denied also that both cryptocurrencies has its potentials, and is gaining quite some good ground among technically-savvy investors.

​Overall however, Bitcoin and Ethereum are not exactly in competition with each other, due to the large dissimilarities in their function. They are just naturally pitted against each other because they are currently the two most well-known crypto-currencies in operation.

In addition, it seems like Ethereum is more of a business-to-business tool while Bitcoin is more of a business-to-consumer tool. As Ethereum is perfectly capable of being a platform for developers who are looking to create their own contracts and apps, they are more suited for business purposes. Bitcoin on the other hand, being used as virtual currency in place of notes and coins could be used by the public in general.

As for security, both are considered safe. So far, blockchains prove to be a system that’s harder to crack, and no issues and major breaches are being experienced yet. Users are still cautioned though, as it might just be a matter of time when cyber criminals could find a soft spot in the system.​

About the author:

gemma reeves

Gemma Reeves is a seasoned writer who enjoys creating helpful articles and interesting stories. She has worked with several clients across different industries such as advertising, online marketing, technology, healthcare, family matters, and more. She is also an aspiring entrepreneur who is engaged in assisting other aspiring entrepreneurs in finding the best office space for their business.

Website: FindMyWorkspace

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  • bienvenido says:

    Hi Sir,

    I am a reader of your blog and learned a lot from it.

    I would like to ask if, okay ba mag invest in cryptocurrencies like the two mention in the post? and do you have like any info on how much and where to invest on the said currencies?

    Thank you!

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