Cryptocurrencies have been doing very well in 2020. The crypto space has been taking advantage of the pandemic due to their image as a good store of value against the falling fiat currencies. Bitcoin itself has been making good gains, and it has successfully proven itself as the digital gold in the time of uncertainties like this year.
Following Bitcoin in the second place of crypto market cap rankings is Ethereum, which has become quite popular recently, due to the rising popularity of DeFi (decentralized finance) industry. Many Bitcoin maximalists don’t like the rise of Ethereum and many Ethereum maximalists also like to criticize Bitcoin. But apart from the rivalry between the two communities, which one is actually better than the other? Well, let’s analyze them together.
The History And Use Cases
To understand the differences between Bitcoin and Ethereum, first of all, we need to know the history between the two. The biggest difference lies in their use cases.
Bitcoin was created as a direct result of the global financial crisis and the failure of fractional reserve banking in the global economy. Satoshi Nakamoto, the creator of Bitcoin, believed that Bitcoin was the perfect system for peer-to-peer electronic cash. The idea of Bitcoin is to transfer value anywhere in the world without a centralized entity.
On the other hand, Ethereum was created as a direct result of Bitcoin’s limitation. Vitalik Buterin was a big enthusiast of Bitcoin but he quickly realized that Bitcoin had a big limitation in its mechanism. Vitalik Buterin believed that it would be better if a cryptocurrency can also be used as a decentralized supercomputer to build decentralized apps (DApps). That’s why he wrote the white paper of Ethereum – to create a decentralized supercomputer by using the technology of the blockchain.
So, the use case is different due to historical differences. Bitcoin is used as a borderless currency and a hedge against fiat currencies. Ethereum is used to create DApps. Technically, of course, you can also see Ethereum as another perfect store of value. However, the narrative around Ethereum is still the same; it’s to empower DApps all around the world.
Smart Contracts And Consensus Algorithm
In terms of technology, there are several very big differences between Bitcoin and Ethereum. First of all, as mentioned above, Ethereum is utilized to create DApps. Ethereum can do this because it has the native capabilities to execute smart contracts through Ethereum Virtual Machine (EVM).
If you look at current DeFi protocols like Compound and Aave, they are DApps that operate on top of the Ethereum blockchain. With Bitcoin, you can’t build this type of applications natively on the Bitcoin blockchain.
Another big difference between the two is Ethereum’s plan to migrate toward Proof-of-Stake (PoS). As of now, both Bitcoin and Ethereum use Proof-of-Work (PoW) consensus algorithm but Ethereum has been planning to slowly migrate its blockchain to PoS.
With PoW, transaction confirmations and block creations are processed by miners who use their hash power to solve mathematically difficult puzzles. In a PoS system, these miners become validators and they need to stake a certain amount of ETH to be able to process transactions.
Although it might take years before Ethereum can fully migrate from PoW to PoS, at least we know they are planning to do it. The future of the two looks very different when Ethereum adopts PoS while Bitcoin remains faithful to PoW.
Many crypto experts debate which one is better between PoW and PoS. Some people claim that PoW would be much more decentralized than PoS because only the rich will be able to stake more ETH in a PoS ecosystem. On the other hand, PoS supporters claim that an established network like Ethereum gives plenty of chances for smaller players to become validators. They also believe PoW is not scalable due to their computing power demands.
Which One Is Better?
So, between Bitcoin vs. Ethereum, which one is a better cryptocurrency? It actually depends on how you look at it. Both can certainly co-exist with each other. After all, the rise of Bitcoin also benefits Ethereum and vice versa. At this point, many crypto investors and traders usually hold both ETH and BTC. They serve different purposes and they also benefit each other for the wider crypto community.