How are Bitcoin and Ethereum different from each other?
What is Bitcoin and Ethereum?
Widely known as the first cryptocurrency, Bitcoin is a digital currency that allows people around the world to send and store value, without having to trust or rely on traditional financial infrastructure.
On the other hand, Ethereum was created to extend Bitcoin’s functionality, providing a kind of “programmable money” that allows developers to create decentralized applications that leverage blockchain technology and cryptocurrency payments.
Here, we explore the differences between the two cryptocurrencies, why they were created, and how they can be used by crypto holders today.
As a digital currency, Bitcoin aims to provide a means for users to make global payments that are much faster and cheaper than those settled with government-issued (or “fiat”) currencies, like the US dollar.
When sending funds, Bitcoin users pay a network fee to process the transaction. This is unlike the traditional system where intermediaries like banks may charge percentage fees on each transfer. Fees in the Bitcoin network are independent of the transferred value and are distributed to participants who maintain the network, known as “miners,” as compensation for their work. Network fees vary based on the size of the transaction.
Whereas Bitcoin was created to be an alternative to traditional currencies, Ethereum's native asset, Ether, is a cryptocurrency that serves as fuel for the Ethereum ecosystem. The platform itself provides tools for creating automated, “trustless” programs known as smart contracts.
Running without any downtime or reliance on a centralized governing entity, smart contracts provide a means for users to securely make payments and interact with digital services. The main benefit of smart contracts is in their trustless nature, which eliminates the need for interacting parties to trust one another. The exact flow of any funds they may send can be verified by checking the smart contract’s code.
The Bitcoin white paper was published in 2008 by pseudonymous creator Satoshi Nakamoto. It outlines Bitcoin as a decentralized digital asset, how it operates, what makes it a viable store of value, and how it can be used to send funds in a peer-to-peer manner. The Bitcoin network allows people around the world to exchange digital assets for goods and services without relying on an intermediary.
Proposed by Vitalik Buterin, Ethereum went live in 2015 after its development was crowdfunded a year earlier. Since then, it has established itself as the second-largest cryptocurrency in the world by market cap, with the network itself currently boasting the title of the most-commonly adopted decentralized software platform by blockchain developers. Operated and developed by its community, the Ethereum network has served as a launchpad for many innovations in blockchain technology throughout the years—providing developers with a platform that gives them creative freedom to build all-new crypto-related tools and services.
Example use cases
John, living in Canada, wants to send money to a friend, Hannah, currently residing in Bulgaria. It is Saturday, so his bank will probably start to process the transfer when it opens on Monday morning. The transaction will likely take days to finalize. He will also need to account for the exchange rate between Canadian dollar and Bulgarian lev, settled by the bank. He could instead use Bitcoin. Being a global network, it ensures the same transaction speed, regardless of the location of involved parties. He will have the transfer finalized within an hour.
Mary is an entrepreneur who currently holds a number of assets that aren’t generating any interest payments and wants to put them to work. She could entrust her money to a bank, placing it into a traditional savings account and earning 1.5% interest per year on her deposit.
Alternatively, using applications built on the Ethereum network, she could make her money available to be borrowed directly by other network users. For doing this, she can earn interest payments that may be significantly higher than a typical savings account. She could also use this deposit as leverage to take a loan out in another currency. In this case, she will not have to provide any information about herself or prove that she can pay it back—her deposited funds will serve as collateral.
Both networks offer new advantages to the traditional financial systems and have proven to be useful in a number of different ways. While opinions are divided, with some people (like “Bitcoin Maximalists”) believing that one currency will prove dominant over another, there is no simple answer as to which one is better—they are not competing with one another.
Instead, it is best to think of them as representing two different applications of an emerging technology. Seeing cryptocurrencies and blockchain technology as an important source of innovation in digital finance over the past decade, Brex remains agnostic— allowing users to redeem Brex points for both Bitcoin and Ethereum.