Bitcoin VS Ethereum

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Bitcoin VS Ethereum

The Blockchain technology and crypto currencies have come a long way from their humble beginnings, and the growth of Bitcoin has certainly led the charge in this movement. However, other crypto currencies have gained traction as well, and are commonly referred to as alt coins. Ethereum has emerged as one of the primary alt coins, and investors are continuously monitoring the price movements of Ethereum to identify investment opportunities. Despite the stark similarities of Bitcoin and Ethereum, there are distinct features of these two crypto currencies that set those apart from each other. In this article, we will evaluate the similarities and differences of these two popular crypto currencies.

Plenty of similarities between the two crypto currencies

The most obvious similarity between the two crypto currencies is that both of these crypto currencies use the Blockchain technology to function. This ensures the core functionality of both these crypto currencies remain similar to one another. A blockchain is a public ledger of all transactions executed in a given system, hence acts as proof of all the transactions carried out by different parties on the platform.

(Source – Dhacker)

The blockchain technology behind Bitcoin and Ethereum offers anonymous transactions and the ability to function without the need of a third-party financial institution. These are some of the other striking similarities between the 2 crypto currencies. The decentralized nature of these crypto currencies has helped the growth of the industry as well. 

Another similarity between the two crypto currencies is the correlation between the prices. Not surprisingly, almost all crypto currencies have a strong correlation with each other, and this is especially true for the crypto currencies with a high market capitalization. 

Correlation between Bitcoin and Ethereum

(Source – Binance Research)

The highlighted cell, which is the correlation of Bitcoin and Ethereum, reads 0.87, which confirms the very high correlation between the prices of these two crypto currencies.

Day traders who try to profit from the volatile price movements of crypto currencies do not realize the underlying differences between the two crypto currencies however.

Bitcoin and Ethereum are intrinsically different to one another

Bitcoin operates with the purpose of becoming a payment solution accepted widely in the world, and the core functionality of Bitcoin is to act as a store of value and facilitate transactions. However, the core objective behind Ethereum is not to become an alternative payment solution, but to act as an open-ended decentralized software platform that enables SmartContracts and Distributed Applications to be built and run without any downtime, fraud, or interference from any other third-party. Ethereum is essentially a programming language that helps software developers build and maintain applications smoothly. At the core functionality level, Bitcoin and Ethereum have stark differences.

The average block time of Bitcoin is 10 minutes, which has improved significantly over the last several years. However, Ethereum is a country mile ahead of Bitcoin when it comes to average block time, which is proof of the ability of Ethereum to process transactions at a much faster clip than Bitcoin.

Ethereum average block time is 10 seconds

(Source – Etherscan)

As many investors might be aware, Bitcoin has a limited level of supply. This is one of the arguments made by many crypto currency bulls to come up with exuberant target prices for Bitcoin, as a higher demand for crypto currencies in the future should result in higher prices as the supply cannot be increased with the increase in demand. The total supply of Bitcoin is capped at 21 million coins, and with over 17 million coins in circulation at present, approximately 84% of Bitcoinshave already been mined. This leaves a very little available supply for Bitcoin in addition to the Bitcoins already in circulation. The supply side situation for Ethereum is drastically different from that of Bitcoin. As per the pre-sale agreement issued in 2014, the incremental supply of Ethereum is capped at 18 million ether per year, but the founding members are now seeking a resolution to cap the total supply level of Ethereum, which has not yet been finalized. As things stand today, Bitcoin price is expected to get a boost as total supply is limited, whereas Ethereum will see a continuous flow of supply over the years.

The average transaction fee of using Bitcoin is close to $0.5, whereas the average transaction fee for using Ethereum is well below at around $0.07. Clearly, Ethereum is the more cost effective crypto currency out of the two, and this is one of the reasons why many crypto experts are banking on Ethereum to drive the future of the crypto currency industry.

Bitcoin has a block limit of 1 MB, whereas Ethereum does not have a block limit as such. This is another difference between the 2 crypto currencies in question. 

Conclusion

Despite a few similarities, Bitcoin and Ethereum are intrinsically different from one another. While Bitcoin acts as a mode of payment and store of value, Ethereum is designed to act as a platform to enable software developers build and maintain applications with the use of SmartContracts, and exchange payments for applications as well. Considering the limited supply of Bitcoin and the massive popularity, Bitcoin has a better chance of delivering profits to investors in the short-term, but things could well be different in the long-term. The price of a Bitcoin is $5,168.89 at present, and the price of an Ethereum is $154.42.

Price of BTC vs Price of ETH