The Bitcoin and Ethereum networks occupy a central place in the blockchain ecosystem. And for good reason, to date, they together represent more than 60% of the capitalization of all cryptocurrencies. To fully understand this domination, you have to bear in mind that there are more than 19,000 different cryptocurrencies today and this number is increasing every day. 

Digital gold commonly refers to Bitcoin when the Ethereum network is referred to as a decentralized computer (or world computer) .

So what are the differences between these two cryptographic protocols? This is what we will see together.

Summary
  1. Bitcoin & Ethereum, a consensus difference
  2. Tokenomics that have nothing to do with
  3. Bitcoin vs Ethereum: a different technological approach
  4. BTC vs ETH: cryptocurrency vs blockchain application
  5. BTC vs ETH: What about transaction fees?
  6. BTC vs ETH, a market cap that tends to approach
  7. But between BTC and ETH, which is more decentralized?
  8. In conclusion

Bitcoin & Ethereum, a consensus difference

Proof of Work pour le Bitcoin

The bitcoin, imagined in 2008 following the subprime crisis and created in 2009 by Satoshi Nakamoto is a cryptocurrency which is based on the so-called consensus of proof of work (PoW) or proof of work in French.

This means that they are miners (computers or specialized hardware) who, by providing computing power, solve a simple calculation but a large number of times until they find the right random number (nonce) to submit the block of network transactions. By doing so, the transactions are validated and the new blocks are then created. For contributing to the creation of new blocks, each miner receives new bitcoins as a reward (block reward). 

This proof-of-work consensus provides unparalleled security in the field of blockchain. On the other hand, it requires a lot of energy to power the hardware that performs these calculations. This is also the main reason why Bitcoin is the subject of recurring controversy by certain regulators. Even recently, Europe evoked the pure and simple prohibition of this type of consensus. Rest assured, the protocol being decentralized, no one is able to technically ban it.

Soon 100% Proof of Stake for Ethereum

On the other hand, the Ethereum network, whose token is called ether , was created in 2015 and distributed during an ICO (Initial Coin Offering). The protocol originally based on a proof of work process should migrate in 2022 to a 100% proof of stake (ETH 2.0) protocol.

To remain synthetic, it is a protocol whose block validation is ensured by proof of stake, that is to say by the possession of blockchain tokens through staking. This much less energy-intensive protocol is also theoretically less secure than proof of work, even if the level of security remains very high.

Tokenomics that have nothing to do with

Tokenomics defines the release and distribution of cryptocurrencies, in other words: the token economy defined by the creator(s) of the project.

When it was created, Bitcoin was defined to never exceed 21 million coins. It is therefore a non-inflationary wedge . The halving also makes it possible to slow down the issuance of new bitcoins as time passes by dividing the monetary issuance by 2 every 4 years. It is estimated that the last bitcoin will be born in 2140.

Ether, on the other hand, has no emission limit. It is therefore an inflationary model . Most of the ethers were issued during the 2015 ICO pre-sale (72 million ETH, including 12 million for the founders). As of today, we are at around 120 million ETH in circulation. It should be noted that part of the transaction costs in ETH are destroyed (burn) which limits the growth of the supply (money supply).

ethereum merge ultrasound money

Potentially, the ETH that are burned can occasionally outnumber those that are created. . This is, by design, to limit the inflation due to the issuance of the token. The more the network is used, the more likely it is that the burnt tokens will be superior to the created ones and the rarer the tokens will become, theoretically appreciating the intrinsic value of ETH.

Bitcoin vs Ethereum: a different technological approach

Unlike Bitcoin, Ethereum makes it possible to integrate so- called turing complete smart contracts into its code . These smart contracts make it possible to validate actions autonomously when certain predefined conditions are met, a bit like complete computer programs hosted directly on Ethereum.

The best-known smart contract standards on the Ethereum blockchain are ERC20 for creating fungible tokens and ERC721 for creating NFTs . This is undoubtedly the most striking difference between these two protocols as it defines the applications of these two blockchains.

BTC vs ETH: cryptocurrency vs blockchain application

Bitcoin was created in response to the 2008 Subprime crisis. It serves as a store of value and functions as electronic cash (as discussed in its original whitepaper ). Transactions therefore represent an exchange of value like fiat currency that is used to make payments.

Ether is in theory only used to pay for transactions on the Ethereum network (the famous Gas fees) . The Ethereum network, on the other hand, has the immense advantage of integrating smart contracts . The possible applications are almost endless. We are of course thinking of the various hosted tokens, NFTs, finance (DeFi) but also social networks, etc. All this being decentralized.

BTC vs ETH: What about transaction fees?

Both networks operate on the same economic principle. The more the network is used, the more the transaction costs increase.

However, the Bitcoin network, especially since the implementation of the Lightning Network overlay , is inexpensive and transactions are fast. This overlay solved the scalability problem of the Bitcoin network.

The Ethereum network is in high demand and fees have soared in recent months. The transaction fee system is based on the auction principle. When the network is very busy, priority transactions are those that consume the most fees.

bitcoin ethereum transaction fees
Simulation of ETH vs BTC transactions via txstreet.com

Currently, the developers are working on an update to the Ethereum protocol which should introduce the principle of sharding to the protocol. Once implemented, sharding will significantly decongest the network and therefore lower gas fees. This update should not see the light of day before 2024 or 2025, the Ethereum foundation wants to ensure that the update is done without problems, which should take several years as the stakes are high.

In the meantime, Ethereum is banking on a modular approach by offering overlays on its network (Layer 2), these overlays are based on Ethereum’s security and make it possible to accelerate the speed of transactions and make them cheaper, from same way as Lightning Network for Bitcoin.

BTC vs ETH, a market cap that tends to approach

As we have seen, bitcoin was created in 2009 and Ether in 2015. 6 years apart in the world of blockchain is almost an eternity as things evolve so quickly. 

If we look at the charts, we see that the price action of these two assets is very mobile. The long-term trend, however, shows an increase in the total capitalization of these two assets.

Today, the capitalization of BTC is more than double that of ETH. The evolution of the ETH/BTC price shows that ETH has, since its creation, a price in dollars which is increasing faster than that of bitcoin. This is probably due to the growing number of platforms that use its blockchain. Trading volumes in decentralized finance, or more recently in NFTs and metaverses are indeed growing.

ethereum vs bitcoin capitalisation
ETH vs BTC chart: gradually Ethereum outperforms Bitcoin

The flippening, often referred to as being inevitable, will then represent the moment when the capitalization of ETH will exceed that of BTC. 

From this point of view, we can say that the average performance of the dollar price of ETH surpasses that of BTC, thanks in particular to a user adoption which pulls the volumes.

But between BTC and ETH, which is more decentralized?

By design, Bitcoin is a fully decentralized network. The code is open source and everyone can contribute to its improvement subject to respecting the rules of origin provided for in its design. From this point of view, no one can, for example, inject malicious code that would put the network down.

Regarding the Ethereum network, it is also decentralized. On the other hand, developers, through their work, have the most influence on the future of the blockchain and its decentralized nature. The Ethereum Foundation, whose funds come from the 2015 ICO, also has a power of influence by financing projects rather than others. This influence remains limited and tends to disappear as the network develops. 

On this point, Bitcoin has an advantage even if in fact, Ethereum has little to fear from any dependence.

Summary table of differences: BTC Vs Ethereum

Bitcoin Ethereum
year of creation 2009 2015
Creator Satoshi Nakamoto Vitalik Buterin and his team
Consensus Proof of Work (PoW) PoW & PoS (currently)
then PoS (end of 2022)
Number of term tokens 21 million Infinite
Type of code Open source Open source
Main language C++ (and Python) Solidity (smart contracts)
Security +++ ++
Scalability ++ ++
Decentralization +++ ++
Transaction fees students very high (currently)

In conclusion

As we have seen, the Bitcoin and Ethereum crypto protocols are fundamentally different in the sense that they were not created for the same reasons. 

One, Bitcoin, stores value and focuses on currency and payment while the other, Ethereum, serves as the basis for a whole universe of decentralized applications . 

By design, the famous Security-Scalability-Decentralization trilemma does not have the same balance and ultimately, there is little in common between these two blockchains. In our opinion, Ethereum cannot replace Bitcoin and vice versa. 

Even if the two networks are very different, they are still giants today. Bitcoin is in high demand by some states and large companies and Ethereum is widely used by many developers who are setting up smart contracts for their projects.

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