Ethereum and Bitcoin are two of the most well-known cryptocurrencies, but they differ greatly in purpose, design, and functionality. In this article, we explain in simple language what Ethereum is and how it differs from Bitcoin.
What is Ethereum?
Ethereum is an open source decentralized blockchain platform that allows developers to build and deploy decentralized applications (dApps) on their blockchain. The Ethereum blockchain was created by Vitalik Buterin in 2013 and launched in 2015.Ethereum is not just a cryptocurrency like Bitcoin, but a platform that allows the creation of smart contracts and decentralized applications.
A smart contract is a self-executing contract encoded on the blockchain. It allows the exchange of valuables such as money, property or stocks without the need for an intermediary. This means that smart contracts can automate and enforce the terms of an agreement, reducing the need for lawyers, banks or other third parties.
Decentralized applications or dApps are computer programs that run on a blockchain rather than a central server.They enable a variety of different functionalities such as decentralized finance, identity verification, voting and gaming.
How is Ethereum different from Bitcoin?
While both Ethereum and Bitcoin are based on blockchain technology, there are some key differences between the two cryptocurrencies.
Purpose
Bitcoin’s primary purpose is to serve as a digital currency that can be used to buy and sell goods and services. It was designed as an alternative to traditional fiat currencies like the US dollar, which are controlled by governments and central banks.
Ethereum, on the other hand, was designed as a platform for building decentralized applications and smart contracts. Although Ether (ETH) is the native cryptocurrency of the Ethereum blockchain, it is not the focus of the platform.
Functionality
The functionality of Bitcoin is limited to being a digital currency. It can be used to send and receive payments but has no other functionality. In contrast, Ethereum is a platform capable of supporting a wide range of decentralized applications and smart contracts.
One of the most significant differences between Bitcoin and Ethereum is that the latter is Turing Complete. This means that it can support any type of computation, while bitcoin is limited to a few basic operations.
Consensus Mechanism
Bitcoin and Ethereum use different consensus mechanisms to validate transactions and maintain the integrity of their respective blockchains.
Bitcoin uses a Proof-of-Work (PoW) consensus mechanism, solving complex mathematical puzzles to validate transactions and create new blocks. This process is called mining and requires a lot of power and computing power.
Ethereum, on the other hand, currently uses a Proof-of-Stake (PoS) consensus mechanism that requires users to stake a certain amount of ETH to become validators on the network. Validators are responsible for validating transactions and creating new blocks, and are rewarded with ETH for their efforts.
Scalability
One of the biggest challenges for Bitcoin and Ethereum is scalability. The number of transactions that can be processed on these blockchains is limited, which can result in slow transaction times and high fees.
Bitcoin can handle about 7 transactions per second while Ethereum can handle about 15 transactions per second. This is significantly slower than traditional payment systems like Visa, which can process thousands of transactions per second.
To address this problem, both Bitcoin and Ethereum are working on scaling solutions.Bitcoin is exploring the use of the Lightning Network, a Layer 2 solution that will enable instant and low-cost transactions. Ethereum is working on a variety of scaling solutions, including sharding, which breaks the blockchain into smaller pieces to increase performance.
Conclusion
Ethereum is a decentralized blockchain platform that enables the creation of smart contracts and decentralized applications. It differs from Bitcoin in terms of its purpose, functionality, consensus mechanism, and scalability. While Bitcoin is primarily used as a digital currency, Ethereum is a platform that supports a wide range of decentralized applications and smart contracts.Ethereum’s use of a Proof-of-Stake consensus mechanism and its Turing completeness make it a more versatile
platform than Bitcoin. However, both cryptocurrencies face scalability challenges and are working on scaling solutions to address these issues. Overall, Ethereum has the potential to transform industries and create new business models through its smart contract and dApp capabilities.
