Bitcoin vs. Ethereum: What Are The Key Differences? (2022)

The year 2009 is indeed revolutionary in the crypto space. That’s primarily because it was Bitcoin’s birth year (a digital currency that competes against fiat money). As we all know, Bitcoin did more than creating a virtual asset; it helped technology innovators actualize the idea of blockchain technology. Leveraging the same technology, Ethereum, a platform for application development, came into existence in 2014. Fast forward to 2020, there are hundreds of cryptocurrencies in the market, with Bitcoin and Ethereum topping the crypto asset chart. But, which of these cryptocurrencies is a good bet in 2021?

Ethereum (or technically speaking, Ether – Ethereum is the blockchain the cryptocurrency is based on. However, the term Ethereum is nevertheless often used) may well be the best cryptocurrency to invest in in 2021, based on its recent rollout of the Ethereum 2.0 Phase 0 upgrade. At the same time, Bitcoin remains a vital investment avenue because of its unshaken number one rank in the crypto industry and growing adoption among enterprises/regulatory bodies.

Today, we will settle the classic comparison of Ethereum vs. Bitcoin through the following points:

What Is Bitcoin (BTC)?

Bitcoin is a cryptocurrency or digital currency that facilitates the peer-to-peer transfer of value through a decentralized network. At the same time, every transaction is registered on the Bitcoin blockchain network. And also the first non-governed digital currency to gain global acceptance.

Bitcoin came into existence when Satoshi Nakamoto, a person or group of people, released its whitepaper and later released the genesis block in 2009. Though a network can have unlimited cryptocurrency supply, Bitcoin’s supply is limited. There are only 21 million BTC that can ever be mined, ensuring that its value continues to soar as the supply decreases.

The primary intent behind Bitcoin was to create a digitalized-asset means to transfer value with no central authority.

What Is Ethereum?

Ethereum is a global, open-source platform for decentralized applications.

Ethereum ORG 

While it’s quite common to draw similarities between Bitcoin and Ethereum, but that’s hardly the case. Ethereum positions itself as an open-source platform built for creating decentralized applications. Not only it acts as a store of value, but it’s possible to create real applications on the Ethereum network.

Vitalik Buterin and his team proposed the idea for Ethereum in 2014 and launched the Ethereum network in 2015. Ethereum has some stark differences compared to Bitcoin, especially the ability to write smart contracts (self-executing code) and build decentralized applications (DApps) on the Ethereum blockchain.

Ethereum is already on its way to upgrade to Ethereum 2.0, introducing some significant changes that will allow the Ethereum network to become scalable, quick, and efficient in the future.

Generally, Ethereum, along with all the cryptocurrencies except Bitcoin, is also an altcoin. Some of the most popular altcoins by market cap are:

• Ethereum
• XRP
• Tether
• Litecoin
• Bitcoin Cash
• Chainlink
• Cardano

What Is Revolving Around Bitcoin and Ethereum?

Understanding the ongoing events and development across both of these cryptocurrencies gives a clear view of the project’s prospects. And generally, to help you make a better analysis to support your future’s trading strategies.

Bitcoin Upcoming Projects

Bitcoin Halving

It is among the most significant events in the history of crypto space. But what is Bitcoin halving?

Bitcoin halving is the principle of reducing block rewards after the mining of every 210,000 blocks of Bitcoin. And the halving occurs once every four years. While the most recent Bitcoin halving took place on May 11, 2020, reducing block rewards to 6.25 BTC from 12.50 BTC earlier. The last Bitcoin is believed to be mined by the year 2140.

According to the Bitcoin algorithm, there will be a total of 33 halvings, post which block rewards will reach less than 1 Satoshi. Most of the Bitcoin halvings are followed by volatility in BTC prices, but its third halving was relatively stable.

Ethereum Projects and Events

The Ethereum 2.0 Phase 0 Upgrade

Ethereum is undergoing some significant upgrades to boost its utility and scalability for future application development. Ethereum 2.0 is a phase-wise upgrade of the Ethereum ecosystem, including the Beacon Chain, Shard Chains, and the docking.

The primary update concerns the shift from Ethereum’s resource-intensive Proof of Work (PoW) consensus algorithm to Proof of Stake (PoS). The first phase of its upgrade has rolled out the Beacon Chain, bringing PoS to the Ethereum ecosystem.

The primary purpose of the Beacon Chain is to coordinate the Ethereum network comprising shards and stakers. The Beacon Chain is essential for the second phase of the Ethereum 2.0 upgrade as it will completely replace the Ethereum’s Mainnet in the future.

Chainlink smart contract collabs

Chainlink is an oracle network for DeFi, and it has quickly become a popular way for smart contracts to interact with external data. The startup is already working with some of the leading tech companies, including Google, to strengthen future developments. Chainlink has announced support for Ethereum infrastructure projects, giving indications towards a major future collaboration.

From Ethereum’s perspective, this collaboration will boost the utility of Ethereum smart contracts. dApps using Ethereum will have access to trusted, secure data sources through Chainlink. At the same time, blockchain networks can communicate uninterruptedly with other blockchains.

Key Considerations for Bitcoin and Ethereum Investors

As a crypto enthusiast and investor, it is crucial to understand the qualities and issues inherent to different crypto assets, including Bitcoin and Ethereum.

Scalability and Developments

For any crypto asset or blockchain platform to gain wide acceptance, the ability to scale quickly is not only critical but detrimental for its future adoption.

Bitcoin dominates the cryptocurrency industry because of its sheer market cap, but the Bitcoin blockchain has significant scalability issues. On the contrary, Ethereum has resolved some of Bitcoin’s problems, but it has its limitations.

Some of the scalability issues in Bitcoin and Ethereum are:

Slow block generation

Bitcoin and Ethereum rely on the PoW consensus algorithm, which restricts the network’s speed. Bitcoin takes around 10 minutes to generate or mine a single block. Whereas, Ethereum only takes about 10 to 19 seconds, which is faster than Bitcoin but still nowhere close to centralized systems processing thousands of transactions per second. While the Ethereum 2.0 updates are supposed to increase the transactions per second (TPS) to 100,000 TPS.

Low response time or latency in approvals

Cryptocurrencies have significantly improved transaction approval or transfers. The upshot? A transaction is approved in a couple of minutes instead of days. However, they aren’t close to matching their instantly-responsive centralized counterparts, such as Visa or Mastercard. Simultaneously, if other miners disapprove of a block, transactions must be included in another block for confirmation (validation).

Market Capitalization

Miners receive block rewards for validating transactions on both Ethereum and Bitcoin. With a growing cost of computing power and block difficulty, miners will prefer transactions with higher fees, which will heighten average transaction charges.

With a close look at the scalability challenges of Bitcoin and Ethereum, it is essential to highlight the ongoing developments in these cryptocurrencies. Bitcoin is limited in terms of its utility and block size, with little scope for further development.

Ethereum, on the contrary, is rolling out a series of upgrades to boost its utility for enterprise-grade applications. Ethereum 2.0 is already in progress with the launch of Beacon Chain.

The ongoing development in Ethereum puts it a step ahead of Bitcoin, especially in terms of future growth and adoption prospects.

Acceptance and Stability

Cryptocurrencies had come a long way since their humble beginnings a decade ago. The initial regulatory reaction across the world was to ban cryptos, with most governments taking strict regulatory steps to ban both cryptos and fundraising events (ICOs). Simultaneously, a small group of regions adopted crypto-revolution with their arms open, thereby becoming a hotspot for most crypto activity.

Fast forward to the current time, Bitcoin and Ethereum are witnessing a growing rate of adoption or favorable treatment across the world. With more financial institutions prepping for blockchain-based services, cryptocurrencies are likely to enjoy the same acceptance.

When it comes to stability, cryptocurrency markets are notorious for volatility. Bitcoin itself has witnessed a four-time price jump in 2020 itself. Ethereum has observed a similar sentiment over the year. Investors seeking stability should invest in cryptos with a grain of salt. 

Market Capitalization

Cryptocurrencies are among investments that performed exceptionally well in 2020 and have continued to do so in 2021. The prices of both Bitcoin and Ethereum grew 10x between March 2020 and March 2021. The overall market cap of cryptocurrencies stands at $1.68 trillion at the time of writing this post (March 2021)

The market cap of some of the popular cryptocurrencies at the time of writing:

• Bitcoin: $1.05 billion
• Ethereum: $189 billion
• Tether: $40 billion
• Cardano: $36 billion
• Litecoin: $12 billion

The Goal of The Crypto (Ethereum and Bitcoin)

Cryptocurrencies are built with multiple goals in mind. One of the theories surrounding Bitcoin’s origin in 2009 was to create an electronic cash system that isn’t affected by recessions or market crashes.

However, cryptocurrencies have come to serve multiple purposes. Bitcoin and Ethereum are proven stores of value. These crypto-assets have redefined international transfers, transfer fees and created a genuinely trustless environment (Ethereum) for companies or individuals to do business. From an investment perspective, cryptocurrencies have grown at unprecedented levels over the past couple of years.

The Long or Short Term Investment

When it comes to investing in Bitcoin and Ethereum, there are two popular notions; one is to invest in the short-term and benefit from price movements, and the other is to hold cryptos for the long-term (HODL).

It is critical to understand both short-term and long-term investment approaches.

A short-term investing approach focuses on price movements in Bitcoin and Ethereum. It involves regular monitoring of the price trends. The key is to get in at low prices, hold cryptos for a short period, and then sell it for profit.

On the other hand, a long-term investment approach takes into account the growth potential of a crypto asset, including factors such as ongoing development, regulatory guidelines, and competition.

When comparing Ethereum vs. Bitcoin for an investment, it is essential to understand these currencies’ long-term growth potential. Bitcoin and Ethereum are potentially a better choice for long-term investments. That’s because even though Bitcoin is the largest crypto by market size, it is still the first cryptocurrency with a limited scope. That means when all BTC are mined, your Bitcoin’s value will tend to appreciate. 

Bitcoin vs. Ethereum: The Similarities

For investors seeking a better understanding of Bitcoin and Ethereum, it is critical to understand these cryptocurrencies’ similarities. Some of the common traits of Ethereum and Bitcoin are:

• Cryptocurrencies: Both Ethereum and Bitcoin are cryptocurrencies, which means they facilitate instant transfers, store value, and carry reasonable transaction charges. 
• Use Proof of Work: Bitcoin, as well as Ethereum 1.0, uses the PoW consensus mechanism. Ethereum has initiated its upgrade, which intends to shift to a Proof of Stake (PoS) consensus mechanism.
• Built using blockchain technology: Each of these cryptocurrencies uses blockchain technology. They are safe, secure, encrypted, and offer global reach.

Bitcoin vs. Ethereum: The Differences

Of course, they are not identical. That means the purpose is different despite a similar concept and logic that are backed behind the crypto.

Coin supply

• Bitcoin: Bitcoin has a total supply cap of 21 million.
• Ethereum: Ethereum currently does not have an issuance limit nor a monetary policy. However, there is an annual supply cap of 18 million.

Mining

• Bitcoin: Bitcoin mining uses the PoW consensus mechanism. The first miner that solves the mathematical block puzzle will earn rewards in the form of BTC.
• Ethereum: Ethereum 2.0 is moving away from PoW to PoS. Which will significantly reduce the computing resource requirements and electricity consumption.

Fees

• Bitcoin: Transaction fees for Bitcoin varies depending on the size of the transaction, network congestion, and rate of Bitcoin. You can expect to spend between 1 to 10 satoshi per byte of transaction. ($4.229 per transaction as per YCharts)
• Ethereum: The same pricing applies to Ethereum transactions. The average ETH gas required for transactions stands at 21,000 gas. ($3.249 per transaction as per YCharts)

Transaction Speed

• Bitcoin: The transaction speed varies on different factors, but Bitcoin takes 10 minutes to mine a new block. Research indicates an average transaction time of 60 minutes in 2019.
• Ethereum: The same principles apply to Ethereum transactions. Practically, it’ll take between 10 and 20 seconds to mine a new Ethereum block, but research puts the average transaction time for 2019 at 6 minutes.

The Ultimate Purpose

• Bitcoin: The ultimate purpose of Bitcoin is to serve as an electronic currency or store of value. It is built with the intent to replace fiat currency.
• Ethereum: Ethereum is created as a platform for the development of applications (dApps). It aims to create a decentralized network for the development and execution of various applications.

Price Differences

• Bitcoin: At the time of writing, the average market price of Bitcoin was $53,804. Its all-time high was reached on March 13, 2021, at $61,556.

• Ethereum: At the time of writing, the average market price of Ethereum at the time of writing this post was $1639. Its all-time high was reached in February 2021, when it surged past $2,000 for the first time.

Is Ethereum A Better Investment than Bitcoin?

Considering the recent developments in Ethereum and a clear strategy for further upgrades put it in a better place than Bitcoin. Ethereum is more versatile, flexible, and has better technology to be adopted in the real-world. With the Ethereum 2.0 update towards PoS, it’ll further boost the ecosystem’s sustainability because of lower computing power requirements. At the same time, Ethereum, through various collaborations, will continue to grow as a favorable destination for more technology startups.

Bitcoin, on the other hand, is a laggard in terms of innovation. However, its market cap and growing acceptance make it a promising investment for the future. But the volatility could be the reason why Bitcoin is on the rise. May it be because of the inflation that boosted the public interest in store-of-value, the scarcity of the Bitcoin’s mining reward, or the digital assets’ maturity, calling Bitcoin the heaven of investments maybe a little too much of a stretch. 

After analyzing different developments and qualities of these cryptocurrencies, Ethereum is a better long-term investment. Though Bitcoin doesn’t far too far from the chart. When considering a better investment, it’s best first to define your expectation and goal.

What Is the Future for Ethereum and Bitcoin in 2021?

The current global crisis has fueled the valuations of both Ethereum and Bitcoin. The ongoing year (2020) has witnessed multi-fold growth in their prices, but as vaccines rollout and businesses return to their routine, investors may move away from traditional investments.

Nonetheless, the future of Ethereum and Bitcoin is brimming from the investing perspective. Ethereum, in particular, is likely to witness continuous growth over 2021 and the coming years.

Investors seeking long-term positions in Ethereum may find it the right time to enter the markets as its prices will soar with more upgrades. Bitcoin is already on a bull run, but there is a lot of uncertainty and a lack of solid fundamentals for future price growth.

The Bottom Line

Cryptocurrencies are no longer alternative investments. A growing number of investors are embracing digital currencies. A significant push comes from institutional investors who are unwilling to miss out on the opportunity for higher growth.

The trick for retail investors is to understand the risk of cryptocurrency trading and allocate financial resources accordingly. A little exposure in cryptocurrencies makes perfect sense in present times.

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