How the Bitcoin Blockchain Differs from the Ethereum Blockchain

Nearly ten years after it was launched, Bitcoin is still the most dominant cryptocurrency in the world. As of 1st November 2018, Bitcoin dominates 54% of the industry. Ethereum stands at a distant second with a market cap of $20 billion.

Is Ethereum innovative enough to ever topple Bitcoin? Below, we compare the technologies and find what makes Bitcoin different from its competitor. Why is Bitcoin so dominant and why does everyone claim Ethereum is the better cryptocurrency? You can also check out this infographic about Bitcoin covering all facts from the last decade.

Currency vs. Token

Bitcoin was created to be a means of payment. Its pseudonymous founder Satoshi Nakamoto intended the cryptocurrency to offer an alternative currency to the US dollar and other currencies. As such, the Bitcoin blockchain is centered on enabling decentralized payments.

By contrast, Ethereum was developed as a platform for building decentralized applications. Ethereum coin acts as a token for buying services on the network. However, many merchants also accept Ethereum payments. At the heart of Ethereum is a virtual machine that executes programmable scripts. Applications built on the blockchain are customizable so that developers can make apps for almost any purpose.

Currency Cap and Generation

Bitcoin has a currency cap of 21 million. Ethereum lacks a cap but the network intends to stop currency issuance in the near future. Bitcoin’s currency cap was determined by Satoshi Nakamoto from the start. He programmed the blockchain to generate a specific number of Bitcoins every time a block of transactional data is solved.

Ethereum is also released through mining but uses a slightly different mining algorithm compared to Bitcoin. Named Ethash, the algorithm is memory guzzling to make it hard to mine. The network’s blockchain is adjusted to generate about one block in 15 seconds. In contrast, Bitcoin was programmed to create one block every ten minutes.

Block Size

Bitcoin’s blocks are defined by size. One block equals 1MB of data. The block could have hundreds or thousands of transactional data. Each transaction consists of about 250 bytes. Miners must complete a whole block to get a mining reward.

With Ethereum, transactions are based on the gas limit. Gas refers to the prices paid by traders to have their transactions mined. The gas limit can be lowered or increased depending on the miner’s intentions. Professional miners are also at liberty to ignore transactions with very low gas amounts.

Still on currency size and distribution, Bitcoin undergoes halving every four years. When Satoshi launched the network, he proposed a reward mechanism for miners. The initial reward was 50 Bitcoins for every one block mined. However, the reward was to be halved every 210,000 blocks. The halving has happened twice already, bringing the current block reward to 12.5BTC.

Ethereum also offers a block reward for its miners. Miners earn 5 Ethereum coins for completing a block of the currency. The reward system remains constant and will never be halved. Since last year, the Ethereum network has been considering changing its mining algorithm.

The Proof of Work algorithm used by both Ethereum and Bitcoin is energy consuming. Ethereum’s plans are to introduce a Proof of Stake method that is neither energy consuming nor time-consuming. Miners stake a portion of their Ethereum coins and earn money through transactions fees they validate.

Speed

Although Ethereum was launched for a different purpose, it sought to improve Bitcoin’s weaknesses. Bitcoin’s 10 minute block time makes it one of the slowest networks. Only 4 transactions are processed in a second. The best it can do is 7 seconds, which is too slow to even stand in the hands of competitors like Stellar.

Ethereum was launched with a block time of 15 seconds, making it much faster than Bitcoin. On average, it takes 5 minutes for an Ethereum transaction to be confirmed. Bitcoins’ transactions take 30 minutes to several hours depending on the coin’s demand.

Bitcoin’s low scalability has been a point of argument among community members for long. Despite being the largest cryptocurrency in the world, Bitcoin can’t scale because of low speeds. The network is often to handle demand, which often leads to users demanding for alternatives.

Ethereum isn’t the speediest network and has also had problems with speed in the past. Earlier in February, the network lagged for hours as demand for some of its decentralized apps skyrocketed. In essence, the two largest blockchain networks are not equipped to handle fast transactions when it is really needed. However, there are recommendations to improve both networks albeit differently.

Security Levels

The most unique feature of the blockchain is its decentralization. It is designed in such a way that distributed computer nodes share data. The failure of one or several nodes can’t bring the network down. The only way to beat the blockchain is to hack 51% of its nodes.

With Bitcoin and Ethereum, the mining algorithms used to mine both coins are so high that almost no single individual can’t beat them. Bitcoin’s mining power is much higher than Ethereum’s. But the latter is more decentralized in its mining. In spite of the differences, it’s almost impossible to launch a 51% attack on either blockchain.

Again, taking control of any blockchain is potentially self-defeating. The prices of the affected cryptocurrency would decline immediately, making it valueless.

Management

The Bitcoin blockchain is managed by a vast network of developers, investors and software engineers. The developers are mostly volunteers. By contrast, Ethereum is managed by a group of centralized developers. Ethereum’s management is centralized which makes it easier to make decisions like changing its mining algorithm.

Bitcoin is more decentralized in management. But as it has come out clear in the last three years, the lack of proper management can be a weakness. The Bitcoin community almost don’t agree with how to run specific aspects of the blockchain. That leaves Ethereum with an edge when it comes to innovating and implementing strategies to improve its blockchain.

To Conclude

Bitcoin and Ethereum are two networks launched with different goals in mind. The first blockchain was designed to facilitate settlements. The latter was developed to be a platform for building decentralized apps. Bitcoin is more successful and the most dominant cryptocurrency in the industry.

But despite the differences, both Bitcoin and Ethereum seems to fulfill each other. Bitcoin introduced the blockchain idea. Ethereum improved on it. However, only time will tell which network becomes more successful in the future.

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