What are the differences between Bitcoin and Ethereum?

The McDonald’s and Burger King of the cryptocurrency world are Bitcoin and Ethereum. They are frequently contrasted with one another since they are the top two brands on the market. Even websites like Vulkan Bet are extensively working on implementing crypto as their payment option.

The two currencies are completely opposite, especially when it comes to prices, but there are a lot of parallels between the two. Here is a comparison of the two crypto leaders:

Bitcoin vs Ethereum

The primary difference between Bitcoin and Ethereum is that the former was created to support decentralized money, whilst the latter was created to support applications and contracts as well, making them completely opposite concepts. To put it in sports terms  – they are both great players but with different roles.

Although Ethereum allows for the use of its own cryptocurrency, ETH, for payments, its application space is – by design – considerably wider than Bitcoin’s. However, both cryptocurrencies are getting recognized by more and more online businesses.

What makes them attractive is that both systems utilize blockchain technology to confirm and record transactions, but due to an upcoming change to the way Ethereum functions, the methods they employ to do so will differ, which will have an impact on their speed, sustainability, and accessibility.

Despite their similarities, they are nowhere near the same systems, and the phenomenon referred to as a “consensus mechanism” is what makes all the difference.

Consensus Mechanism Explained

A blockchain can function thanks to a consensus mechanism, which is a computer algorithm in its essence. This is accomplished by finding a solution to the “double spend” problem, explained below.

Once you have spent a £10 note, it is no longer your property and cannot be used again. A BTC is an indefinitely replicable string of computer code. This implies that you could theoretically become as wealthy as you desire by just manufacturing duplicates of your BTC and repeatedly spending them.

A new duplicate of the BTC is made in the recipient’s account when you transfer one to someone, replacing the original in your account. 

The entire transaction is visible to everyone on a distributed ledger. You can’t try to spend a cloned version of your BTC since everyone will be able to see on their versions of the ledger that you’ve already spent it. If you did, everyone would think you were attempting to pull a quick one.

Even if changing one transaction is challenging, as each one refers to its predecessors, you would also need to alter all the following transactions.

It would need a tremendous amount of labour and computer power. Also, you would need to have control over 51% of the network’s distributed ledgers to reach the consensus required to add your fictitious history of transactions to the blockchain and receive your just-generated cryptocurrency as payment.

Different consensus processes are employed by Bitcoin and Ethereum. Ethereum is headed toward a proof of stake consensus mechanism, while Bitcoin is known as a “proof of work” system, both of which we will explain below.

POW System

With this consensus method, users compete in difficult calculations for the privilege of validating a large number of transactions and adding them to the blockchain, earning a certain sum of cryptocurrency in the process.

The ‘job’ entails making the most accurate guesses at a 64-character, unique alphanumeric string.

These strings may be combined in trillions of different ways. Thus those with the most advanced computer gear can make the most guesses per second during the 10-minute window of opportunity and have the highest chances of being selected as the validator.

The mining process is currently reserved for businesses and specialized organizations, i.e. those who can afford the gear and electricity needed to run it. Previously, this work was carried out by amateurs at home, but as the processing power required grows over time, this practice has become less feasible.

POS System

Instead of requiring participants to perform complex computations, this consensus method invites them to stake money of their own for the opportunity to approve trades and add a block to a blockchain.

A person’s chances of being selected to verify a block of transactions to a blockchain and receiving a predetermined amount of cryptocurrency increase with the quantity of cryptocurrency they stake. The system also uses financial sanctions to deter undesirable behaviour.

Proof of stake favours those with more money, but it prevents anyone from adding false records to the blockchain since they would need to stake at least 51% of the network’s funds to have sway over a consensus.

Proof of stake is seen as a more ecologically friendly consensus process than proof of labour since it does not require heavy computer hardware.