Even those who don't directly engage with the cryptocurrency market and digital currencies have likely heard of the two major leaders in this world — Bitcoin and Ethereum. These two currencies have firmly entered modern life and have become some of the most popular means of saving and investment – alongside traditional currencies, precious metals, and securities.
In this comprehensive guide, the itez team will explain what BTC and ETH represent, as well as highlight the key Ethereum vs Bitcoin differences and examine the advantages and disadvantages of each currency.
Introduction to Ethereum and Bitcoin
Overview of Bitcoin as Digital Gold
Bitcoin (BTC) is the first and most well-known cryptocurrency. BTC entered the market in 2009 when the mysterious developer of the coin, known under the pseudonym Satoshi Nakamoto, created the first block in the cryptocurrency network. This block is also called the genesis block.
Bitcoin is also known as digital gold. This comparison is popular due to Bitcoin’s limited supply — there are only 21 million coins in existence. As of the time of writing this review, nearly 20 million of these have already been mined. This feature makes Bitcoin a popular alternative means of saving and protecting wealth from inflation. The key difference is that gold exists in physical form, whereas BTC has no physical form — it only exists in the network.
CoinMarketCap website
Another key characteristic of BTC is its decentralised nature, which is achieved through blockchain technology. The uniqueness of such networks lies in the fact that there is no central governing body. Bitcoin is fully decentralised, which makes it the closest thing to the idea of financial freedom and fairness: third parties, such as banks, cannot approve or reject transactions or demand additional information about the sender or recipient of BTC.
Ethereum’s Role as a Decentralised Platform
Ethereum (ETH) is the second-largest cryptocurrency by market capitalisation. One of Ethereum's developers is programmer Vitalik Buterin, who in 2013 presented the concept of the project. He wanted to create a multi-purpose platform for developers, suitable for more complex tasks than simple cryptocurrency exchanges.
One of Ethereum’s key features is smart contracts — self-executing contracts with automatic execution of conditions coded into the contract. These allow developers to build innovative technologies. For example, decentralised applications (DApps), decentralised finance (DeFi), NFTs (non-fungible tokens), as well as blockchain-based lending and gaming. These unique capabilities have made Ethereum a truly versatile platform, enabling developers to utilise blockchain infrastructure to create their own projects — something that cannot be done with Bitcoin.
CoinMarketCap website
Ethereum also has its own cryptocurrency — ETH. Unlike Bitcoin, Ethereum does not limit the total supply of tokens, making it more flexible but also more inflationary compared to Bitcoin’s scarcity. ETH has consistently held the second spot in the market capitalisation ranking for many years.
Technical Differences Between Bitcoin and Ethereum
Consensus Mechanisms: Proof of Work vs. Proof of Stake
When discussing a blockchain comparison between Ethereum and Bitcoin, it's crucial to note that these two cryptocurrencies operate on different consensus mechanisms. This is a set of rules that govern the network's workflow, ensuring its security.
Bitcoin uses Proof of Work (PoW) — a process where miners solve complex mathematical problems to confirm transactions and add new blocks to the blockchain. This requires significant computational power and large amounts of energy. You can learn more about how BTC mining works in our dedicated guide.
Ethereum, on the other hand, has successfully transitioned to the Proof of Stake (PoS) mechanism. This mechanism is considered more advanced and eco-friendly, as it eliminates the need for mining, thereby saving a lot of electricity. In PoS, instead of mining, there is staking, where validators confirm transactions by locking up their ETH as collateral for creating and verifying blocks. You can read more about how staking works in our review.
Block Time and Transaction Throughput
Another important difference between Ethereum and Bitcoin is block time and transaction throughput.
For Bitcoin, the block time is around 10 minutes, which limits the number of transactions the network can process to approximately 7 transactions per second (TPS).
Ethereum has a faster block time, around 13-15 seconds, which allows transactions to be confirmed more quickly. The base Ethereum network can handle roughly 30 transactions per second.
Supply Limitations: Bitcoin’s Scarcity vs. Ethereum’s Inflationary Supply
Bitcoin's supply is capped at 21 million coins, which makes it scarce and adds value as a store of value and protection against inflation.
Ethereum, however, does not have a fixed supply limit. While the total supply is regulated through network updates, Ethereum is generally considered a more inflationary asset. This flexibility allows Ethereum to support a wide range of use cases, but it also means that ETH will continue to be created in the future, which could impact its long-term value.
Use Cases and Applications
Bitcoin as a Store of Value and Medium of Exchange
As we discussed earlier, Bitcoin was originally created as a decentralised digital currency. Today, it has firmly established itself as a store of value. As of 2024, over 106 million people worldwide hold BTC. This is more than the populations of large countries like France or Germany.
Bitcoin usage statistics. Source: Bitbo
In theory, Bitcoin, like any other cryptocurrency, can be used as a medium of exchange. However, when it comes to Bitcoin, this is not very practical. The Bitcoin network’s throughput is too low, processing only seven transactions per second. This is even slower than Visa’s transaction speed. As a result, most people use Bitcoin for long-term investments rather than for paying for goods and services.
Ethereum’s Smart Contracts and Decentralized Applications (DApps)
Unlike Bitcoin, Ethereum offers not only a digital currency but also an innovative way to create smart contracts. Smart contracts are self-executing contracts where the terms are fully written into code. These contracts form the basis of DApps, which operate without the need for central authorities.
Ethereum provides developers with a unique platform to create applications in areas such as DeFi, NFTs, and other blockchain-based applications. The potential use cases for smart contracts make Ethereum a versatile platform for a wide range of applications.
Real-World Examples of Bitcoin and Ethereum Use Cases
When comparing Ethereum use cases vs Bitcoin, we can see that they serve both similar and distinct functions. For example, both cryptocurrencies are widely used for investment purposes and as an alternative store of value.
However, when it comes to differences, Bitcoin is primarily used as a long-term investment asset. Its stability and relatively predictable price movements make it an excellent asset for the long run. These qualities have earned it recognition from large corporations such as Tesla and MicroStrategy. The latter, under the leadership of Michael Saylor, has become one of the largest institutional investors in BTC.
On the other hand, Ethereum is more actively used as a platform for creating decentralised applications and financial apps. As of November 2024, there are more than 1,500 DApps on the Ethereum network. Additionally, Ethereum has become a popular base for creating NFTs. A notable example is the CryptoKitties collection, which quickly gained popularity within the community.
CryptoKitties website
Market Performance and Investment Considerations
Historical Price Trends of Bitcoin and Ethereum
Continuing our exploration of the Bitcoin vs Ethereum comparison, let’s examine perhaps the most crucial aspect — the price and potential of both cryptocurrencies.
Let’s refer to data from the CoinGecko aggregator. In the chart below, we can see Bitcoin’s price dynamics over the past year. It’s evident that there were two major growth surges during this period: one in February and another in November. The first surge was triggered by the launch of exchange-traded spot ETFs based on BTC, a unique investment tool that allows investors to gain exposure to cryptocurrency indirectly. The second surge followed the US presidential election victory of Donald Trump, a pro-cryptocurrency candidate who promised to regulate the industry.
Bitcoin price dynamics throughout one year. Source: CoinGecko
In comparison to Bitcoin’s chart, Ethereum’s price movements over the same period may seem more erratic. The cryptocurrency showed more small bursts of growth, with one of the most noticeable occurring in February. This is because altcoins, including Ethereum, often follow Bitcoin’s lead. As the flagship of the crypto market, Bitcoin sets the pace for all other coins.
Ethereum price dynamics throughout one year. Source: CoinGecko
Overall, both digital currencies have shown growth over the past year, making both BTC and ETH promising options for investment.
Long-Term Investment Potential: Bitcoin vs. Ethereum
Now let’s address the question of Bitcoin vs Ethereum investment options. In reality, there’s no one-size-fits-all answer. It all depends on your individual preferences and investment goals.
Bitcoin is generally viewed as a long-term asset, primarily due to its limited supply. If your main priority is preserving value and protecting your capital from inflation, BTC could be the better choice. Bitcoin is suited for those who view cryptocurrencies as a long-term asset for diversification and wealth preservation amid economic uncertainty.
If you’re looking to invest in innovation and the growth of the blockchain ecosystem, Ethereum might be the more attractive option. As we’ve discussed, this blockchain offers significant value and utility in terms of innovation and supporting the development of new technologies. Ethereum’s network functionality makes its native token, ETH, both appealing and valuable, ensuring its strong presence in the market.
Conclusion
Bitcoin and Ethereum are two undisputed leaders of the cryptocurrency market, having earned the attention and trust of people even outside the crypto community. The long history of both digital assets, coupled with the stability of their prices, indicates that they can be considered a good investment option alongside national currencies, securities, precious metals, and minerals. Due to the differences between BTC and ETH, they not only serve as stores of value and investment vehicles but also perform other useful functions, further solidifying their status.
However, no matter how reliable Bitcoin, Ethereum, or any other cryptocurrency may seem, it is important to remember that investing in them carries risks. Always invest only what you can afford to lose. Additionally, never trust advice from strangers online, and make sure to thoroughly research any project before making any financial commitments.
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
