Bitcoin is the largest cryptocurrency in the world, but other cryptocurrencies are catching up to it, including Ethereum.
While Ethereum functions similarly to Bitcoin, its structure and design is very different.
Bitcoin was the first blockchain-based currency, and offers users the ability to safely and anonymously transfer funds through a decentralised distributed ledger.
Ethereum borrows the decentralised blockchain from Bitcoin, but expands the design to allow for almost limitless possibilities.
Computer vs Currency
Blockchain technology requires a large distributed network, where the ledger of transactions is recorded on each point in the network and every node is independent.
This allows users to send and receive currency without a third party such as a bank, while remaining secure through decentralised confirmation.
Both Ethereum and Bitcoin are based on blockchains, but Ethereum’s blockchain expands the concept of a distributed ledger to allow for more advanced commands.
Ethereum’s defining factor is the addition of a Turing-completeprogramming language to blockchain interactions.
This allows users to create “smart contracts”.
Ethereum can be perceived as a virtual computer made out of blockchain nodes, with every command being confirmed by the entire machine and saved to its public ledger.
Unlike Bitcoin blocks, Ethereum data blocks can hold more than just transaction information and can function as autonomous contracts.
In simple terms, instead of sending money to an account, a user can use Ether to create an open contract which will automatically complete as soon as its requirements are met.
The contract is then verified and added to the Ethereum blockchain, remaining inert until complete.
Mining Bitcoin is done through specialised hardware and is rarely profitable for a single user without a large investment in ASIC miners.
Ethereum uses a different mining system which favours users with consumer GPUs, in order to encourage more independent miners and a stronger network.
However, mining both of these currencies requires a sizeable initial investment in order to make a reasonable profit.
When sending Bitcoin or Ethereum to another address on the blockchain, miners use their computing power to solve a proof-of-work problem and add the block of information.
Miners earn rewards for mining blocks in addition to receiving a fee for the blockchain transaction.
Bitcoin and Ethereum users both pay transaction fees in order to add their transaction to the blockchain.
The transaction fee paid to miners has another use in the Ethereum blockchain, as it prevents users conducting spam or repeated attacks against smart contracts – due to the increasingly high cost of a large volume of transactions.
For most transactions, the transaction fee on both the Bitcoin and Ethereum blockchain is minimal.
Decentralisation and Value
Both Bitcoin and Ethereum are decentralised, but Ethereum attempts to prevent collusion and 51% attacks by encouraging users to mine with graphics cards.
Bitcoin’s blockchain nodes are grouped into many pools, some of which control a large percentage of blocks mined on the blockchain.
Due to this, there is increased potential for collusion on the Bitcoin blockchain.
While the proof-of-work mining system was the initial solution to the security of blockchain technology, Ethereum’s developers have proposed a new method to further increase decentralisation and lower computing power costs.
The upcoming system is a simple proof-of-stake concept which replaces mining with staking currency on whether a block should be added to the blockchain.
Bitcoin and Ethereum cryptocurrencies are the biggest cryptocurrencies by market share, and Bitcoin has been steadily losing its market share lead since March 2017.
However, Bitcoin remains the most popular and high-value cryptocurrency on the market.
Dislaimer: This is not investing advice, this website is for educational purposes only.