Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have significantly contributed to the sector’s expansion. However, unlike Ethereum, considered the world’s first decentralized computer, Bitcoin is the first cryptocurrency ever developed, known as “gold 2.0” or “digital gold.”
Decentralized apps (DApps), which operate on the Ethereum network, are considered a global decentralized computer because they are durable and rare, not to mention easy to store and split.
According to many measures, Bitcoin and Ethereum are the most popular cryptocurrencies. One of these measures is the number of wallet addresses exclusive to a specific cryptocurrency exchange and the volume of trades on that exchange. It is also known as the market cap, the amount of money in the circulating supply of a cryptocurrency. A wallet address represents an account on a cryptocurrency network as a distinctive collection of characters.
Cryptocurrencies like Bitcoin and Ethereum have many features, such as being blockchain-based digital assets stored in digital wallets, using alphanumeric strings for addresses, and being traded on exchanges. ETH can be used for access to decentralized financial services (DeFi), while BTC is a safe haven for maintaining portfolio value. During market downturns, assets are considered safe havens if their value is anticipated to remain or increase.
BTC (Bitcoin): What is it?
Among the first cryptocurrencies to be introduced and operated decentralized is Bitcoin. The blockchain’s genesis block was mined in January 2009 by the anonymous founder Satoshi Nakamoto. Bitcoin adoption has steadily increased since then. Transactions in Bitcoin are performed without the involvement of central authority since the Bitcoin electronic currency was developed as a peer-to-peer (P2P) system.
The idea that eventually led to the development of the Bitcoin blockchain was outlined in a white paper by Nakamoto that was published in 2008. Bitcoin allows people to control their currency independent of governmental bodies, banks, or financial institutions.
The Bitcoin blockchain is instead operated by a decentralized network of users under a set of ground rules accepted by each network member. As a result of software rules, several factors such as supply limits of 21 million BTC, transaction processing, and settlement time are governed.
Cryptocurrencies were first created through the use of decentralized ledger technologies (DLTs) based on blockchains. One issue that blockchain technology solves is the Byzantine Generals Problem, where decentralized systems have difficulty deciding on one solution.
The Byzantine Generals Problem is solved with Bitcoin using blockchain technology and proof-of-work (Pow). Each miner serves as a commander in resolving the challenge. Every node must verify transactions issued to generals.
All Bitcoin transactions are available to everyone and are distributed among several nodes to prevent manipulation. In addition, other participants in the network reject an errant version of the blockchain if it is discovered, a process called tampering.
With Bitcoin’s mining and consensus mechanisms, unscrupulous users can’t modify other users’ balances or double-spend their money, preserving a mostly unbroken network. Furthermore, Bitcoin’s popularity has grown over time due to its tamper-proof nature and the fact that it can be used at any time without intermediaries or central institutions; Bitcoin’s popularity has evolved over time.
Even though Bitcoin began as a means of exchange or an easier way to buy goods and services, it has been embraced as a store of value. It is called a store of value if it retains its value over time.
ETH (Ethereum): What is it?
As a decentralized computer built on top of the blockchain, Ethereum goes beyond Bitcoin by allowing each transaction to be accompanied by messages and nodes. As a result, financial transactions using Bitcoin are facilitated by blockchain technology.
Ethereum is a decentralized, open-source, distributed blockchain network, and based on its own cryptocurrency, Ether (ETH). Vitalik Buterin, the co-founder of Ethereum, published a white paper in 2013 explaining how smart contracts work, which are coded contracts that execute themselves.
A decentralized app, also known as a DApp, is a program that runs independently of a centralized authority via a smart contract. For example, it was through Ether that Buterin and the other Ethereum co-founders raised money for the development of Ethereum in 2014.
In addition, the Ethereum co-founders founded the Ethereum Foundation in Switzerland as a non-profit organization devoted to assisting Ethereum’s network.
With its aim of decentralizing everything on the internet, Ethereum is one of the most ambitious cryptocurrency initiatives. In the same way that Bitcoin lacks a central authority, Ethereum also uses proof-of-work (PoW).
Through decentralized apps based on Ethereum, Ethereum and other cryptocurrency assets can be used for various purposes, including loan collateral and interest-bearing loans. The purpose of collateral is to guarantee the repayment of a loan. Using Ethereum (ETH) as an example, a user can place $1,000 in a decentralized application and receive a $750 loan while earning interest.
Bitcoin and Ethereum: Key differences
Bitcoin and Ethereum networks are based on distributed ledgers and encryption, although their technical details differ significantly. The Ethereum network fuels itself with Ether, the digital gold equivalent.
The Ethereum and Bitcoin networks both allow the creation of new tokens. Bitcoin uses blockchain technology to produce and trade currencies via the Omni layer. Stablecoins have primarily driven the adoption of the Omni layer. ERC-20 is one of the most popular standards for creating Ethereum tokens.
A set of guidelines apply to tokens on the ERC-20 network as part of the standard. The ERC-20 standard requires developers to integrate several features before releasing their tokens. Money transfers between addresses, account balances for user addresses, and data on the overall quantity of the token are all included in these capabilities.
The data fields of bitcoin transactions allow users to attach notes and messages, even though they are financial transactions. In addition, smart contracts can be established, linked to existing contracts, or run as self-executing apps using Ethereum transactions that include executable code.
It is also important to note how quickly these networks confirm transactions when new data blocks are uploaded. For example, Ethereum blocks are typically added every 15 seconds instead of every 10 minutes on the Bitcoin network.
A public wallet address can be found on every network. Like International Bank Account Numbers (IBANs), wallet addresses are unique identifiers that allow users to receive cash. For example, bitcoin addresses begin with a 1, a 3, or “bc1,” but Ethereum addresses start with “0x”.
Bitcoin and Ethereum have both relied on proof-of-work consensus, but Ethereum is switching to proof-of-stake. For proof-of-stake to work, a transaction validator must have a network stake. Validators are organizations that verify transactions to ensure the Ethereum network is not hacked, and they stake their ETH to become validators.
Instead of using computer-powered miners to reach consensus, proof-of-stake consensus methods use validators’ tokens to determine mining power allocation. As a result, a proof-of-stake network is more resilient to decentralization and has lower entry barriers.
Scalability of Ethereum vs. Bitcoin
Scalability is a problem for both Bitcoin and Ethereum. There are roughly 30 transactions per second on the Ethereum network, compared to seven transactions per second on the Bitcoin network. The Visa system can handle 1,700 transactions a second, while it claims to be able to scale up to 24,000 transactions per second.
With time, Bitcoin and Ethereum will reach their capacity limits due to the growth of their users, and they will need solutions to handle the additional users. When block space demand exceeds capacity on both networks, transaction costs increase.
To address their scalability problems, BTC and ETH use different strategies. Bitcoin has advanced technologically by establishing a technology known as Segregated Witness (SegWit), which “segregates” specific data from the space available in each block. Using SegWit, Bitcoin blocks can better use their limited 1 MB space.
In addition, engineers have been working on a layer-two scaling solution known as Lightning Network, which would encase the blockchain with an additional transaction layer. Since Lightning Network transactions occur through channels users choose, they move quickly and incur a little cost.
Using Lightning Network payment channels pre-funded with Bitcoin, most transactions could move from the primary blockchain to the layer-two network.
According to its supporters, the Lightning Network will be able to process up to 15 million transactions per second in the future. Only transactions creating and closing Lightning Network payment channels would be settled on the Bitcoin blockchain, not Lightning Network payments.
The Ethereum foundation network and layer-two networks will both use scaling solutions. Ethereum’s primary strategy for growing its base blockchain entails spawning additional blockchains or “sharding” them to boost transaction speeds and reduce network congestion.
By distributing processing resources across 64 networks, shard chains could reduce the RAM and storage requirements for devices running the Ethereum blockchain.
In layer-two scaling, transactions are aggregated before being sent onto the Ethereum blockchain. In different implementations, these transactions are grouped and broadcast to Ethereum differently. In addition to Ethereum, sidechains are another layer-two solution. In essence, sidechains allow users to use ETH apps while paying fewer transaction fees as tokens can be exchanged between sidechains and the Ethereum network via protocols. Furthermore, as a parallel network to Ethereum, sidechains operate autonomously.