Bitcoin (BTC) vs Ethereum (ETH): Payments, Investments and Use Cases [2023]

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Bitcoin (BTC) and Ether (ETH) are two top cryptocurrencies with different technical outlooks, functionalities, and use cases. Bitcoin uses Proof of Work (PoW) consensus mechanism, while Ethereum uses Proof of Stake (PoS). Bitcoin has proven to be a more popular cryptocurrency over the past few years, although both are commonly used to make payments and as investment vehicles. Ethereum has a more diverse set of use cases, with thousands of ETH-powered decentralized apps that showcase the scalability and resilience of the network.

Ether (ETH), the native token of the Ethereum network, and bitcoin (BTC) are two of the world’s most famous cryptocurrencies. Both have been instrumental in shaping the world of blockchain and influencing the way we think about money. While each cryptocurrency is widely used for spending and transactions, bitcoin has seen explosive growth as a store of value, characterizing it akin to “digital gold.” Ethereum’s technological contribution has inspired a whole world of decentralized applications reshaping financial systems through its smart contract capabilities. Powering that network is Ether (ETH). Next, we’ll delve into the technical differences between bitcoin and ethereum, use-cases, and how each cryptocurrency performs as an investment.

Bitcoin originated as the first cryptocurrency

Bitcoin was created in 2008 using the pseudonym “Satoshi Nakamoto”. Its origins can be traced to a whitepaper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”. Bitcoin was proposed as a decentralized currency that could be sent between peers without the need for an intermediary such as a bank. It was conceptualized as a secure, private and government-free currency. Since then, bitcoin has become the number one cryptocurrency by market capitalization, with trillions of dollars of bitcoin being mined, traded, bought, and spent over the years.

Building Ethereum as a “world computer”

Ethereum was launched in 2015 as a blockchain and decentralized computer platform. Its creation is attributed to Vitalik Buterin, who was previously involved in the development of bitcoin. Inspired by the limitations he saw in bitcoin, Buterin wanted to create a platform that would not limit the development of decentralized apps (dapps) to simple financial transactions. Ethereum quickly became one of the most widely used blockchain platforms in the world, powering thousands of decentralized applications and digital assets, including stablecoins, NFTs, and the DeFi ecosystem. Its native currency, Ether, is used to pay for transactions and power the network. Ethereum consistently sits in the #2 position behind Bitcoin in market capitalization.

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Bitcoin vs Ethereum – Where they differ from a technical point of view

The Bitcoin blockchain and the Ethereum network differ significantly in their technical approaches, resulting in different functionalities, use cases and capabilities.

miners vs stackers

The most notable difference is the consensus mechanism used by each blockchain, or how it confirms and verifies transactions. Bitcoin uses Proof of Work (PoW) consensus mechanism, while Ethereum uses Proof of Stake (PoS). Bitcoin requires miners to solve complex mathematical problems to confirm transactions and add new blocks to the blockchain. Alternatively, Ethereum’s PoS relies on validators, who must lock or “stake” ether in a smart contract on the blockchain as collateral in order to participate. Ethereum’s transition to PoS consensus was a relatively recent change made in 2022 (known as a “merge”). Read more about the difference between PoW and PoS here.

Transaction vs Smart Contract

Bitcoin and Ethereum use different scripting languages, with Bitcoin using a more simplistic language that limits its functionality to basic transactions. Alternatively, Ethereum is capable of hosting smart contracts that can be created by users with any new set of rules for how funds are transferred, in addition to influencing token creation and governance. . Smart contracts are essential in the operation of decentralized apps where transactions can take place in a reliable, secure and transparent manner without the aid of any third parties.

block size and scalability

The bitcoin blockchain operates with a relatively small block size limit of 1MB. This limits the number of transactions processed per second to around 7, which at times can lead to network congestion, resulting in slow confirmation times and high transaction fees. Layer 2 solutions, such as the Lightning Network, are gaining popularity and helping with transaction costs and speed, but bitcoin’s scalability is still a common concern among the crypto community.

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On the other hand, the Ethereum blockchain was built with greater scalability in mind. It can handle between 15 and 30 transactions per second, allowing for faster transactions despite higher gas fees. Still, Layer 2 solutions for Ethereum are improving on this. The Polygon Network is a popular development that aims to harness the security and functionality of Ethereum, while improving its scalability for faster and cheaper transactions. Additionally, Ethereum developers have plans for more ways to improve the network as it gains even more users in the future.

Which has more use cases?

Both bitcoin and ether can be held in wallets, swapped for different coins, sent/received between peers, loaded onto crypto debit cards, and spent directly with merchants. can be done. Bitcoin can be thought of as a digital ledger book in which transactions are recorded. It has a relatively limited set of use-cases compared to Ethereum. Bitcoin is consistently the most valuable cryptocurrency, making it an excellent choice as a store of value. Ethereum, on the other hand, was designed with scalability and flexibility in mind. Think of it as an open-source platform on which you can interact with thousands of decentralized apps (DApps) that are powered by Ethereum. In terms of use-cases, this is where Ethereum outperforms bitcoin. Decentralized experiences such as lending/borrowing, NFT collecting and video games can all be based on Ethereum and powered by Ether payments.

Which is the better investment?

Bitcoin and Ethereum are both popular investments among the crypto community, however there are some key differences that investors should be aware of.

Both cryptocurrencies are a scarce resource and their prices are affected by supply and demand. Each has seen volatile price swings in both directions. Ethereum price can also be affected by advances in technology and use cases, both positively and negatively. Bitcoin, on the other hand, operates in a more rigid environment, which results in less risk and also less potential for the future.

Given historical performance, the ROI will be vastly different if bought and sold over the course of three years.

On September 1, 2017, the price of bitcoin was around $4,600, while the price of Ethereum was around $385. As of September 1, 2021, the price of bitcoin is around $47,000, and the price of Ethereum is around $3,400.

If someone had bought $1,000 worth of bitcoin on September 1, 2017, it would be worth approximately $10,217 on September 1, 2021, resulting in an ROI of approximately 921%. On the other hand, if someone had bought $1,000 worth of Ethereum on September 1, 2017, it would be worth approximately $8,831 on September 1, 2021, resulting in an ROI of approximately 783%.

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Overall, bitcoin would have been a more profitable investment during this period. However, it is important to note that historical performance is not indicative of future ROI. All cryptocurrencies can be highly volatile and prone to unpredictable market swings.

Which is better for payment?

Both bitcoin and ether are used extensively to make payments, although bitcoin is the more popular option. As Bitpay’s payment usage data shows, bitcoin consistently makes up over 40% of all Bitpay merchant transactions, while Ethereum is the third most popular cryptocurrency used for transactions, making up about 11% of the transaction share. .

Ethereum’s quick confirmation times make it an excellent choice for making crypto payments. Thousands of ERC-20 tokens such as Dogecoin (DOGE), Shiba Inu Coin (SHIB), and Polygon (MATIC) give crypto consumers endless options to decide which Ethereum-based token they want to spend. Also, stable coins running on the Ethereum network offer much-welcomed price stability in the blockchain world.

Bitcoin typically has low fees and slow transaction times, but its high market value and ubiquity help to offset these drawbacks. Additionally, Layer 2 solutions such as the Lightning Network are reducing transaction costs and reducing confirmation times.

FAQ about the difference between bitcoin and ethereum

Should I Buy in Bitcoin or Ethereum?

Choosing whether to buy bitcoin or ethereum will depend on your intended end use. As an investment, bitcoin has been the more popular option. For a variety of use cases such as interacting with Dapps, buying NFTs or sending stable remittances, Ethereum and ERC-20 tokens would be a better buy.

However, both cryptocurrencies can be unpredictable and prone to large market swings in either direction. You should always consult a financial advisor and do your own research before making important investment decisions.

Can Ethereum Overtake Bitcoin?

While Ethereum continues to grow its ecosystem of use cases, tokens, and users, bitcoin remains steadfast as the number one cryptocurrency by value.

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