Types of cryptocurrency: Bitcoin vs Ethereum
In 2021, over 59 million Americans owned different types of cryptocurrency. Bitcoin and Ethereum are currently the top two available cryptocurrencies.
But do you know the key differences when it comes to Bitcoin vs Ethereum and how they each work? It’s important to understand the advantages and disadvantages of each before making an investment.
The following guide will explain everything you need to know about the two cryptocurrencies and why they’re so popular. Read on to discover if BTC or ETH is the right crypto for you.
What is Bitcoin?
Bitcoin is a cryptocurrency that was invented in 2009 by someone calling themselves Satoshi Nakamoto. Although, it’s unclear whether or not Satoshi Nakamoto is an individual or group.
Nakamoto aimed to make a decentralized form of electronic cash. Being decentralized means that no government, bank, or any other institution controls Bitcoin. Nakamoto stepped disappeared in 2011 and gave control to Bitcoin’s community.
BTC lets people around the world send and receive money securely using cryptography. The most important quality of Bitcoin is that it helps people keep their identities anonymous when sending and receiving money.
when a transaction gets conducted through a traditional bank, an amount of money or service charge gets imposed. But this charge is very low with Bitcoin. The reduced charges make BTC a more pleasing alternative to established electronic transaction options.
What is Ethereum?
Ethereum is a cryptocurrency network that supplies ether tokens similar to Bitcoins in the Bitcoin network. It was developed back in 2015 by Vitalik Buterin who is a programmer from Canada.
Ether is used to create and distribute decentralized applications that place back-end code in a dispersed peer-to-peer network. Typically, regular applications differ from ETH because they work by placing the back-end code into a centralized server.
Ether is also utilized for service payments such as computational power needed to add blocks to the Ethereum blockchain. It can also be used to pay for different transaction costs.
Ether and Bitcoin work similarly in that they’re both used to complete peer-to-peer payments. However, ETH can also be used to make smart contracts. The contracts assure that a given output only occurs after a certain set of predefined rules gets met.
Bitcoin and Ethereum transactions
Bitcoin’s peer-to-peer transactions help it serve as a substitute for traditional fiat currencies. It also doesn’t have all the issues commonly associated with fiat currencies such as high transaction fees and centralized regulation.
Ethereum also uses peer-to-peer transactions, but it also gives users a platform for developing smart contracts and different applications to distribute. The contracts let users exchange almost anything of value such as money, shares, and properties.
How are they each mined?
Bitcoin miners can validate transactions using a technique called proof of work. Ethereum also uses the same proof of work method. Proof of work allows miners anywhere in the world to solve complex math problems and race to add blocks to the blockchain.
Ethereum is currently trying to move to a new form of transaction called proof of stake for validation. Proof of stake lets a person group mine or validate transactions in a block depending on how many coins they own. Owning more coins means more mining power.
Bitcoin miners get rewarded with 6.25 bitcoins when they add a block to the Bitcoin blockchain. The current payout rate was set in November of 2021, but the amount dwindles over time.
Ethereum miners get rewarded with a value of 3 ether each time a block gets added to the Ethereum blockchain. Ethereum rewards will never get halved, unlike Bitcoin.
ETH and BTC fees
Bitcoins’ transaction fees are totally optional and you don’t need to pay miners extra money. However, you can pay them more if you want your transaction special attention. Just remember that transactions go through regardless of paying a fee.
Ethereum is different because you have to give some amount of ether to complete your transactions successfully. The ether amount you give then gets converted into a different unit known as gas. Gas allows your transaction to get added to the blockchain.
Timeframes and algorithms
The average time it takes for Bitcoin to get added to the blockchain is about 10 minutes. In Ethereum’s case, it only takes around 12 to 15 seconds total to add to the blockchain.
Hashing Algorithms
Both of the cryptos’ systems preserve their privacy and promise security thanks to hashing algorithms. BTC operates using a hashing algorithm that’s called SHA-256. Ethereum operates using a cryptographic algorithm known as Ethash.
BTC and ETH numbers to know
Bitcoin currently has over 19 million bitcoins that exist and just under 2 million left to mine. Ethereum currently has about 118 million ether in existence.
Ethereum’s market capitalization is only around $368 billion despite effortlessly moving passed the 100 million ether point. In comparison, BTC’s cap is over $780 billion. So, Ethereum hasn’t reached the success of BTC even with a larger amount of coins.
About 260,000 BTC transactions occur every single day. Ethereum has a little over 1 million transactions that occur daily.
Bitcoin has mined over 718,000 blocks so far and Ethereum has mined about 13 million blocks. It takes a lot less time to add blocks for Ethereum than it does for Bitcoin, which is a major advantage for ETH.
Currently, the Bitcoin block size is about 1,200 kilobytes. Ethereum’s current block size is about 94 kilobytes.
Bitcoins’ market value remains much higher than any other type of cryptocurrency on the market today. However, Ethereum remains close on the heels of BTC and many believe it could even take over the top spot one day.
Other Ethereum advantages
Ethereum has one of the biggest developer communities around which gives it an advantage over BTC. There are also more opportunities to utilize ETH in the real world than Bitcoin.
Ethereum developers have already made non-fungible tokens, decentralized finance protocols, and smart contracts. All of those elements run thanks to the Ethereum blockchain. So, there’s a large ecosystem built around Ethereum that BTC doesn’t have.
Bitcoin advantages
One of the biggest advantages of BTC over ETH is that it has a supply cap of 21 million. It’s also been around longer so it’s more widely known. It’s available on more investment platforms than ETH because of those factors.
BTC also works better as a peer-to-peer platform system when compared to Ethereum. In addition, many investors have requirements that favor using that P2P system.
The future of ETH and BTC
According to Vitalik Buterin, the long-awaited Ethereum merge took place early on September 15th. The new merge aims to lower Ethereum’s energy consumption by a staggering 99%.
If all goes according to plan, ETH’s new energy efficiency might help relieve investor concerns about crypto’s effect on the environment. The merge should also help to improve the efficiency of Ethereum transactions.
The ETH merge might even help raise the price of BTC by generating more interest in the asset class as a whole. Others predict a bearish market for BTC in the near future and expect it to drop in price before starting to climb once more.
How to buy types of cryptocurrency
First, you’ll need to select a cryptocurrency where buyers and sellers trade crypto. Most platforms have options for a simple interface and offer low fees.
Next, open an account on the platform you selected and provide proof of your identity. ID verification helps to limit fraud and meet different regulations.
You’ll need to deposit money into your account after the verification process finishes. You can link your primary bank account, wire transfer, or select a debit or credit card to get started.
Finally, select the cryptocurrency you’re interested in buying and place an order. You can also use the exchange as a way to store the crypto you buy.
Hot wallets are another way to store crypto that involves using internet-connected devices such as tablets and computers. Cold wallets are external storage devices that offer more security.
There are more benefits to investing in crypto that arise every day, so it’s worth the time and effort to get started.
Ready to choose your cryptocurrency?
So, what types of cryptocurrency will you invest in first? Now you know the advantages and disadvantages of both Ethereum and Bitcoin. It might be best to diversify and try purchasing a little of both to get a feel for trading.
Remember, crypto tends to be volatile and can move up or down in value very rapidly. Use caution when investing and remember the information from this guide when making your first purchasing decisions.
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