Bitcoin and Ethereum are the two most prominent cryptocurrencies in the world, but they serve different purposes and have different goals. While Bitcoin was created primarily as a digital currency to function as a decentralized store of value, Ethereum was designed as a decentralized platform with broader applications, enabling developers to build decentralized applications and smart contracts. This article explores the key differences between Bitcoin and Ethereum, highlighting their unique features and what they mean for investors.
Key takeaways
Bitcoin was designed to be money.
Ethereum was designed to be a platform, with Ether being the native currency of that platform.
Bitcoin, the first cryptocurrency
The idea for Bitcoin (BTC) was written up by a pseudonymous computer programmer named Satoshi Nakamoto in a 2008 whitepaper. And the first Bitcoin went into circulation in 2009.
The idea was to have a peer-to-peer electronic cash system with a fixed supply (there will only ever be 21 million bitcoin) and devoid of a central authority regulating it. In place of a bank, payment processor or government, financial transactions are recorded on a distributed digital ledger stored in blocks known as a blockchain. People all over the world then verify these transactions independently to make sure no fraudulent activity has occurred.
As Bitcoin has matured as an asset, its practicality as digital cash has been tested. This is largely due to the slow speed of transactions that can currently be done on the Bitcoin network. However, a large and growing number of people and institutions view it as a digital version of gold—a place to store value that is not beholden to central bank manipulation or government interference. And it is largely under this narrative that Bitcoin has become the best-performing asset in the last decade.
Ethereum, the world’s super computer
While Bitcoin’s main purpose was to use blockchain technology for monetary transactions, the Ethereum network was conceptualized to build, and greatly expand on, that core idea.
When Ethereum launched in 2015, its goal was not only to produce a decentralized currency, but also to decentralize almost everything on the internet. (2)
That is, the idea was to use the Ethereum network as a platform on which to build a wide array of decentralized products and services ranging from banking to art to crowd funding to music distribution. You can think of Ethereum as a digital main street or city where anybody who can code can set up a shop and ply their wares.
For investors, this is an important distinction to note. Bitcoin’s value is engineered to go up over time. And its fixed supply plays heavily into the digital gold or hard money narrative that many of its advocates espouse. As stated above, this simple formula of reducing supply while demand increases has made Bitcoin the best-performing asset of the last decade.
While Ethereum developers are making strides towards reducing the inflationary nature of Ether, it has a way to go to appease people who look at Bitcoin as gold 2.0. (5)
What this all means
For investors looking at long-term plays in the cryptocurrency space, it’s important to understand that Ether and Bitcoin are not the same, nor, for the most part, are they trying to be the same thing. Understanding the differences will help inform educated investment decisions.
Sources
1.Bitcoin vs. Ethereum: What’s the Difference?, Investopedia: https://www.investopedia.com/articles/investing/031416/bitcoin-vs-ethereum-driven-different-purposes