Bitcoin vs. Ethereum [2024]: Your Guide to Two Popular Cryptocurrencies

Investing in a new asset like cryptocurrencies may feel exciting. After all, the price of a single bitcoin reached more than $67,000 in September 2021. The price has since dropped to about $38,823 as of May 2, 2022, but potentially making it big by holding cryptocurrencies might still have a strong lure.

Cryptocurrencies belong to networks called blockchains. The two most popular blockchains are the bitcoin network and the ethereum network. Their currencies, bitcoin (BTC) and ether (ETH), are the two largest cryptocurrencies.

While they may be similar in some ways, these two networks and their popular cryptocurrencies serve different purposes. Understanding their similarities and differences could be essential if you’re considering owning or trading one of these digital currencies.

Let’s take a deeper look at bitcoin versus ethereum and build a better idea of which cryptocurrency might work best for you.

Bitcoin vs. ethereum

A blockchain network is powered by its cryptocurrency. The native coin for a blockchain serves as the medium of exchange between the blockchain users. It’s also usually used to pay fees for transactions over this blockchain network.

The native coin of the bitcoin blockchain is bitcoin, while the native coin of the ethereum blockchain is ether. Both blockchains offer a level of utility in the crypto world, and their currencies may offer opportunities when you’re investing money. For example, you might be interested in one (or both) as a way to diversify your portfolio or build wealth.

Here is how they compare at a glance:

	Bitcoin	Ethereum (ether)
Inception date	2009	2014
Inventor	Satoshi Nakamoto (pseudonymous person or persons)	Vitalik Buterin
Purpose	Performing transactions	Building smart contracts
Symbol	BTC	ETH
Highest recorded price (as of May 2022)	$67,665.63	$4,812.09
Circulation supply (as of May 2022)	19.01 million	120.6 million
Market cap (as of May 2022)	$737.5 billion	$341.5 billion
Supply cap	21 million	N/A

The original hero: bitcoin

Bitcoin is the first cryptocurrency. It was first suggested in an anonymous whitepaper circulated under the name of Satoshi Nakamoto, who isn’t a real person.

Satoshi based the cryptocurrency on concepts introduced in 1998 by computer scientist Wei Dai to the cypherpunks mailing list. These concepts were first proposed in a paper by mathematician Stuart Haber and physicist Scott Stornetta. The paper described a blockchain-like infrastructure to verify ownership.

To this day, no one knows the identity of the original author(s) of the bitcoin whitepaper. However, the control of the digital code underpinning bitcoin is in the possession of Gavin Andresen, who, along with others, develop bitcoin at the Bitcoin Foundation. The code remains open-source and is decentralized so that there is no single “owner.”

Bitcoin uses

The idea behind bitcoin was to provide a way for people to conduct business together and manage transactions without using financial institutions as intermediaries. For example, you could send a bitcoin to someone in another country without going through a bank or paying a foreign exchange rate. For this purpose, bitcoin was designed as a transaction network.

People in the world of cryptocurrencies may view bitcoin as “digital gold,” a store of digital value. However, the bitcoin blockchain suffers from some efficiency issues that affect its usage for transaction means. Even though projects like the Lightning Network could make bitcoin transactions faster, the reality is that the network is often considered slow.

This is especially true compared to more recent blockchain networks. The network's speed might even lose to more traditional payment networks, like the one operated by Visa. Various products, such as crypto-linked debit and credit cards, might make paying with bitcoin more practical for day-to-day transactions.

A bit of bitcoin history

Bitcoin’s main claim to fame is that it’s the first — and most famous — cryptocurrency and that people might be able to hold it for its value. There will only be 21 million bitcoins ever created through a process known as bitcoin mining. This limit may maintain or increase their value over time if their adoption continues to grow.

This may seem amusing in contrast with one of the famous days in bitcoin history, a day known as “Pizza Day.” It takes place on May 22 each year and acknowledges the first commercial bitcoin transaction in 2010, involving a man buying two pizzas for 10,000 bitcoins.

The shining knight: ethereum

In 2013, Vitalik Buterin, a bitcoin enthusiast and co-founder of the Bitcoin Magazine website, was the main author of a whitepaper describing the ethereum blockchain.

Along with his co-founders, Buterin made the initial coin offering of ether in 2014 and officially launched the ethereum blockchain in 2015. Since then, the ethereum platform has received numerous updates.

Ethereum uses

Rather than merely being a payment system, Buterin designed ethereum to execute contracts automatically. These automatic contracts are called smart contracts.

Additionally, Ethereum is used for decentralized applications (dApps) that operate on peer-to-peer networks, such as games and virtual worlds without a central authority. It’s even possible for developers to create their own blockchains and cryptocurrencies using the underlying platform.

The latest evolution of the ethereum blockchain is underway as we speak. The ethereum 2.0 upgrade will switch the network to a proof-of-stake (PoS) system, where cryptocurrency holders use a consensus system to verify transactions on the blockchain. This is a shift from the previous proof-of-work (PoW) system, where computers solve cryptography algorithms to verify transactions.

While the price of ether has yet to reach $5,000 and its market capitalization is still lower than its 2021 levels, it’s still a prevalent chain. Ethereum’s standard for creating digital coins and tokens, known as ERC-20, is among the most used standards for various crypto projects. It’s used at the Uniswap exchange and the Decentraland metaverse. The ethereum network also enabled robust decentralized financial applications (DeFi) and systems to be built on top of it.

A bit of ethereum history

The ethereum blockchain has had some ups and downs since it was first proposed. One such downturn took place in 2016 when a major hack created a rift in the ethereum community. Some members maintained that the blockchain shouldn’t be changed and wanted to keep the hack as part of the digital record.

However, others wanted to remove the hack and restore ether to those who lost theirs. The latter group won, and the ethereum blockchain split — a process known as forking — and erased the hack to create the main blockchain for ethereum. The second blockchain, ethereum classic, maintained the record of the hack.

Key differences between bitcoin and ethereum

Bitcoin and ethereum are two blockchains built for different purposes, and they have different approaches to managing their networks. Here are some things that differentiate bitcoin from ethereum.

The underlying protocol

Bitcoin introduced the idea of proof-of-work (PoW) to verify transactions. Under this method, some users use computational power to solve cryptographic puzzles. Users who successfully verify transactions receive bitcoin as a reward for lending their computational power to the system. These validators are known as “miners.”

Bitcoin’s large decentralized consensus requirement means that it can only process about five transactions per second (TPS). Compare that with ethereum’s ability to process more than 10 TPS and the Visa payment network’s ability to process more than 1,700 TPS.

Ethereum expects to be able to increase its network speed to a theoretical 100,000 TPS after it converts to its ethereum 2.0 chain. This upgrade includes a transition to a proof-of-stake (PoS) system. However, some estimates say it’s more likely to be at 3,000 TPS. A PoS consensus mechanism relies on nodes to verify transactions. The chosen nodes have a stake in ether, so verification is based on ownership of coins rather than the amount of computational power used.

Use cases

Bitcoin was designed as a decentralized currency and payment network. It’s used as an exchange medium for value by using it as a currency that’s meant to cross borders without the need for extra fees and foreign exchange requirements.

On the other hand, ethereum could also be used to buy goods and services via ether. However, the smart contract capability makes ethereum usable for transferring and verifying ownership of digital assets as well. It’s also possible to represent assets in the real world, like a real estate deed, with a digital token that verifies ownership.

One potential use case for the ethereum blockchain is real estate transactions. You could potentially send ether to buy a piece of property and be issued a non-fungible token (NFT) to indicate your property ownership. In this case, the transaction would take much less time and require much less paperwork. It’s important to note that the legal framework around NFTs is still being developed.

Additionally, many metaverse applications, like Decentraland, that act as virtual worlds, are built on the ethereum blockchain. DeFi financial services like the Uniswap exchange use ethereum as their base. Ethereum is also one of the most popular blockchains for digital creators to make and sell art in the form of NFTs.

Scaling

One of the most significant issues facing blockchain technology, particularly older chains like bitcoin and ethereum, is scalability. Bitcoin’s limited network speed is one of the biggest issues facing its widespread adoption.

In 2017, an upgrade known as SegWit removed specific unnecessary data from the bitcoin blockchain to improve its speed. The Lightning Network is an additional solution for the bitcoin blockchain that could settle much smaller transactions at a faster rate.

Ethereum is handling scaling in part by moving to a PoS network. However, it is also adding shard chains to its infrastructure. Shard chains are added to the main network, branching in a way to store data off the main chain so that transactions can go through faster.

Fees

When you use a blockchain to complete a transaction, you usually pay a fee. These fees are often paid to verifiers as they complete the transaction. In general, if you’re trying to transact business during a time of high traffic on the network, the fees will be higher. On the ethereum chain, this fee is named “gas.”

In 2021, the average daily transaction fee for bitcoin ranged from $1.78 to $62. On ethereum, the average gas for each transaction ranged between $1.59 and $70.

On the ethereum network, you could offer to pay a priority fee to get the transaction through faster. The bitcoin network allows you to customize your fee, signaling to miners that you’re willing to pay a little more for priority.

Which is better, bitcoin or ethereum?

Neither is necessarily better. Bitcoin and ethereum have different uses and don’t necessarily compete.

Both have been around for a long time in terms of cryptocurrency history, making them seem more legitimate to some investors. When considering how to invest in ethereum or bitcoin, think about what makes sense for your portfolio and what you believe has a potential future.

Bitcoin might make sense if you accumulated coins early on and want to be able to spend them. Bitcoin might also make sense if you’re looking for a long-term store of value and think that cryptocurrency is here to stay.

On the other hand, ethereum might be an option if you’re looking for a suite of DeFi solutions. There are numerous ways to put your money to work using ethereuem-related chains and dApps. It’s also relatively easy to start your own project or create digital art using NFTs.

FAQs

Bottom line

Cryptocurrencies represent a new asset class and it will be interesting to see whether they fulfill their stated potential of transforming the way we interact with money.

However, right now, both bitcoin and ethereum are highly volatile in price and are considered alternative investments. If you’re interested in adding them to your portfolio, do your research and consider your long-term goals and risk tolerance. Avoid putting more money into a cryptocurrency than you can afford to lose.

Learn more by reading our articles on how to buy cryptocurrency and check out our list of the best cryptocurrency exchanges. You could also learn about the best place to buy ethereum or read our article on ways to buy bitcoin.

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