There was little doubt at the beginning of 2020 as to which digital token would dominate cryptocurrency for the foreseeable future. Bitcoin's massive popularity, surging price, and head start on the competition suggested that it was leagues ahead of other crypto assets in terms of value.
However, since that time, Ethereum has emerged as a strong competitor to Bitcoin. Thanks to the surging popularity of its decentralized apps, or dApps, in areas such as finance, arts and collectibles (in the form of non-fungible tokens), and gaming, the price of ETH surged close to 500% in 2021. As a result, while ETH’s market cap was only about one-tenth of BTC’s in January 2020, the cryptocurrency's market cap now sits at $341 billion, around half of Bitcoin's $745 billion.
Despite the fierce debate around the potential of Bitcoin and Ethereum, it's important to remember that the two coins have much in common:
- Both are assets based on a publicly displayed distributed ledger called a blockchain.
- Both can be stored in digital wallets, using alphanumeric strings as addresses.
- Both can be traded on cryptocurrency exchanges.
- Both are decentralized currencies, meaning that they are not dependent on third-parties such as governments or central banks.
- Both are fungible tokens, meaning that every coin is exactly alike and can be exchanged for another coin (unlike NFTs, which are non-fungible)
What is Bitcoin?
Bitcoin is a peer-to-peer online currency, meaning that all transactions happen directly between equal, independent network participants, without the need for any intermediary to permit or facilitate them. In the words of its creator, Satoshi Nakamoto, Bitcoin will allow “online payments to be sent directly from one party to another without going through a financial institution.”
History of Bitcoin
The first mention of Bitcoin occurred on October 31, 2008 in a white-paper authored by an unknown person named Satoshi Nakamoto. The paper described how a peer-to-peer, online currency could be implemented through a decentralized ledger known as a blockchain, which could create a record of transactions visible to anyone with access to the network.
On January 3, 2009, Nakamoto mined the first block on the Bitcoin network, known as the genesis block, launching the world’s first cryptocurrency. The first known Bitcoin commercial transaction occurred on May 22, 2010, when programmer Laszlo Hanyecz traded 10,000 Bitcoins for two pizzas (worth around $497 million today).
What Makes Bitcoin Unique?
Bitcoin is admired for a number of reasons, chief of which is that it was the first cryptocurrency to ever be invented. As the first cryptocurrency, Bitcoin has rightfully gained a massive lead on all its competition, and its limited supply of coins, which will never exceed 21 million, have led many investors to dub the currency "digital gold."
The entire cryptocurrency market, now worth more than $2 trillion, is based on the idea realized by Bitcoin - that money can be sent and received by anyone, anywhere in the world, without reliance on meddling intermediaries, such as banks and financial services companies.
After close to a decade in existence, Bitcoin still remains at the top of the crypto world, with its market cap surpassing $1 trillion in 2021. Although its price has since declined from its all-time high of $64,863.10 on April 14, 2021, there is still a growing institutional interest in Bitcoin due to its ability to disconnect from global financial markets, which are often subject to inflation, quantitative easing, and government spending.
History of Ethereum
Four years after the birth of Bitcoin, a 2013 whitepaper by programmer Vitalik Buterin described the concept of a new cryptocurrency called Ethereum. In the summer of 2014, Buterin, along with other co-founders, secured funding for the project in an online public sale which helped his project team raise $18.3 million in Bitcoin.
The Ethereum Foundation officially launched the Ethereum blockchain on July 30, 2015, under the prototype codenamed “Frontier.” Since that time, there have been several network updates that have upgraded and modernized the token's blockchain and efficiency.
What is Ethereum?
Ethereum is a decentralized computing platform that uses Ether (also called ETH) to pay transaction fees (also known as gas fees). Developers can use Ethereum to run decentralized applications (dApps) and issue new crypto assets, known as Ethereum tokens.
The entire Ethereum network is made possible through smart contracts, its key innovation. Like normal contracts, smart contracts establish the terms of an agreement between parties. However, unlike paper contracts, smart contracts automatically execute when the terms are met without the need for either participating party to know who is on the other side of the deal — preserving anonymity and safety of users.
What Makes Ethereum Unique?
Ethereum's smart contract platform is truly unique among cryptocurrencies, and it theoretically has the potential to improve the safety and security of any system it comes into contact with. As a case in point, the current NFT surge in gaming and digital art could only be made possible through Ethereum's blockchain. As co-founder Gavin Wood has said, Ethereum was made to be “one computer for the entire planet,” with the power to make any program more robust, censorship-resistant and less prone to fraud.
A less-known application of Ethereum is its ability to "host" other cryptocurrencies through its ERC-20 compatibility standard. Currently, over 280,000 ERC-20-compliant tokens have been launched, with over 40 of these making the list of top-100 cryptocurrencies by market capitalization.
Comparing Bitcoin and Ethereum can often be difficult because the two cryptocurrencies were created for vastly different purposes. While Bitcoin was founded as an alternative to national currencies and aims to be a medium of exchange and a store of value, Ethereum was created as a platform to facilitate programmatic contracts and applications via its own currency.
Simply put the primary purpose of Ether is not to establish itself as an alternative monetary system but rather to facilitate and monetize the operation of the Ethereum smart contract and dApp platform.
Another key difference is how new tokens are issued on both the Bitcoin and Ethereum networks. While Bitcoin uses the Omni layer, a platform meant for creating and trading currencies on the Bitcoin blockchain, Ethereum tokens are issued following the ERC-20 standard.
The ERC-20 standard defines a list of rules for the tokens on the network and includes several functions developers have to implement before launching their tokens. These functions include the following requirements:
- Providing information about the token’s total supply
- Providing account balances on users’ addresses
- Allowing funds to be moved between addresses