Most of you out there must be familiar with Bitcoin. If you do not know what it is, then you may have at least heard of it. Bitcoin is not a recent thing though, it has been around since 2009. It is a payment system and digital asset, allowing the transfer of funds on peer-to-peer basis without the requirement of any intermediary. Without any repository or administrator, Bitcoin is now categorized as a ‘decentralized virtual currency’. While it may be the first crypto-currency, it certainly is not the only one with Ethereum being one of its biggest competitors right now.

Ethereum is a crypto-currency that uses a blockchain technology just like Bitcoin. It was proposed in the latter half of 2013, going live in July 2015. The currency unit of this platform is known as ether (similar to the ‘Bitcoin’). Ether is used for paying on its own network, traded via cryptocurrency exchanges just like Bitcoin.

Although Bitcoin and Ethereum are both cryptocurrencies, there are some differences between the two as well. The basic purpose behind designing Bitcoin is to use it in place of coins and notes. For Ethereum, the purpose is to act as a programmatic platform, applying it for the building and deployment of ‘smart’ contracts between computer and human counter-parties. You may think of both Ether and Bitcoin as currencies, but that is where the similarities end.

The differences between Ethereum and Bitcoin

There are 6 major differences between the two, which go as follows.

  1. In Bitcoin, the block time is set to 10 minutes, while the same is set to 12 seconds in Ethereum. This is what makes Ethereum have faster transactions, accomplished by using what is known as the ‘Ghost Protocol’.
  2. There are differences in the economic model of the two as well. In Bitcoin, the rewards are halved after every 4 years, while there is no such thing in Ethereum; the same amount of Ether are released each year.
  3. The methods of costing transactions are different in the two. In Ether, it depends on the complexity of computation, the storage needs as well as the bandwidth usage.  However, in Bitcoin, there are no such factors affecting the costing as all transactions compete with each other equally. This is what is known as Gas (in Ethereum), limited to each block while for Bitcoin, the limiter is the block size.
  4. Ethereum is more flexible than Bitcoin due to the presence of its own Turing complete internal code, which means that with sufficient time and computing power, it can calculate anything. There is no such flexibility in Bitcoin.
  5. With the release of Bitcoin, its early miners possess the majority of the coins that will be mined in the future. Ethereum, on the other hand, was crowd-funded with 50% of its coins projected to be owned by miners within 5 years.
  6. In Ethereum, centralized pool mining is discouraged by using its Ghost Protocol for rewarding stale blocks. As far as block propagation goes, being in a pool will have no advantage.

With all these differences in mind, Ethereum surely looks to be quite the competitor. However, what one will use from among the two, or the other options that are coming up, will depend on the purpose as well as the secondary requirements of the two parties.