Ethereum vs. Bitcoin (BTC) | The Comparison – The Startup
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The differences in origin, goal, and purpose
A short explanation about Ethereum vs Bitcoin. Bitcoin is probably the best-known cryptocurrency worldwide. As the flagship of the crypto industry, Bitcoin seems to be continuing to build on its success. Nevertheless, there are up to 1,300 further cryptocurrencies on the crypto market. One of the cryptocurrencies is Ethereum, which is still the second strongest cryptocurrency on the crypto market in terms of market capitalization. It is closely linked to the development of Bitcoin. The original idea was to extend Bitcoin’s peer-to-peer payment system with a platform for developing DApps, which was rejected by the core developers. The result was Ethereum.
For comparison: The Bitcoin price increased within 1 year by approx. 2.000% and the Ethereum price by approx. 8.000%. In order to take a closer look at the Ethereum vs Bitcoin topic, one has to take a closer look at the origin and the technical data of the individual values.
The cryptocurrency is a digitized, decentralized peer-to-peer payment network. But what for and why was the cryptocurrency developed?
Origin & Goal
The cryptocurrency was first described in a document published in 2008 by Satoshi Nakamoto. Who is behind the pseudonym is not known until today. In the white paper, Nakamoto describes existing instances of bank malpractice and time-sharing computer systems. To use traditional currencies, private individuals would have to have confidence in banks to store and manage their money. Nakamoto writes explicitly that this trust is abused. Not only do banks lend money with too little cover in the form of loans, but they are also very inefficient. Furthermore, private individuals have to trust banks to protect their assets sufficiently.
Almost the same applies to time-sharing computer systems. Time-sharing computer systems allow several users to work on one computer at the same time. To implement this, it is necessary to employ a system administrator who has all the data at his disposal. In time-sharing systems, users must trust system administrators to keep their data confidential and not disclose it to third parties at the behest of a supervisor or to prioritize other concerns.
The idea behind the cryptocurrency is to establish a digital or better virtual currency that is not dependent on the trust of banks or system administrators in the face of emerging cryptographic encryption. This digital currency is Bitcoin. It is not dependent on third parties but is based solely on a cryptographic proof procedure, which is operated by a large number of computers. The vision of the cryptocurrency is to establish a digital currency that is freely accessible to everyone worldwide and does not depend on trust in central instances. Unfortunately, the vision behind Bitcoin cannot be fulfilled because there are too many construction sites (transaction costs, discrepancies between the miners, hard forks, etc.). So now many people think that it might be comparable with gold.
Technical data
The cryptocurrency is based on a blockchain. On the blockchain are recorded all transactions made in the cryptocurrency. This blockchain is stored on every computer in the peer-to-peer network. Because it is stored on every computer, it is difficult to hack. The computers do not “trust” each other and only accept transactions that meet certain criteria. The network is primarily used to operate the blockchain. Secondly, it is used to validate transactions by Miner.
Miner combines transactions into so-called blocks of the blockchain and adds them as a new link to the blockchain. This is a hash function that assigns transaction data, i.e. the sender and the amount sent, to a hash value, i.e. the receiver. If a block is successfully added to the blockchain, Miner will receive a reward of currently 12.5 coins for it. Currently, the so-called block time, i.e. the time required to create a transaction block, takes an average of 10 minutes. There will be a total of 21 million coins. In order to store coins, users need a digital wallet. From this wallet, they can send or receive coins. The Bitcoin crypto currency can be used partially as a means of payment for services and goods, depending on where it is accepted.
Classification
The cryptocurrency provides a digital means of payment which is based on a peer-to-peer payment system. This payment system essentially consists of three components. First, it consists of the blockchain, the account book of the cryptocurrency. Second, from the computers that use Bitcoin’s software to validate transactions and generate new coins. Third, from digital wallets where coins can be stored. By using a cryptographic hash function, transactions are automatically encrypted. The entire cryptosystem does not require a central instance.
Ethereum offers, besides its own cryptocurrency, a platform for the development of DApps via Smart Contracts.
Origin & Goal
The platform was born out of the idea to extend Bitcoin’s peer-to-peer payment system with a platform for the development of decentralized apps. This was rejected by the core developers. For this reason, Vitalik Buterin, with the help of a few developers, launched its own crypto platform. The goal of Ethereum is to have its own cryptocurrency Ether and to be able to develop its own DApps. In addition, the platform offers so-called Smart Contracts. These are digital contracts between two parties, which are based on fixed conditions. They function according to the if-then-principle. Basically, the platform offers the possibility to develop and offer apps on a cryptographically encrypted basis. In addition, the platform enables the efficient and fully digitized form of contracts, which can eliminate expensive lawyers or litigation.
Technical Data
Similar to Bitcoin, Ethereum functions via a decentralized network and a blockchain. This network operates the platform’s software. The software has three functions. First, it forms the basis for the Ethereum Virtual Machine. It enables the development and operation of many different DApps or DAOs in different programming languages without interference on one platform. Each computer in the distributed network has an interface to the EVM. It consists of all computers in the network.
Secondly, it is used to mine the cryptocurrency ether. The Equihash algorithm is used for this purpose. Every year around 18 million ethers are produced by miners. The block time of ether is only about 20 to 30 seconds. For each block found, miners currently receive a reward of 3 ethers. The cryptocurrency serves as a reward for Miner, as a means of payment for Smart Contracts and, in general terms, as fuel for the entire platform.
Third, it stores the entire Ethereum blockchain. This blockchain not only records transactions in the cryptocurrency ether, but also smart contracts that have already been created. Smart contracts that are based on the blockchain must also be validated decentrally so that a fair check of the contract conclusion can also be guaranteed.
The company is currently in the process of changing its own governance system. Instead of proof-of-work miners, a proof-of-stake system is to be introduced. Stakers must have a certain number of ethers in order to operate a master node. A master node has certain rights, such as co-determination of the future development of the platform. Stakers receive rewards in ether at regular intervals for the duration of the operation of a master node.
Classification
Ethereum takes Bitcoin’s blockchain technology and develops it further. In addition to its own cryptocurrency, Ethereum offers a complete platform for the development and operation of its own DApps. In addition, the platform enables the conclusion of Smart Contracts. They work completely digitized. Ethereum can be described as an independent, multi-compatible crypto platform.
Bitcoin was developed to develop a decentralized, digitized payment network — probably failed. This uses Ethereum and adds an ingredient to the recipe: a platform for DApps, DAOs and Smart Contracts.
This is probably the biggest difference between the two cryptosystems
Common features of the two cryptocurrencies are, for example, the use of a cryptographically encrypted blockchain. They both offer a cryptocurrency that can be mined. Both operate a decentralized network. Differences in the comparison Ethereum vs Bitcoin exist primarily in the purpose of the respective cryptocurrencies. Ethereum will also switch from Proof of Work to Proof of Stake (lower energy consumption and much more).
Bitcoin wants to outperform value carriers such as fiat currencies or gold in the long term. Ethereum, on the other hand, would like to provide a platform for the encrypted, secure development of its own decentralized apps in the long term and also offer a technology in the form of smart contracts for the conclusion of contracts, trade agreements and voting systems (the Internet 3.0 or better the “Internet of Values”). Both cryptocurrencies are useful and fascinating in their own way.
Published at Tue, 02 Jul 2019 10:26:38 +0000
