Today, cryptocurrencies are getting adopted by the most popular payment networks like Visa. Yes, users worldwide can now issue credit cards linked to cryptocurrency.
The two most popular cryptocurrencies are Bitcoin and Ethereum. Every person’s personal choice is to decide which crypto to invest in, but it’s important to understand a few things. Keep reading the article to learn more about Ethereum vs. Bitcoin in 2022.
Bitcoin is a cryptocurrency with the symbol BTC. Bitcoin’s market capitalization is the biggest in the world — about $800 billion, or about 40% of the approximately $2 trillion asset class.
Ethereum, the next biggest cryptocurrency, has a market capitalization of more than $380 billion. Other currencies are worth less than $100 billion today. Meaning Bitcoin is the biggest and most popular coin out there.
Apart from being the first-ever cryptocurrency with a long trading history, it has one more appealing characteristic — scarcity. Most cryptocurrencies (but not all) are limited — there can’t be more than a specific amount. Bitcoin has only 21 million tokens, and more than 18.9 million, or 90%, of digital tokens, are already mined. Hence BTC tokens are so valuable.
There are other factors to note about Bitcoin. Keep reading the article to learn more about this type of crypto.
Bitcoin is almost a gold standard due to people’s belief in this cryptocurrency. Some major corporations, businesses, and even nations are slowly adopting Bitcoin. It’s believed that if cryptocurrency is to ever be accepted as a general payment method, Bitcoin will become the first digital token.
Companies and people are investing in Bitcoin. Internet users may earn BTC with services like Lolli. It’s the first Bitcoin rewards platform allowing users to gain BTC while shopping online. The platform has more than 1,000 vendors, including such famous names as:
- Booking Holdings Inc.
- Nike Inc
- Best Buy Co. Inc.
- Priceline and Groupon Inc, etc.
Energy and Regulations
Most countries are careful when it comes to accepting cryptocurrency. There is one famous case, though. El Salvador made Bitcoin an official currency in the country and holds BTC on its balance sheet.
But most countries consider the consequences of cryptocurrency on their taxation system, the impact on their native currencies, etc. China has banned mining in the country and thus made crypto illegal. The country wants to make an advanced digital version of its native currency, the yuan.
The main issue with Bitcoin, and with most cryptocurrencies working according to the PoW algorithm, is its energy consumption. Bitcoin is one of the biggest energy consumers among all cryptocurrencies. It consumes around 0.5% of all electricity consumed in the world.
This number is more than the consumption of some countries; it’s seven times more than Alphabet Inc.’s Google uses in global operations. Some improvements were made in recent years, but they still don’t fix the problem.
Undoubtedly, Ethereum has as much value as Bitcoin, but these two currencies are different. Before investing in any of these currencies, your best bet is to find out more about each. This section covers Ethereum’s peculiarities.
Ethereum was launched back in 2015. It was based on Bitcoin’s concept, but with multiple various improvements. One of the most distinguishing features is its functionality. Ethereum offers more flexibility.
When comparing Bitcoin or Ethereum, most experts say that it’s like comparing two entirely different things, like gas and gold.
Bitcoin is almost like a commodity, just like gold. It’s more a medium of exchange, simply money. But Ethereum has a different purpose, it offers infrastructure, and people just need to use it to build apps on top of it.
Bitcoin’s only utility is a store of value. Ethereum offers almost endless possibilities. People even create other cryptocurrencies on top of Ethereum’s blockchain. NFTs (non-fungible tokens) are traded freely on Ethereum. In fact, users need Ether to create and sell or buy NFTs.
DeFi (decentralized finance) was created thanks to Ethereum and the network’s ability to build smart contracts.
High Gas Fees
Bitcoin doesn’t have big transaction fees. Users may even opt to pay zero fees if they are in no hurry — it will take a while to process such a transaction. Ethereum is losing to Bitcoin in this field.
Yes, Ethereum offers faster transactions than Bitcoin, but this advantage comes at a cost. These fees are called “gas” fees, and sometimes they may be insanely high, especially when transactions are small.
Ethereum network is popular. Millions of consumers use it every day, and this causes inflated gas fees. It makes it impossible for retailers to use Ethereum. It’s doubtful that any consumer would be happy to pay $45 in fees for a product that costs $50.
The good news is that Ethereum plans to switch to Ethereum 2.0. The update aims at fixing the most significant issues, like power consumption, and potentially, high gas fees.
Ethereum vs. Bitcoin: Main Differences
It’s a fact that both currencies are popular. But why are these two currencies different? Bitcoin used to be the most popular among all cryptocurrencies, but today, Ethereum is gaining more recognition.
Bitcoin, though, has the highest market capitalization among all the cryptocurrencies. It’s the first-ever cryptocurrency to see the world, but Ethereum is not backing down. Ethereum was launched after Bitcoin’s release, and its creators had time to learn from Bitcoin’s mistakes.
Ethereum has implemented more functionalities based on Bitcoin’s concepts. It is now the second most valuable cryptocurrency. But what is the difference between Bitcoin and Ethereum? Keep reading to learn more about the topic.
Bitcoin is mainly a peer-to-peer platform used for financial transactions. It is a replacement for fiat currencies, but without all related problems, like high transaction fees, centralized authorities, etc.
Ethereum is also a decentralized platform, but its creators went further to make it more advanced. Today, millions of developers and businesses worldwide use Ethereum as a platform to create new projects.
Bitcoin is the very first cryptocurrency in the world. It was launched in 2009 by an anonymous individual or group of individuals Satoshi Nakamoto. However, it should be mentioned that the concept of cryptocurrency has been discussed for a while before 2009.
Ethereum, as mentioned, was released in 2015 by programmer Vitalik Buterin. He studied the concept of Bitcoin and adopted it with multiple improvements. As a result, Ethereum is more advanced and has a lot more functionality.
Ethereum is used as a platform for applications and smart contracts. So, how is Ethereum different from Bitcoin? It was launched almost 6 years later and has a different, advanced concept.
As mentioned, Bitcoin was created to replace a conventional and expensive fiat transaction system. Users of a Bitcoin blockchain may offer higher or lower optional fees. The mining process aims at transactions with higher fees, so they get processed faster. But lower fees, or even their absence, doesn’t mean that the transaction won’t get through — it will.
Ethereum, on the other hand, requires a fee. The Ether, a user, offers as a fee is converted into a united that people call “gas.” The gas unit drives the computation, allowing the user’s transaction to be added to the blockchain.
The Mining Process
Currently, both Bitcoin and Ethereum work according to the proof-of-work method of approving transactions. It requires using hash power to solve a complex algorithm known as the process of mining. When a group of miners solves the algorithm, they add a new block to the chain and thus process a financial transaction.
But this process requires the usage of electricity. Power consumption of the proof of work algorithm is one of its biggest disadvantages. Transactions cause damage to the environment. That’s why some new cryptocurrencies are based on the proof of stake algorithm.
It requires users of the blockchain to have “stakes” of cryptocurrency. Stakeholders are chosen as validators of transactions, and thus, they get rewards in a specific cryptocurrency — that’s how mining works within the proof of stake mechanism. The bigger the stake, the higher the chance to be prioritized, and thus, get a reward.
Proof of stake algorithm consumes less power, which is great for the environment. The Ethereum team has announced that they might switch to the proof of stake algorithm.
It’s a well-known fact that Bitcoin has a rather slow system. It takes up to 10 minutes to add a block to the chain. This peculiarity often leads to system clogging. Moreover, this also leads to high transaction fees since users are offering higher fees to be prioritized, so miners prioritize their transactions.
Ethereum offers a better deal. It takes around 12 to 15 seconds to process, adds a block to the chain, and processes a transaction.
What is a hash algorithm? It’s a mechanism that helps maintain privacy and ensure the security of a blockchain system. Bitcoin is using a hashing algorithm SHA-256. Ethereum is using a cryptographic algorithm Ethash. So, that’s another difference between Ethereum and Bitcoin.