Bitcoin vs Ethereum: what are they and how do they compare?
Crypto hit the mainstream over the last couple of years, with the investment in the digital currencies making a hundreds of people millionaires, and interest peaking with Bitcoin reaching new record highs and new currencies being advertised on the London Tube.
For those that have not been following the emergence of these cryptocurrencies, however, it would be useful to explain exactly what they are, how they work, and why people are excited about their future.
What is a cryptocurrency?
In its most simple terms, a cryptocurrency is a virtual currency which is secured by cryptography, which makes it almost impossible to counterfeit or double spend. Traditionally, a bank would need to hold a ledger that showed transactions and where money was being sent to and from to make sure that the transaction was legitimate, but with a cryptocurrency this virtual ledger is held in the Blockchain – so there is no need for business or government in between.
The Blockchain is what underpins all cryptocurrencies, and is the technological advancement that was developed by Satoshi Nakamoto, the mysterious and pseudonymous developer of Bitcoin, back in 2009.
What is Bitcoin?
Bitcoin (BTC) was the world’s first cryptocurrency and remains the most popular and valuable. Its dominance in the space means that some people incorrectly use Bitcoin and cryptocurrencies interchangeably, but in reality Bitcoin is a specific cryptocurrency that uses “proof-of-work” to secure its transactions.
Proof-of-work is clever in that it prevents anybody from gaming the system by requiring members or “miners” to solve increasingly difficult puzzles to protect the network. However, in recent years the system has come under fire for the huge amount of computing resources that are being used by Bitcoin miners around the world, which some estimates put as equal to the entire energy requirements of Argentina!
As it is the most widely used cryptocurrency, Bitcoin is also the most widely accepted cryptocurrency, with Bitcoin ATMs available that let people take out cash in exchange for BTC, and a variety of online retailers accepting Bitcoin in exchange for goods and services, or even earn high rates of interest on your Bitcoin by staking.
What is Ethereum?
Whilst Bitcoin uses its own Blockchain for transactions, Ethereum provides a decentralised Blockchain upon which numerous other cryptocurrencies rely. Ethereum is a platform for both its own cryptocurrency, Ether (ETH), and many others including Polygon, Cronos, and Tether.
Ethereum was conceived in 2013 by programmer Vitalik Buterin, four years after Bitcoin was released, and is behind a significant amount of the development in cryptocurrencies since then with both smart contracts and many decentralised finance applications built on the platform.
Despite its importance to the growth of the crypto sector, ETHs market cap remains at under half that of Bitcoin, with ETH worth around $400bn at the time of press compared to Bitcoin’s £900bn market cap.
Cryptocurrencies as investment
Modern currencies like the US dollar (USD) or Pound Sterling (GBP) are backed by nation states and governments and so remain relatively stable day-to-day. Cryptocurrencies by definition are decentralised and have no such backing, which means they are volatile – with the market regularly rising or falling by over five per cent within 24 hours.
Cryptocurrencies are an exciting sector, but as Martin Lewis recently said on his show: “The thing about investing – and Bitcoin is an investment – is that prices go up and prices go down. With Bitcoin, they go up massively and they go down massively. And the reason for stressing that so much is that you can make a fortune, but you may lose a fortune”