digital asset
February 26, 2024
4 min read

What is the difference between Bitcoin and Ethereum?


Bitcoin and Ethereum, the two predominant cryptocurrencies, exhibit substantial differences in their objectives and capabilities. Bitcoin, being the first cryptocurrency, is commonly likened to digital gold due to its limited supply and robustness. Its primary functions include serving as a store of value and a decentralised medium of exchange, enabling transactions without relying on a central authority.

In contrast, Ethereum transcends the role of a mere cryptocurrency. It operates as a decentralised platform designed for the creation and implementation of smart contracts and decentralised applications (dapps). The native cryptocurrency of the Ethereum platform, known as ether, plays a pivotal role in powering these operations. Ethereum’s focus extends beyond being a simple medium of exchange, emphasising the facilitation of programmable contracts and decentralised applications on its platform.


Comparing the two leading cryptocurrencies

Examining the technical aspects, Bitcoin and Ethereum present distinct characteristics. Bitcoin transactions primarily involve monetary exchanges, with new blocks added to the blockchain roughly every 10 minutes. In contrast, Ethereum permits transactions that encompass executable code, enabling the creation of smart contracts and decentralised applications (dapps). Blocks on the Ethereum network are added at a faster rate, approximately every 15 seconds, compared to the Bitcoin network.

Another noteworthy difference lies in the consensus mechanisms employed by each network. Bitcoin relies on a proof-of-work consensus, where miners compete to solve complex mathematical problems, while Ethereum adopts a more energy-efficient proof-of-stake consensus algorithm, where validators are selected based on their stake in the cryptocurrency.

Both Bitcoin and Ethereum grapple with scalability challenges, and both resort to layered solutions to address this concern. Bitcoin developers are actively developing the Lightning Network, a Layer 2 solution designed to facilitate faster and more cost-effective transactions. Similarly, Ethereum utilises Layer 2 solutions that aggregate substantial transaction volumes before submitting them to the Ethereum blockchain, effectively mitigating transaction fees. This layered approach aims to enhance the scalability of both cryptocurrencies.


Bitcoin mining versus Ethereum validation

Bitcoin employs a proof-of-work mechanism in its mining process, where miners engage in competition to solve intricate mathematical problems using their computational power. The first miner to successfully solve the problem gains the opportunity to add a new block to the blockchain and is rewarded with Bitcoin for their efforts. While this method is robust in terms of security, it has faced criticism for its substantial energy consumption, leading to concerns about its environmental impact. Bitcoin miners, also referred to as nodes, play a crucial role in validating transactions and upholding the overall security of the network.

In contrast, Ethereum adopts a proof-of-stake model. In this approach, validators are selected to create a new block based on the amount of cryptocurrency they possess and are willing to ‘lock up’ for a specific period. Unlike Bitcoin’s competitive model, validators in the proof-of-stake system propose and vote on blocks, eliminating the need for resource-intensive competition. This modification makes the Ethereum process less energy-intensive compared to the proof-of-work model used by Bitcoin.


Comparing transaction speed and scalability

When comparing Bitcoin and Ethereum, an important aspect to consider is their transaction speed and scalability. Bitcoin has a capacity to handle approximately seven transactions per second, and new blocks are added to the blockchain about every 10 minutes. While this ensures security, it can result in slower transactions and higher fees during periods of increased demand. However, the Lightning Network is being developed to potentially accommodate a much larger transaction volume, reaching up to 15 million transactions per second, thereby significantly improving Bitcoin’s scalability.

On the other hand, Ethereum can process around 30 transactions per second, and new blocks are added approximately every 15 seconds. Ethereum not only supports basic transactions but can also handle complex transactions related to decentralised applications. To address scalability challenges, Ethereum employs a multi-layered approach involving various Layer 2 networks with different technological approaches. These networks aggregate significant transaction volumes and submit them in batches to the Ethereum blockchain, enhancing efficiency. Some of these networks, such as OP Mainnet, Arbitrum, and Base, use optimistic rollups, while others, like zkSync and StarkEx, utilise rollups based on zero-knowledge proofs. This diversified approach aims to improve Ethereum’s scalability and accommodate a broader range of decentralised applications.

  • digital asset

Know what’s next. Ask us anything.