With the growing popularity of Bitcoin, the people that are not aware of the cryptocurrency industry keep thinking of it as being synonymous with the term “cryptocurrency.”
To most of them, the mention of “cryptocurrency” is interchangeable with the name of “Bitcoin.”
However, anyone who has given some time to learn what cryptocurrency really is can know within five minutes of a Google search session that Bitcoin, in fact, is not the only player when it comes to cryptocurrencies.
Over time, many hard forks – which in more straightforward terms are “variations” – for Bitcoin have appeared, that were based on Bitcoin’s blockchain (the system that powers Bitcoin). Some of them are Litecoin, Bitcoin Cash, and Dash, with the most recent being Bitcoin Atom.
There you go. You have four other cryptocurrencies right there. However, that’s not even the tip of the iceberg.
Over time, even while staying the pioneer in cryptocurrencies, the Bitcoin network slowly lost its status of being the “only” platform to support cryptocurrencies.
The most popular network to appear and take that distinction away from it was that of Ethereum. Even though the network has its own cryptocurrency by the name of Ether/Ethereum, unlike Bitcoin, being the same name as its cryptocurrency is not its only identifier.
And that is where Bitcoin and Ethereum, while being two “cryptocurrencies” at the surface, start to differ in mechanism.
A simple explanation of bitcoin
Bitcoin was created by Satoshi Nakamoto and was released as open-source software in 2009. It marked the first time that a cryptocurrency was ever created, and its sole purpose was to act as “digital cash” that could be used by people on peer-to-peer networks to perform transactions.
Created on a blockchain platform using cryptography as means of verification and operation, Bitcoin also established itself as being the first ever real-use case for broader adoption of such a technology.
Whenever a new transaction is posted on the Bitcoin network, people who are on the system start working to verify the transactions using difficult mathematical puzzles (anyone with superior computational abilities, can join the network to do that). Multiple people can work on the same puzzle until it is solved. Whoever solves the puzzle first, uses it as their “proof-of-work,” which is then utilized to earn Bitcoin of their own. The cryptocurrency s the person’s reward for working on the network and verifying the transaction.
The “proof-of-work” used to verify the work performed for the transaction is called “consensus.”
The way these problem-solving people work is called “mining.” Thus, these people are called “miners.”
Now, a simple explanation of ethereum
Ethereum is also an open-source and blockchain based platform which is Turing complete. It was developed in 2013 by Vitalik Buterin, who had the network’s development funded through a crowdsale.
Once the network was ready to be launched, it was released in 2015.
However, as stated above, being a network to support its own cryptocurrency is not all that Ethereum does.
The Ethereum platform provides its own virtual machine to its users by the name of “Ethereum Virtual Machine” (EVM), which can be used by anyone to develop their own blockchain-based applications and new cryptocurrencies (which are called ERC20 tokens and can be named anything by their “creators”). It also utilizes “smart contracts” or agreements between users, but that is a whole topic on its own. What these contracts do is to offer virtually endless possibilities to potential developers of new platforms.
This is the most notable difference between both networks. While Bitcoin functions as a support system for its cryptocurrency, Ethereum also serves as a development platform that happens to have its own cryptocurrency.
Initially using the “proof-of-work” consensus model, Ethereum later shifted to another type of consensus called “proof-of-stake.”
This is also one of the significant aspects that differentiate Ethereum from Bitcoin, make sure to pay particular attention to this next portion.
Proof-of-work vs. proof-of-stake
The Bitcoin “proof-of-work” functions as described above, where a transaction is posted on the blockchain with a puzzle and out of the multiple people working on the network, anyone can start working on solving that puzzle. Whoever does it first, and does it right, receives Bitcoin of their own in return.
The Ethereum “proof-of-stake” works differently. Instead of having the people on the network compete to earn coins, it has them selected randomly. Once a person is selected, they perform the necessary puzzle-solving activities to verify the transaction. Instead of earning new Ether in return, they get paid with the transaction fee that is deducted from the user who performed the transaction (the fee is called “Gas” and is calculated in Ether for the user).
So, bitcoin supports its own cryptocurrency, but Ethereum works as a development platform?
There are several other points of differentiation that set them apart, but due to the way Ethereum is built, it has faster transaction times and also provides support for other functionalities.
However, Bitcoin, being the cryptocurrency support platform that it is, also has the distinction of being the first cryptocurrency and due to that and possibly other factors, it is far higher in value than Ethereum at current the moment.