Bitcoin Vs Ethereum: Driven by Different Purposes

Ethereum has received a lot of attention since its announcement at the
North American Bitcoin Conference in early 2014 by Vitalik Buterin. The
natural consequence of its rising popularity has been its constant
comparison to Bitcoin, the first virtual currency. It is important for
investors to understand the similarities and differences between
Bitcoin and Ethereum.

Bitcoin

Bitcoin, the first virtual currency, was born nine years back in 2008. It
introduced a novel idea set out in a white paper by the mysterious
Satoshi Nakamoto: Bitcoin offers the promise of lower transaction fees than
traditional online payment mechanisms and is operated by a decentralized
authority, unlike government issued currencies . There are no physical Bitcoins ,
only balances associated with public and private keys.
Over these years, the acceptance of the concept of a virtual currency has
increased among regulators and government bodies. Although it isn’t a
formally recognized medium of payment or store of value, it has managed a
niche for itself and continues to coexist in the financial system despite
being regularly scrutinized and debated.

Blockchain

The attempts to understand Bitcoin more closely resulted in the discovery
of blockchain , the technology that powers it. The blockchain is not just
the hottest topic in the FinTech world but also a sought after technology
in many industries.

A blockchain is a public ledger of all transactions in a given system that
have ever been executed. It is constantly growing as completed blocks are
added to it. The blocks are added to the blockchain in linear, chronological
order through cryptography, ensuring they remain beyond the power of
manipulators. The blockchain thus stands as a tamper-proof record of all
transactions on the network, accessible to all participants.
The blockchain offers a chance to work at lower costs with greater
regulatory compliance, reduced risk, and enhanced efficiency.
Enter Ethereum!

Blockchain technology is being used to create applications which are beyond
just supporting a digital currency. Such applications are often referred to
as Crypto 2.0, Blockchain 2.0 or even Bitcoin 2.0.
Launched in 2015, Ethereum is the largest and most well-established, open-
ended decentralized software platform that enables SmartContracts and
Distributed Applications (ĐApps) to be built and run without any downtime,
fraud, control or interference from a third party. Ethereum is not just a
platform but also a programming language (Turing complete) running on
a blockchain, helping developers to build and publish distributed
applications.

     The potential applications of Ethereum are wide ranging and run on its

platform-specific cryptographic token, Ether. In 2014, Ethereum had launched
a pre-sale for ether which received an overwhelming response. Ether is like a
vehicle for moving around on the Ethereum platform and is sought
by developers looking to develop and run applications inside Ethereum.
Ether is used broadly for two purposes: it is traded as a digital currency
exchange like other cryptocurrencies and is used inside Ethereum to run
applications and even to monetize work. According to Ethereum, it can be
used to “codify, decentralize, secure and trade just about anything.” One of
the big projects around Ethereum is Microsoft’s partnership
with ConsenSys which offers “Ethereum Blockchain as a Service (EBaaS) on
Microsoft Azure so Enterprise clients and developers can have a single
click cloud-based blockchain developer environment.”

Bitcoin Vs Ethereum

While both Bitcoin and Ethereum are powered by the principle of distributed
ledgers and cryptography, the two differ in many technical ways. For
example, the programming language used by Ethereum is Turning complete
whereas Bitcoin is in a stack based language. Other differences include block
time (Ethereum transaction is confirmed in seconds compared to minutes
for Bitcoin) and their basic builds (Ethereum uses ethash while Bitcoin uses
secure hash algorithm, SHA-256).

However, from a general point of view, Bitcoin and Ethereum differ in
purpose. While Bitcoin is created as an alternative to regular money and is
thus a medium of payment transaction and store of value, Ethereum is
developed as a platform which facilitates peer-to-peer contracts and
applications via its own currency vehicle. While Bitcoin and Ether are both
digital currencies, the primary purpose of Ether is not to establish itself
as a payment alternative (unlike Bitcoin) but to facilitate and monetize the
working of Ethereum to enable developers to build and run distributed
applications (ĐApps).

The Bottom Line

In sum, Ethereum is an advancement based on the principle
of blockchain that supports bitcoin but with a purpose that does not
compete with Bitcoin. However, the popularity and rising market
capitalization of Ether brings it in competition with all cryptocurrencies,
especially from the trading perspective. Currently, the market cap of Ether
(ETH) is more than Ripple and Litecoin, although it’s far
behind Bitcoin (BTC). On the whole, Bitcoin and Ethereum are different
versions using the blockchain technology, and are set to establish
themselves, driven by different intentions.
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