Bitcoin When Ethereum Coca-Cola and Pepsi in the cryptocurrency space. As the number one and number two names on the market, they are often compared to each other and seemingly share many similarities.
However, the two concepts are very different, from assumptions to price differences. Let’s see how they are compared.
Before you start …
Bitcoin and Ethereum Is a system, but Bitcoin (lowercase b) and Ether are the cryptocurrencies used in those systems. When comparing two ecosystems, it needs to be clear whether they are comparing technologies, the assets they generate, or both.
In this article, we will refer to the system by name and the currency by stock symbol. For Bitcoin, it’s BTC. For Ethereum, it’s ETH.
Comparison of Bitcoin and Ethereum
Bitcoin and Ethereum are fundamentally different. The former is designed to enable decentralized finance, while the latter is designed to enable apps and contracts as well.
Ethereum allows payments using the internal ETH cryptocurrency, but its range is much wider than Bitcoin-by design.
Both systems Use blockchain technology To validate and record transactions, future changes in how Ethereum behaves mean that they behave differently, affecting speed, sustainability, and accessibility.
The difference lies in what is known as the “consensus mechanism”.
What is a consensus mechanism?
The consensus mechanism is a computer algorithm that makes blockchain executable. This is done by solving a problem known as the “double payment” problem.
Once you use a $ 10 memo, it’s no longer yours and you can’t use it again. A BTC Is a string of computer code that can be copied indefinitely. Theoretically, this means that you can make a copy of BTC and repeat it over and over again to enrich yourself as much as you like.
However, if you send BTC to someone, the copy will be destroyed and a new version will be created in the recipient’s account.
All this is recorded in a distributed ledger and can be seen by people all over the world. You can’t try to use a copied version of it because everyone can see in a copy of the ledger that you used BTC-the ledger owner’s consensus pulls you fast I think he was trying.
Doctoring one transaction is difficult enough, but in reality, each transaction references its predecessor, so all subsequent transactions need to be modified.
This requires incredible computing power and effort. In addition, it controls 51% of the distributed ledger on the network, consensus Required to etch fake transaction history into the blockchain and receive newly mined ciphers as a reward.
Bitcoin and Ethereum use different consensus mechanisms.
Bitcoin is called Proof of Work while Ethereum is heading towards the Proof of Stake consensus mechanism.
Proof of work
This consensus mechanism asks participants for the chance to perform complex calculations, validate a series of transactions, and add them to the blockchain. Cryptography In the process.
“Work” involves guessing a unique 64-character alphanumerical string as accurately as possible.
With trillions of possible combinations of these strings, users with the most powerful computer hardware can make the most guesses per second within a 10-minute opportunity, validators. Most likely to be selected as.
To validate a doctor’s copy of your ledger and add it to a block, you need to control at least 51% (consensus) of the computing power of your network. This is astronomical. This is how the consensus method prevents fraud.
This work was previously done by home enthusiasts, but the processing power required increases over time, so the “mining” process is now done by businesses and professional organizations, namely hardware and it. It is a spare for those who can purchase the power needed for it. ..
Proof of work systems such as Bitcoin have received a lot of criticism about the amount of energy consumed by the associated computer hardware. Bitcoin currently uses 19 terawatt hours (TWh) of electricity annually. This is slightly below the amount used throughout Norway.
Proof of stake
This consensus mechanism asks participants to bet their money on the opportunity to validate transactions and add blocks to the blockchain, rather than performing complex calculations.
The more ciphers someone bets on, the more likely they are to be chosen to validate the block of transactions to the blockchain and win a certain amount of ciphers. This system also discourages malicious persons with financial penalties.
Proof of Stake stacks decks in favor of those who have more money, but puts fraudulent records on the blockchain because they need to bet at least 51% on the network to control consensus. Protect from adding people.
If you don’t need powerful computer hardware, Proof of Stake is considered a more environmentally friendly consensus mechanism than Proof of Work.
Decentralized payments and decentralized software
Bitcoin was developed solely to facilitate decentralized payments, that is, to allow people to send and receive payments without the intervention of a bank or the like.Ethereum, on the other hand, is designed to do more than just send and receive. ETH..
Using a blockchain that provides a constant record of transactions, Ethereum was designed to facilitate decentralized software such as smart contracts and decentralized apps (dApps).
A smart contract is a digital contract between two or more parties that executes itself when certain conditions are met.
For example, account A releases asset X when it receives asset Y from account B. It can be used to sell and transfer assets or take ownership more quickly and reduce the likelihood of fraud.
dApp is an application that is not controlled by a central authority. Twitter is an example of a centralized app, where users rely on Twitter as an intermediary to send and receive messages. Therefore, users play according to the rules they apply and the algorithms they use to control the content.
The dApp is distributed on the blockchain, allowing users to send and receive data directly without the need for an intermediary. Peepeth is a dApp like Twitter. It claims that the app isn’t optimizing advertising revenue, and the problem is that users of centralized apps are suffering.
So while Bitcoin is big, Ethereum is fast, but the two are designed to do different things, so they aren’t exactly competing with each other. On the other hand, BTC and ETH can be compared directly.
Price volatility
BTC is certainly more valuable than ETH. Peak in November 2021 at around $ 68,000 (Before it plummeted to less than $ 20,000 in May 2022). Meanwhile, ETH peaked at around $ 4,800 in November 2021.
Despite the significant differences in their values, coinmetrics.io data show that the values of the two cryptocurrencies have historically shown a strong positive correlation with each other, between 0.7 and 0.8 for most of their time. There is a tendency (1.0 represents the strongest correlation possible).
Anyway, and as with all cryptocurrencies, both BTC and ETH are volatile.As we saw in May of this year, prices are unpredictable and tend to crash When the market capitalization of crypto assets drops It decreased from $ 3 trillion to about $ 900 billion.
Cryptocurrency markets are not regulated in Australia, but consumer advocacy groups such as CHOICE are working to increase protection against those who have been victims of fraud and huge losses.For now, the Australian Securities and Investment Commission (ASIC) is through the Moneysmart website. Advice to crypto investors You need to be very careful when dealing with this volatile asset.
This article does not endorse any particular cryptocurrency, broker, or exchange, nor does it constitute a cryptocurrency recommendation as an investment class.
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