11 Feb

How are Bitcoin and Ethereum different?

How are Bitcoin and Ethereum different?

Benard Marr

Bitcoin was the first true cryptocurrency and has been in circulation since 2009. Ethereum is a far more recent development, going live in 2015.

In the time between Bitcoin and Ethereum’s release, lots of other cryptocurrencies emerged. Mostly, however, they were limited to trying to improve on aspects of Bitcoin’s performance – for example, increasing speed of transactions or improving the security or anonymity of transactions.

Ethereum is certainly faster than Bitcoin – with transactions typically settling in seconds, rather than minutes. But it also takes things further. While still blockchain based, and operating as a store of value, its fans and evangelists see it as a platform for distributed computing, which comes with its own built-in currency, called Ether.

While the Bitcoin blockchain can simply be pictured as a database of accounts (or wallets) with an amount of currency stored in each, the Ethereum network blockchain is a more sophisticated construction, capable of storing computer code – applications – that can use the CPU power going into the network to execute.

The currency – Ether – represents this CPU power – so the idea is that Ether will be bought and sold by businesses, governments or individuals to allow them to tap into the vast, distributed resources of the Ethereum network to run their own apps.

The first of these applications are known as “smart contracts”. This is a way of automating contracts and agreements so they will execute when consensus says that conditions have been filled. Though simple, their uses are potentially widespread – such as enabling payment systems which will release funds on completion of work, or authorizing the transfer of ownership of good when payment has been made.

The Ethereum network also allows the creation of other cryptocurrencies, or tokens, using the same protocol as Ether but distributed on different blockchains, which can be public or private. This means they can be created by organizations to represent shares, voting rights or as means of proving identity or authorization credentials.

Should I invest in Bitcoin or Ethereum?

Well, as I am not a financial advisor I wouldn’t tell you where to put your money. What I can do is suggest some things that you should bear in mind, if you are looking to make speculative investments in cryptocurrency.

Ultimately, the long-term growth of any cryptocurrency (or indeed business) depends on useful applications being found for its assets.

If Bitcoin goes on to become a widely accepted form of currency, or the Ethereum network becomes an established standard for distributed computing, then the value of these assets is likely to continue to grow.

On the other hand, in technology, there is always something snapping at the heels of the front-runners. Newer and more efficient algorithms could replace either Bitcoin or Ethereum.

Additionally, both face the threat of government regulation. The value of many cryptocurrencies (including Bitcoin and Ethereum) have moved downwards since the start of the year, which has been attributed to threats of their trade being regulated by governments in China and Korea.

What is clear is that the huge increases in value we have seen over the last five years has largely been due to speculative investment – people buying them in the hope that they will be able to sell them for more money to someone else in the future.

This is often a recipe for inflated prices and an inevitable crash back down to earth – something that many believe could happen at any time and may have already started.

Ultimately, achieving sustainable growth will be dependent on useful applications. More businesses accepting Bitcoin as a method of payment, and more applications becoming widely used and supported on the Ethereum network.

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