Bitcoin VS Ethereum: Cryptocurrency Comparison

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Since its release in early 2009, Bitcoin has been the trailblazing leader of the cryptocurrency revolution. Countless imitators have come and gone but Bitcoin remains dominant, despite nearing the current limits of its transactional capacity.

Ethereum, created mid-2015, is Bitcoin’s strongest rival… But can Ethereum deliver on the hype surrounding its complicated technology, as well as recover from the recent spectacular failure of the DAO, to usurp Bitcoin’s primacy?

  • Created
  • Market cap
  • Popular support
  • Blockchain
  • Scalable
  • Mining
  • Supply
  • Development
  • Hash rate
  • Initial distribution
  • Bitcoin

  • bitcoin
  • 2009
  • Over 10 billion
  • High
  • Proof of work
  • Not at the moment
  • ASIC miners
  • 21 million
  • over 100 contributers
  • 1.8 ExaHash
  • Mining
  • Ether

  • ethereum
  • 2015
  • Under 1 billioin
  • Low
  • Proof of work
  • Yes
  • GPUs
  • 81 million
  • Small core team
  • 3 TeraHash
  • Initial Coin OfferingICO

Complimentary or Competing Cryptocurrencies?

How valid is the frequent claim that Bitcoin and Ethereum aren’t direct competitors but rather complimentary aspects of the new, blockchain-based economy? The peaceful coexistence theory holds that the web is vast and deep enough for Bitcoin and Ethereum to carve out their respective niches:

bitcoinBitcoin specialising in its role as digital gold; offering a dependable monetary system free from unbounded inflation and political intervention.

ethereumEthereum evolving into the world computer; a blockchain-based programming language enabling code-based contracts and decentralised applications.

In practice, matters are more complex. Given the extensibility of cryptocurrency, neither coin has a clearly defined sphere of operation. There is considerable overlap between their functions and markets, with nothing to prevent user migration.

For example, additional layers built upon Bitcoin, such as the Rootstock.io smart contact platform, threaten to trespass on Ethereum’s playground. Rootstock promises to do everything Ethereum can, with the added security of a two-way peg to the more secure Bitcoin network.

Likewise, Ethereum has become a popular trading and investment instrument, infringing upon Bitcoin’s domain as “magic internet money.” Ethereum’s daily trading volume, insofar as such figures can be trusted for either currency, is currently about 1/5th that of Bitcoin:

market capStats as of the 21st of June 2016, courtesy of CoinMarketCap

Bitcoin VS Ethereum – Competitive Factors

The following user scenarios serve to illustrate the frequent necessity of choosing between Bitcoin and Ethereum:

  • Traders and Investors allocating capital according to expected returns and perceived safety,
  • CEOs and Founders must choose the best platform to serve their business,
  • Developers have only so much time to contribute to open source projects,
  • Miners invest in different types of hardware depending on which coin they mine,
  • Media disseminates only the most compelling stories to their audience, etc.

Peaceful coexistence is a myth; Bitcoin and Ethereum clearly compete for users. The good news is that such competition should ultimately produce better cryptocurrencies.

Bitcoin VS Ethereum – Popular Support 

bitcoinBitcoin users tend to be politically and economically conscious. Many users support certain principles, such as individual sovereignty and free markets. There exists a definite aversion to central planning and control, so Bitcoin is often revered as the counter to central banks and big governments.

ethereumEthereum users tend to be less ideologically-motivated. They are generally content to vest ultimate authority in Vitalik Buterin, inventor of Ethereum. The community’s focus tends to be on the technology’s future business and financial applications.

The network effect, expressed mathematically by Metcalfe’s law, states that a network’s value is proportional to its number of users. Whether we’re talking fax machines, social media or cryptocurrency; people are more likely to join popular networks. As the first cryptocurrency, Bitcoin has a clear first-mover advantage here.

Bitcoin VS Ethereum – Scripting Language

bitcoinBitcoin transaction data doesn’t just confer ownership of coins; it also conveys certain instructions relating to transaction. For example, a recently-implemented change allows sent coins to be locked for a custom time period. The set of possible instructions is known as Bitcoin’s scripting language and it’s intentionally limited to transactional processing.

ethereumEthereum’s primary innovation was to expand this set of instructions into a fully-featured programming language such as JavaScript, which Ethereum’s language closely resembles. This is what is meant by Ethereum being “Turing-complete.”

Risk vs. Reward: The undeniable fact is that, by adding complexity at the protocol level, Ethereum presents a larger attack surface to adversaries. This heightened risk of attack makes Ethereum an inferior store of value. Further, there is no decisive advantage gained from Ethereum’s scripting language which could not be duplicated via protocol-separate code. Bitcoin may be in trouble if Ethereum ever develops such a killer app but until then…

Bitcoin VS Ethereum – Blockchain

bitcoinBitcoin has a Proof of Work blockchain which is currently composed of 1 megabyte blocks. These blocks are mined on average every 10 minutes by SHA-256 hashing. Bitcoin mining is primarily performed by ASIC devices. Bitcoin’s blockchain can process around 3 transactions per second.

ethereumEthereum currently has a Proof of Work blockchain, although a proposed fork will switch it to Proof of Stake (PoS). The Ethereum blockchain is composed of blocks of variable size. Blocks are mined on average every 15 seconds by hashing a modified Dagger-Hashimoto algorithm. This algorithm is designed to resist processing by ASIC devices; as a result Ethereum mining is primarily performed by graphics cards. Ethereum’s blockchain can process around 25 transactions per second.

Scalability: Ethereum appears to have a clear advantage in terms of blockchain scalability. Bitcoin is in the process of upgrading its transactional capacity.

Security: In terms of blockchain security, massive infrastructure investment by Bitcoin miners has resulted in a peak Bitcoin hashrate of 1,803,059,256 GH/s (1.8 ExaHash). This greatly exceeds Ethereum’s hashrate, which peaked at a comparatively paltry 3,010 GH/s (3 TeraHash). The monetary cost to perform a 51% attack on Bitcoin is proportionately greater.

Decentralisation: Hashrate distribution among mining pools is fairly equal between Bitcoin and Ethereum on a percentage basis.

The majority of Bitcoin mining occurs in China due to favourable economic factors. This raises a red flag in terms of the potential pressure the Chinese state could exert on the Bitcoin mining network. While Bitcoin could alter its mining algorithm to thwart any takeover attempt, this “mining hardware reset” would doubtless prove tremendously destructive.

Although Ethereum mining in its current state resembles the glory days of individual-level Bitcoin mining, its planned switch to PoS will likely increase centralisation. Gavin Andresen, former Bitcoin lead developer, succinctly critiqued PoS thus: “I think proof-of-stake is hard coded, ‘the rich get richer’ and is deeply unfair.”

Mining: Ethereum is profitable to mine on high-end GPUs, especially given low power costs. Advanced graphic cards are available for under $200 and can also run games and other apps. However, before investing in a mining rig, aspiring Ethereum miners should consider that the upcoming change to PoS will invalidate their investment.

Bitcoin is only profitable when mined with specialised ASIC hardware running on very low cost electricity. High-end ASIC hardware costs over $2000 per unit and has no purpose besides mining Bitcoin. The pace of ASIC hardware advancement is slowing as it approaches the limits of semiconductor miniaturisation technology; it can be hoped that this process, perhaps in combination with the increasing power generation efficiencies, will eventually lead to a more widely-dispersed Bitcoin mining network.

Bitcoin VS Ethereum – Supply

bitcoinBitcoin’s total supply will be strictly limited to 21 million coins. Bitcoin’s issuance is halved roughly every 4 years. As of the next halving in July 2016, Bitcoin’s inflation rate will drop to an annual rate of ~5%. Future halving events, combined with coins lost through user error, will ultimately result in a deflationary currency.

ethereumEthereum’s issuance by miners is capped at an annual rate of 18 million ETH. This represents an inflation rate of ~20% at the current supply. As ETH is not consumed by running programs but instead sent to the miner of the associated transaction, Ethereum’s value is likely to decline in the long term.

Implications: All else remaining equal, the purchasing power of a deflationary currency will rise over time whereas the relative value of an inflationary currency will fall. Bitcoin therefore encourages saving and benefits early adopters who bought in cheaply. Ethereum encourages spending and lowers the cost of entry for newcomers.

Bitcoin VS Ethereum – Initial Distribution

bitcoinBitcoin is thought to have been mined exclusively by Satoshi Nakomoto in its early phase. At that time, there was no barrier to the entry of other miners, other than Bitcoin’s obscurity. It’s estimated that Satoshi owns roughly 5% of total supply. As Satoshi’s coins have yet to move, some speculate they may be inaccessible.

ethereumEthereum’s distribution took the form of an ICO (Initial Coin Offering), whereby 31,529 BTC was traded for 60,102,216 ETH in advance of the Ethereum blockchain’s launch. Approximately $14m USD was raised in this fashion by the Ethereum Foundation, which awarded itself 12m ETH; roughly 14% of the current total supply.

Fairness: Bitcoin had a demonstrably fairer launch. The Ethereum Foundation’s majority stake is somewhat concerning given the intended switch to Proof of Stake mining. Under PoS, the likelihood of minting new tokens is proportional to holdings. This raises the possibility of the further concentration of self-awarded wealth.

Bitcoin VS Ethereum – Development  

bitcoinBitcoin’s codebase benefits from over 100 Core contributors and several alternative implementations. With over $10b in assets on the line, they take a conservative approach to development. All proposed improvements must undergo peer review and rigorous testing prior to being merged.

The perceived slow pace of this process, at least in terms of scaling, led to contention (the so-called Blocksize Debate) and the eventual estrangement of numerous users, several companies and even a few developers. Core developers are now under considerable pressure in terms of delivering scaling solutions without compromising security.

ethereumEthereum is the brainchild of Vitalik Buterin, who handled its initial development along with 3 other skilled developers. They were able to pick and choose ideas from the development of Bitcoin and altcoins and introduce new ideas of their own. However, literally anyone can code a smart contract which runs on top of Ethereum. Herein lays both opportunity and danger.

Certain estimates put the number of bugs per line of contract code at 1 in 10. As seen with the draining of The DAO and numerous minor incidents, investing in such contracts without proper code review can lead to serious loss. More work is required to secure smart contracts before they can reliably underwrite new ways of doing business.

A Developing Story: both coins face considerable challenges if order to realise their full potential. However, this industry tends to attract some of the world’s best and brightest minds, who invariably relish intellectual challenge.

Final Word

 bitcoinBitcoin has more lives than a cat, by an order of magnitude. Betting against Bitcoin is just not advisable, as many have learnt to their detriment. If SegWit, the Lightning Network, Rootstock, Elements and other exciting developments play out as expected, Bitcoin will retain its crown with ease.

ethereumEthereum is no safe bet, which is not to say it couldn’t pay off handsomely. The uncertainty surrounding its prospects increases its volatility, making it a great instrument for traders.

In the short term, much will depend on how the DAO crisis is resolved. Medium term, there’s considerable uncertainty around the PoS fork and how it’ll impact network security and incentives. Long-term, doubts remain regarding Ethereum’s high rate of inflation and its significant pre-mine. If it’s to survive, it must also evolve past dependence on a single trusted authority, in the person of Vitalik.

P.S.

We’ve just gotten this really cool infographic from bargainroo.com and gutcher.de that really details the exact differences (it’s a bit long but it’s worth it). Enjoy!

Bitcoin vs Ethereum infographic

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Steven Hay

I'm a former futures trader. My keen interest in matters financial, economic and political eventually led me to conclude that the current, debt-based fiat system is broken. It was a natural step from there to investing in gold and, in early 2013, Bitcoin. Although I'm not very technical, I've learnt about Bitcoin through study, asking questions, running ecommerce and marketing sites and working as a journalist. I've always loved writing and my current focus is on creating guides which inform others about Bitcoin's advantages.

13 Comments

  1. Is cloud mining being warned against in general or some certain mining platforms?
    Why, because I just invested in hashpoke.com/ref/jQyq

  2. Ether is currently significantly inflationary, as you pointed out, but the inflation is capped at 18M ETH. So the inflation rate will be ever shrinking towards 0% and maybe below 0%. How? Just like BTC many ETH will be lost due to user error (people losing private keys due to death of key holder, crashes of non-backed up hard drives, etc). At first 18M new ETH per year is a large amount of inflation, but eventually it will be insignificant, maybe even not enough to replace lost ETH.

    BTC on the other hand will be highly deflationary. You have the 5M BTC from Satashi which may never be recovered and no way to replace any lost coins by anyone ever. You may eventually need 20 or 30 decimal places if all the world’s commerce were to be done in BTC.

    I hold some of both, but I consider ETH to be more of a risk, due to it being new and the POS change coming. BTC is risky as well, though. The block size debate needs a solution, if BTC can’t scale to the transaction volume of VISA or AmEx it will never become widely used. If BTC is to ever become the dominant wealth storage and payment processing technology on earth it will need to process billions of transactions per day (eventually trillions as the GDP of planet Earth grows). There needs to be a way to get there from here. Otherwise it will be just an interesting footnote in history and some other storage medium which _can_ scale will be used.

  3. ET.Sounds great, are you aware of the current scam of Hashocean, they run away with their investor bitcoins, also need to create awareness on the ponzi scams of the cloud mining.

    • Ofir Beigel on

      Yes I heard about that. I’ve warned about the dangers of cloud mining for a long time, but unfortunately not everyone is willing to listen.

  4. Ether supply is 81 million , not 18. 60 million alone was allocated to the ICO investors and 12 million allocated to the dev team.

  5. If someone has 2500 USD. Should he invest in an ASIC s9 to mine bitcoin or get a powerful PC rig to mine other coins and later turn them into bitcoins?

    • Ofir Beigel on

      Thanks for the feedback :) I really appreciate it (will also forward this to Steven the writer).

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