Digital Currencies: Bitcoin vs Ethereum
For starters, Cryptocurrency isn’t just about Bitcoin. According to Statista, as of 2022, there are more than 10,000 cryptocurrencies in the world. We are going to discuss the top two cryptocurrencies according to market cap, number one being Bitcoin and the second one being Ethereum. In this blog, we will differentiate between these two and discuss some fundamentals of digital currencies.
Digital commerce plays an important role in the digitalized economy of today. Commerce on the Internet mostly relies on financial institutions serving as trusted third parties to process electronic payments. But cryptocurrencies don’t rely on financial institutions or any government body.
To shed some light on these digital cryptocurrencies, First, we must know what a P2P electronic cash system means. P2P online payments are sent from one party to another without going through a financial institution.
Cryptocurrency is made up of two words “crypto” which means hidden and “currency” meaning money. Cryptography acts as a medium for conducting financial transactions. And then, Blockchain is simply a shared database or ledger which keeps track of all these hidden financial transactions in a distributed (serverless) ledger, explained in layman’s terms.
Furthermore, It is a distributed database that stores digital information and maintains a secure decentralized record of transactions. All these transactions are recorded in a chain of blocks and are tamper proof. Bitcoin and Ethereum are two different applications of Blockchain technology. They are often compared but there are key differences between them.
Bitcoin was developed in 2009 and capitalized on blockchain concepts that have been developed earlier. Ethereum was created in 2015 in an attempt to improve Bitcoin. Ethereum is sometimes also called Bitcoin 2.0 for this reason. Ether is the native currency of Ethereum, but it can host a range of different currencies. Bitcoin exclusively hosts the bitcoin cryptocurrency.
Bitcoin is a cryptocurrency that lives on a blockchain-based network. Ethereum is a blockchain-based network that hosts cryptocurrency along with other types of digital assets. According to market capitalization, Bitcoin is the highest, and Ether takes second place.
The Bitcoin platform is used to store and exchange the bitcoin cryptocurrency, so it’s both a store of value and a medium of exchange. Ethereum is a general-purpose blockchain used to store and exchange many different types of digital assets such as NFTs, Decentralized financial contracts, executable code, daaps, and cryptocurrencies.
The Ethereum platform works differently from bitcoin in a variety of areas.
1.) Consensus Mechanism: Bitcoin uses a computation-based proof-of-work consensus mechanism to verify transactions. Ethereum uses a proof-of-stake consensus mechanism called proof-of-stake in which users must take 32 ether tokens to become validators.
2,) Block Time: The amount of time each block in the chain to be confirmed differs. Bitcoin blocks take minutes to be confirmed. Ethereum only takes seconds.
3.) Maximum block size: Bitcoin has a maximum block size of 21 million bitcoins, when the number is reached no more bitcoins can be mined. Ethereum has no maximum overall number of ether, but it has an annual maximum of 18 million.
Despite their differences, Ethereum was designed to complement bitcoin not compete with it. As of mid-2022, there are 19.1 million BTC and 122.2 million ETH in circulation. These digital currencies can be mined using powerful computers with high-end graphics cards, by solving and performing complex mathematics calculations. They can also be bought and sold via cryptocurrency exchanges, the same like stock exchanges.
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