The world of cryptocurrency is ever expanding, with more than 1,000 new coins being added each month to the more than 12,000 already in circulation. For many of these coins, the goal is to become as big as the two giants in the field: Bitcoin and Ethereum.
“Bitcoin and Ethereum stand uncontested as the most popular, most valuable, and most important cryptocurrencies on the market today,” says Jacky Goh, CEO and co-founder of Rewards Bunny, a cashback platform that rewards shoppers with crypto, adding significant value to the entire crypto industry. “While the two coins are similar in some regards, they do have key differences. Understanding the differences is important for those who want to have a solid grasp on how the world of cryptocurrency works.”
The basics of cryptocurrency
Crypto is a digital form of currency that was introduced to the world in 2009. It is decentralized, which means it can be issued without the intervention of governments or other third-party organizations. The foundation upon which cryptocurrencies are built allows users to store funds and conduct transactions without relying on banks or other financial institutions.
Crypto relies on a technology known as blockchain, which is a decentralized ledger. Blockchain uses cryptography to ensure that the information associated with the value of coins is secure. When a coin is created, a new block is established that houses the data associated with that coin. When a transaction is conducted, the legitimacy of the transaction is validated through a process that involves other users on the network. Once a transaction is approved, a new block of data is added to the chain to update it with the new information. The process of creating and validating new information results in a secure and immutable record.
It all started with Bitcoin
Bitcoin was not the first cryptocurrency to be launched. However, it is the oldest, longest-surviving, and by far the most popular crypto coin to date. Since launching in 2009, Bitcoin has become synonymous with cryptocurrency, at times representing nearly 70 percent of the market share. As of August 1, 2022, the value of one Bitcoin stood at just over $23,000.
“While a growing number of businesses accept Bitcoin as a form of payment for goods and services, it is primarily used as an investment vehicle,” explains Jacky. “By establishing a cryptocurrency exchange account, users can purchase crypto with traditional currencies and exchange them in a manner that is similar to stock trading.”
The blockchain on which Bitcoin is built is created and updated through a process known as mining. Bitcoin mining relies on a system known as proof-of-work, in which miners compete with each other to provide transaction validation through solving complicated mathematical computations. However, mining crypto has drawn global criticism due to its intense energy requirements. For example, Business Insider revealed in a recent report that Bitcoin’s annual energy consumption surpasses the national annual energy consumption for Norway.
Ethereum brings utility to the crypto space
Ethereum was launched in 2015 to bring a new form of utility to the world of cryptocurrency. Whereas Bitcoin uses blockchain solely to empower financial transactions, Ethereum expands its usage to allow for the inclusion of other functionality. These conclude smart contracts, decentralized applications (dApps), and non-fungible tokens (NFTs).
The practice of using the Ethereum blockchain for minting NFTs boomed in 2021 as they began to be used in the creation of digital artwork. NFTs allowed for artists, musicians, and other creatives to package digital art in a way that could establish its individuality and ownership. As this new form of digital asset became popular, the value of NFTs skyrocketed. In 2021, sales in the NFT market totaled more than $40 billion.
Ethereum is poised to further differentiate itself from Bitcoin as it completes what has come to be known as the merge. Scheduled for September 2022, the merge would put an end to proof-of-work validation at Ethereum, implementing instead a system known as proof-of-stake. The new system replaces mining with a process that revolves around staking.
“The biggest benefit of the merge is the creation of a more eco-friendly Ethereum network,” says Jacky. “In addition, the merge will result in Ethereum being positioned to upgrade its scalability. Decreasing the congestion on its network along with decreasing its energy consumption are two primary concerns for Ethereum. The merge will mean positive change in both of those areas.”
Two coins on different missions
While Bitcoin and Ethereum both fall under the banner of cryptocurrency, they are coins pursuing two very different missions. Bitcoin’s goal, as explained on its website, is to be a “new kind of money.” Ethereum explains on its website that it “builds on Bitcoin’s innovation, with some big differences.” Central to these differences is empowering the creation and deployment of decentralized applications on its network. You might say Ethereum is empowering us to build a new future on blockchain and Bitcoin is empowering us to pay for it.