Bitcoin vs Ethereum: What You Need to Know

If you’re entering the world of cryptocurrencies for the first time, you’re most likely reading up on the best options on the market. Two of the most well-known virtual currencies that you’ll come across with are Bitcoin and Ethereum. In fact, they each have loyal fans who will tell you that this currency is better than the other, which can leave you dazed, confused, and overwhelmed.

So let’s start with the basics: Bitcoin is considered the most popular cryptocurrency around the world. Introduced in 2009 by a hacker (or a group of hackers) known as Satoshi Nakamoto, the system gives miners “bitcoins” as a reward, which they can then use to pay for products and services. Ethereum, on the other hand, was invested by Vitalik Buterin and released in 2015. Its currency, called “ether”, is also given to miners as a reward. It’s not as widely used as Bitcoin, but it’s on the way.

Now that you know the basics, here are the other differences between these two virtual currencies:

Reward value

Cryptocurrencies are decentralized, which means that they rely on individual users (commonly known as “miners”) to process and confirm transactions and add them to the existing blockchain. These miners are then rewarded with virtual money for their hard work.

Currently, Bitcoin rewards miners with 12.5 bitcoins per processed block. Bitcon’s reward halves every four years or so, which means that the reward would be down to 6.25 bitcoins when 2020 arrives. Ethereum, on the other hand, gives 5 ether for every block that miners process.

Processing time

Virtual currencies differ when it comes to the amount of time needed to process each block and add it to the blockchain. Bitcoin’s blocktime is 10 minutes, while Ethereum’s blocktime is around 12 seconds. This huge time difference comes from the fact that Bitcoin is a lot more thorough and minimizes the creation of orphaned blocks (i.e. blocks of information that don’t become a part of the blockchain). Ethereum’s fast blocktime, meanwhile, results to faster transactions but also creates more orphaned blocks.

But this doesn’t automatically mean that Ethereum is less desirable than Bitcoin. This comes from the fact that Bitcoin doesn’t put any value on orphaned blocks, while Ethereum does. If a Bitcoin miner creates an orphaned block, he’ll lose any reward associated with that block. Ethereum, meanwhile, has a protocol that allows orphaned blocks to still become a part of the network and allow miners to earn rewards from them.

Smart contracts

This is where Bitcoin and Ethereum differ a lot. Bitcoin focuses more on the financial side of things and strives to be the best when it comes to virtual currency and monetary transactions. And it has succeeded, really — more than 100,000 vendors now accept Bitcoin as payment. However, when it comes to smart contracts, Bitcoin has limited power to process them.

Ethereum’s, on the other hand, specializes in smart contracts (which are virtual tokens that represent agreements between two people) and has a system that fully supports the creation and implementation of these contracts. You can use these when renting out your apartment to tenants, creating business agreements with your suppliers, selling shares to investors, and doing many other things.

Final Thoughts

Both Bitcoins and Ethereum have their pros and cons, so it’s important to do your research and understand which cryptocurrency best fits your needs and preferences.

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