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Bitcoin vs. Ethereum

What’s the difference between Bitcoin and Ethereum?

First, it’s important to understand that there are two categories of digital coins: Cryptocurrencies (e.g. Bitcoin, Litecoin, ZCash, Monero, etc) and Tokens (e.g. Ethereum, Filecoin, Storj, Blockstack, etc.)

Bitcoin is a “cryptocurrency.” Bitcoin and other cryptocurrencies are competing against existing money (and gold) to replace them with a truly global currency.

The promise of Bitcoin is that it is:

  • A global currency which allows individuals to own their own money (without having to rely on national banks).
  • Lower fees for transferring money across geographic borders.
  • Financial stability for people who live in countries with unstable currencies. (e.g. In 2016, the Venezuela’s currency hit an inflation rate of 800%). In addition, two-thirds of the current global population has no access to banking, or limited access — Bitcoin is changing that.

Ethereum is a “token.” What Bitcoin does for money, Ethereum does for contracts. Ethereum’s innovation is that is allows you to write Smart Contracts: basically any digital agreement where you can say “if this” happens, “then something else happens.” For example:

  • If I vote for the President, then my vote is official and no one else can vote as me.
  • If I sign my name on this document, then I own the car, and you no longer own the car.
  • Up until now we’ve carried out these agreements with a signature at the bottom of a paper document. Ethereum dramatically improves this model because it is digital, and proof of the transaction can never be deleted.

Comparison chart: Bitcoin vs. Ether

Bitcoin (BTC) Ether (ETH)
What is it? A currency  A token
Inventor Satoshi Nakamoto Vitalik Buterin, Joseph Lubin, Gavin Wood, etc. 
Went alive January 2009 July 2015
Supply Style Deflationary (a finite # of bitcoin will be made) Inflationary (much like fiat currency, where more tokens can be made over time)
Supply Cap 21 million in total 18 million every year
Smallest Unit 1 Satoshi = 0.00000001 BTC 1 Wei = 0.000000000000000001 ETH
New token issuance time Every 10 minutes approximately Every 10 to 20 seconds
Amount of new token at issuance 12.5 at the moment. Half at every 210,000 blocks 5 per every new block
Utility Used for purchasing goods and services, as well as storing value (much like how we currently use gold).  Used for making dApps (decentralized apps) on the Ethereum blockchain. 
Price Around $8500 at the moment Around $520 at the moment
Purpose A new currency created to compete against the gold standard and fiat currencies A token capable of facilitating Smart Contracts (For example: a lawyer’s contract, an  exchange of ownership of property, and voting)

Coinbase Bitcoin

Ethereum vs. ether

Let’s go a step further:

Bitcoin itself is two things: (1) it’s a digital currency known bitcoin (lowercase, also referred to as BTC) and Bitcoin is a technology (also known more generally as  blockchain). Both are called the same thing which admittedly can be confusing for newbies.

  • Bitcoin = The name of the Bitcoin network
  • bitcoin = The currency (or BTC)

With Ethereum it’s similar, but slightly different: the token is called ether (or ETH) and the network is Ethereum. 

  • Ethereum = The Ethereum network
  • ether = The token (of ETH)

Bitcoin vs. Ethereum

Where do I buy bitcoin and ether?

Coinbase is the most popular, and easiest place to buy both bitcoin and ethereum. Other popular exchanges where you can buy Bitcoin and Ethereum include: Gdax (owned by Coinbase), or Kraken

Join Coinbase now and get $10 of free Bitcoin if you buy or sell $100.

How much does it cost?

You can visit Coinmarketcap anytime for the latest price of BTC and ETH.

It’s important to know that you don’t have to buy one entire BTC or ETH, you can buy a smaller percentage of either.

bitcoin vs. ether: How many tokens are available?

For Bitcoin, the total supply cap is set at 21 million. At the moment, according to CoinMarketCap, the circulating supply is around 18,586,737 BTC

A new BTC is generated approximately every 10 minutes. And after 2140 no more new bitcoins will be created, which is why Bitcoin is said to be deflationary (the opposite of inflation).

When new bitcoins are created miners compete to get them. Miners are people with can play one of two  possible roles: they use their computers to claim new bitcoin and/or they help verify transactions on the network — much like a bookkeeper. 

There’s no set cap for a total supply of ETH. At the moment, around 96,815,798 ETH are circulating.

bitcoin vs. ether: What can I do with them?

You can use Bitcoin to send or receive money, or to purchase goods at popular sites like Overstock.com, Namecheap, or Tesla. You can also hold your bitcoin as an investment, or for long term storage of value (kind of like how people invest in gold). 

Ether is not as popular as BTC for purchasing goods. At the moment ether is mainly being used by developers building applications on top of it. Over time, and as more apps are developed, the value of ether will likely move from being speculative (as it is now), to more useful in everyday life. 

How to storage bitcoin and ether 

Once you buy digital currency you’re going to want to store it in cold storage (this is a much more secure place to store your currency. Exchanges like Coinbase are where you want to buy currency, but after you purchase the currency it is not advisable to leave your money at the exchange.)

Bitcoin, ether and many other types of coins can be stored on a cold storage option like Trezor or a Ledger.  If you’re serious about buying, sending, or storing larger amounts of cryptocurrencies I’d suggest you pick one up.

Bitcoin vs. Ethereum: Want to learn more?

I teach about Bitcoin and Ethereum at Columbia University’s Business School. And also teach online with One Month.

Join my online Bitcoin and Blockchain tutorial or leave a comment below if you have any questions!

 

Up next: Bitcoin vs. Litecoin

bitcoin vs. litecoin

 

What are smart contracts?

Smart contract: a digital agreement where you can programmatically code “if this” happens, “then something else happens.”

For example, you could write a smart contract to replace your paper contract for something like a mortgage, loan, employment agreement, smartphone payment installment term, or a terms of service agreement.

vitalik-buterins-amazing-tshirt-techcrunch-disrupt

Glasses-wearing cats riding unicorn llamas, UFOs, and rainbows represent
Ethereum co-founder Vitalik Buterin’s vision for smart contracts.

 

Ethereum isn’t the only early-stage smart contract platform in existence right now (e.g. Blockstack is an up-and-coming contender), but for now Ethereum has first-mover advantage and a market capitalization currently second only to Bitcoin, so for this article we’ll focus exclusively on Ethereum and its rapidly emerging ecosystem.

Bitcoin has some very limited scripting capabilities, but the core functionality of Ethereum lies both in its blockchain design and use of its Ethereum Virtual Machine (aka. EVM, and commonly described as a “world computer”).

ETH-landing-page

Behold! WORLD COMPUTER.

 

The EVM operates similarly to Bitcoin in that its decentralized nodes are connected by a peer-to-peer networking protocol. Beyond that, the EVM offers opportunities for much more complex computation than Bitcoin.

Bitcoin is a protocol designed specifically for payments, whereas the EVM is “Turing-complete” (meaning any computation run on one EVM node is able to be run on another node), and any smart contract instruction set runs on each one of these nodes. Similar to functions, smart contracts can call other smart contracts, creating a complex ecosystem.

The ether token, through the use of “gas”, is designed to be the fuel that pays for the execution of these smart contracts.

The EVM allows for the development of decentralized applications (dapps), therefore greatly extending the usefulness of blockchain technology.

The Ethereum Foundation documentation refers to this dapp platform as “Web 3.0”, a backend for a new kind of decentralized and secure internet.

matrix-image

Whoa.

Pros and Cons of Smart Contracts

As with any major new technological innovation, it is difficult to foresee exactly what the most popular use cases will be, and also how unexpected bugs affect the system.

Pros:

  • Decentralized: removal of single points of failure with workflows such as VPNs (dramatic privacy improvements vs.centralized VPNs), distributed computation (imagine an Amazon Web Services-like platform that pays you for free CPU cycles on your computer), and distributed storage (imagine a Dropbox-like platform where you get paid to host small, encrypted shards of someone else’s data)
  • Inclusive: Anyone can write a smart contract, it’s not just for big companies, or the coding elite
  • Intermediary-free: Smart contracts replace expensive intermediaries from contract negotiation and execution
  • Income: Many smart contracts are pay-to-use, with you as a prospective service provider receiving the platform’s token as payment

Cons:

angry-crowd-with-pitchforks

The pitchforks come out when there is major community disagreement, such as Ethereum’s decision to hard-fork after the disastrous 2016 DAO hack.

  • Hacking: Smart contracts have a large attack surface, evidenced by major hacks as was the case with The DAO Hack and multiple Parity wallet multisig hacks
  • Irreversibility: Major hacks destabilize the ecosystem both technically and economically because value transfer between smart contracts is generally irreversible
  • Unintended consequences: Smart contracts are a very permanent form of agreement and current technology does not include essential elements of a mature legal system, such as appeals, arbitration, and mediation

The smart contract space is just now beginning to set a rubric for security best-practices, ICO critiques, and many other key guidelines necessary to producing a healthy ecosystem.

Current Examples of Smart Contracts

Ethereum Name Service

Have you ever seen an ether address? A checksummed address looks like this:

0x7cB57B5A97eAbe94205C07890BE4c1aD31E486A8

For most people this is very difficult to read, and blockchain addresses in general tend to look similar. The ENS fixes all this through its smart contract, which is also interacted with via an ether address. The goal of the ENS is to radically improve the internet’s current domain name system with addresses that appear similar to email, such as “onemonth.eth”.

Initial Coin Offerings

ICOs allow startups to raise massive amounts of capital in incredibly short time periods compared to the traditional venture capital method. Even companies without working prototypes have raised millions in the span of days, without any vetting from educated investors. ICOs have their own pros and cons which are worthy of a separate article.

There are a few promising projects, and a massive amount of scams. ICOs have dramatically impacted the tech industry in just this past year. Startups and venture capitalists are working as fast as they can to leverage this new method of fundraising.

Ethereum’s 2014 pre-sale is commonly considered the first ICO. Most ICOs create ERC-20 tokens, a standard that enables token transfer on Ethereum’s blockchain.

Decentralized Exchanges

For most people it is convenient to purchase tokens on user-friendly exchanges such as Coinbase, Bittrex, Bitfinex, and many others. One of the core value propositions of blockchain technology however, is that it is decentralized, and centralized exchanges are a point of vulnerability, as was brutally demonstrated by the 2014 Mt. Gox hack.

Centralized exchanges are also running into issues with regulatory bodies like the SEC all over the world and due to legal concerns do not always list in-demand ICO tokens when they become available for trading. China, for the moment, has banned both token exchanges and ICOs entirely. There is much ongoing debate regarding how regulators should treat blockchain-based assets and the exchanges on which they are traded.

Enter the decentralized exchange: an automated exchange that serves any jurisdiction. There are a couple to pick from currently, and more on the way every day:

Conclusion

Smart contracts are an innovation that are here to stay. However, the technology is immature and needs better scaling and security. Much learning is required to get up to speed on what happened, what’s currently happening, and what trends to expect. We’re here to help you grasp what this brave new world means for you, and for society in general.