In the media, the terms Bitcoin and Ethereum are as tightly associated as chair and table. Also, there is consensus among investors that these ‘crypto blue chips’ are the most investable coins. But that obscures the fact that Bitcoin and Ethereum are very different. In what sense?
Did I just say consensus? That’s a utopian notion in a world as tribal as crypto. Hardcore Bitcoiners wouldn’t even utter the word Ethereum in the same sentence as their favorite project. And they wouldn’t call Bitcoin ‘crypto’, for fear of being associated with the slew of projects that use comparable technology but are fundamentally different.
Might there be a kernel of truth to this distinction? Might Bitcoin be in some sense different from all the other projects, including Ethereum? Yes. And does this mean that Ethereum is just a copycat of Bitcoin? Not at all.
The Key Difference Between Bitcoin and Ethereum
Let’s have a look at the first sentence of Satoshi’s whitepaper:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
This sums up quite a bit of what we need to know.
Now let’s have a look at what it says in Ethereum’s whitepaper, in the first paragraph:
“What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” […]”
Whoa. That’s a different ballpark. Let’s compress it even further, to get a broad-stroke approximation of the difference:
- Bitcoin is digital hard money that you can own and transact without permission.
- Ethereum is a software development platform for financial applications.
The Key Similarities Between Bitcoin and Ethereum
Now, let’s look at some broad similarities:
- Both Bitcoin and Ethereum are currencies that can be used withou needing anyone’s permission.
- They both use blockchain technology.
- They are both founded on the principle of mining to protect the network.
Different Use Cases of Bitcoin and Ethereum
Now let’s descend from the realm of abstract definitions. What are the use cases of both projects?
Bitcoin’s Use Cases
Bitcoin is used as a ‘savings account in cyberspace’. It makes ownership possible of money that can’t be confiscated by a government. This protects people’s money under oppressive regimes or countries with high inflation. Like with physical gold in your own vault, owning it comes without counterparty risk. Also, through Bitcoin’s Lightning network, people can do fast (within seconds) transactions that can’t be reversed (final settlement).
Ethereum’s Use Cases
Ethereum is the ‘digital commodity’ that powers different financial apps and online economies. Currently, the most prominent use cases are:
- Stablecoins: the majority of stablecoins are issued on Ethereum. People use stablecoins to protect their crypto gains. And for people without access to the dollar, dollar stablecoins are a great way to get dollar exposure.
- Decentralized Finance: decentralized exchanges (dexes) like Uniswap mediate lending, borrowing and trading directly between wallets, without an intermediary. These financial services are fast and permissionless. Many dexes run on Ethereum.
- NFTs: certificates of ownership of anything, but predominantly online…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
