Looking to invest in cryptocurrency and maybe diversify your retirement portfolio? Bitcoin and Ethereum are two of the most popular cryptocurrencies in the world. But which one is better? Here’s a look at the key differences between Bitcoin and Ethereum.

What is Bitcoin?

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.

What is Ethereum?

Ethereum is based on blockchain technology, which is a secure digital ledger of all cryptocurrency transactions. Blockchain technology is often described as a “distributed trust infrastructure,” meaning that it allows for different parties to come to a consensus about the state of a ledger without the need for a third party.

Bitcoin’s blockchain design has inspired other applications beyond currency, such as smart contracts and decentralized autonomous organizations. Ethereum builds on these applications and allows for more sophisticated smart contracts that can run on a decentralized network of computers.

Smart contracts are computer programs that automatically execute when certain conditions are met. For example, a smart contract could be programmed to release funds to a contractor once the contractor has completed a project.

Decentralized autonomous organizations (DAOs) are organizations that are run through rules encoded in computer code and that exist on a decentralized network of computers. DAOs are designed to be trustless, meaning that there is no need for a central party to administer them.

Ethereum’s ability to run more sophisticated smart contracts than Bitcoin has led it to become the leading platform for initial coin offerings (ICOs). ICOs are a way for startups to raise money by issuing their own cryptocurrency. Over $1.5 billion has been raised through ICOs to date.

Though Ethereum has been around for less than three years, it has already established itself as one of the most important cryptocurrencies in the world. Ethereum’s blockchain technology has the potential to revolutionize many industries, and its applications are far from being exhausted. Here are resources to learn more about Ethereum:

Ethereum Foundation

Coindesk

CoinCentral

What are Proof-of-Work and Proof-of-Stake?

Proof-of-Work and Proof-of-Stake are two different ways of reaching a consensus for transactions on a blockchain. The main difference is that Proof-of-Work requires computing power (and energy), while with Proof-of -Stake input of the user (in the form of his wallet) is enough.

Proof-Of-Work (Bitcoin)

Block creators get block rewards proportional to the number of transactions inside the block.

Therefore: A high transaction count and high fees = More money earned by miners.

The Proof-of-Work system is more complex, but it is also more secure because it requires more effort (computational power) to attack the network.

Proof of Work was first proposed by Satoshi Nakamoto in his white paper on Bitcoin: “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.” He designed Bitcoin to use a proof-of-work system to prevent people from creating fraudulent blocks and forging transactions. Bitcoin miners use special software to solve mathematical problems and earn rewards for verifying and committing transactions to the blockchain.

Proof-of-Stake (Ethereum)

The block creator gets block reward, this reward has nothing to do with the number of transactions inside the block, but only depends on how much does each user stake (how many coins they stack in one address).

Therefore: A low transaction count and low fees = Money earned by staking users.

Proof-of-Stake was first proposed by Sunny King in his white paper on Peercoin: “Peercoin uses a proof-of-stake system to secure the network and mint new coins.” He designed Peercoin to use a proof-of-stake system to reduce the energy consumption of Bitcoin and to provide an incentive for people to hold onto their coins. Peercoin miners use their wallets to stake coins and earn rewards for verifying and committing transactions to the blockchain.

The Differences Between Bitcoin and Ethereum

Bitcoin is based on blockchain technology, while Ethereum is based on smart contracts. Bitcoin transactions are verified by miners, while Ethereum transactions are verified by nodes. Bitcoin has a limited supply of 21 million coins, while Ethereum has a total supply of 100 million coins.

Bitcoin is more popular than Ethereum, but Ethereum has more potential uses. Bitcoin is more than Ethereum, but it is also more complex. Bitcoin is more expensive than Ethereum, but it is also more stable.

So which one is better? It depends on what you need. Bitcoin is more popular and more stable, while Ethereum has more potential uses. If you want a currency that is more stable and has a higher value, then you might see Bitcoin as the better choice. If you want a platform for building decentralized applications, then you might see Ethereum as the better choice.

Disclosure: There are risks associated with buying and investing in bitcoin and cryptocurrency. We are not financial advisors and this should not be taken as financial advice. Please do your own research and due diligence before purchasing and investing in Bitcoin or any other cryptocurrency.

 

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