We live in a world that is constantly making efforts to innovate to the next level — and the past twenty years have seen remarkable progress in technology than in any other time frame, evidenced in how we moved from the Nokia 3310 to the iPhone X, from the first Snake game to the Candy Crush Saga. From hereon, what will the future hold? Will we successfully move from paper currencies to digital currencies? Will FinTech terms such as Bitcoin and Ethereum become household names?
What are Bitcoin and Ethereum, anyway?
While both are part of the transition to digital currencies and are known for their sporadic behavior, they are two completely different things. Below are the two main distinctions between them in terms of form and function.
1. Form: Bitcoin is rigid; Ethereum is flexible.
Bitcoin was designed to act as a secure peer-to-peer decentralized payment system. All transactions are shown on a public ledger — called the blockchain — and this ensures that the transaction is legitimate. Bitcoin uses C++ programming and cycles through only seventy specific commands. The limited makes it more difficult to hack the blockchain within those set commands, thereby providing more security.
Ethereum, on the other hand, was built to allow flexibility and to provide the ability to program a wide variety of smart contracts within its system. This is why Ethereum is written in Turing complete language, which includes seven different programming languages — a significant leap from Bitcoin and its seventy-command C++ programming.
Both currently operate on a proof-of-work basis, which means that miners are rewarded for solving complex mathematical problems (Bitcoin), or processing transactions and executing smart contracts (Ethereum). However, Ethereum plans on changing to a proof-of-stake model, which will change the reward system dramatically.
A proof-of-stake model will not have miners, but validators. They will be required to own ether and in order to validate a block, they must put their ether on the line to certify that a block is valid. It acts as a safeguard against malicious activity because in this setup, malicious behavior or invalid activity will take away the investor’s stake.
The overall takeaway with regards to their differences here is that Bitcoin has a rigid structure that encourages transparency and security, which is in line with its vision of replacing fiat currencies. Ethereum is the opposite — its open system means that it can be used to make apps that are easily accessible.
2. Function: Bitcoin is a digital currency; Ethereum is a series of digital contracts.
Bitcoin is a cryptocurrency, while Ethereum is a token. They function in different ways and are taking different paths — while Bitcoin competes with other cryptocurrencies to replace fiat money with a truly digital currency, Ethereum aims to become a Virtual Machine — a cloud-based decentralized computer that is used to form strings of code called smart contracts and build decentralized applications on its blockchain. In exchange for a fee, the Ethereum network will then execute the code for anybody who wants it.
Due to its widespread use and popularity, Bitcoin must deal with scams, fraud, and attacks crafted specifically to cripple its system. Examples of this are the breaches that brought down Sheep Marketplace and Mt. Gox. This, to add to its reputation as a medium for black-market transactions, makes it difficult for the cryptocurrency to stabilize.
Users are also worried about the risk they are exposed to in transaction fraud. A lack of standardized policy for chargebacks or refunds, as well as the decentralized structure, make it impossible for anyone to arbitrate disputes between users.
Ethereum also faces significant setbacks of its own — their most pressing issue is their vulnerability to attacks. Ethereum code that is published on the blockchain can unintentionally create loopholes and other vulnerabilities.
Since anybody can add anything to the Ethereum blockchain, this means it is also possible to add an application that will cause the blockchain to crash. This happened last September 18, when a specific smart contract on the Ethereum blockchain caused most geth and parity client nodes to crash at once. After the incident, the hash rate dropped by 12%.
In conclusion, Bitcoin is used as digital money, while Ethereum is used for the development of decentralized applications. While Bitcoin needs to deal with a lot of bad press and develop a system for refunds, Ethereum needs to work on its security so the potential for malicious codes to be uploaded on its blockchain is lessened.
Bitcoin and Ethereum have several practical uses in the real world — as a digital currency, Bitcoin is used as an alternative for people in unstable countries, failed currencies, or fraudulent banking systems. Some also believe that its mere presence incentivizes companies to work on the efficiency and affordability of their services.
People look to Ethereum, on the other hand, to do things like revolutionize the healthcare system by becoming a storage system for everybody’s health records and advances in medical research. Such a system can be a huge help in researching for new vaccines against viral outbreaks — or maybe even preventing them before they happen. It can also make healthcare more accessible and efficient wherever you go, which is vital in an age where people have the opportunity or are required to travel constantly.
The video below explains how even governments are finding ways to power themselves through blockchain documentation, thereby increasing their efficiency and reducing the hassle of having to sort through piles of paperwork.
There are many things to look forward to in such a fast-paced environment — the development of Bitcoin and Ethereum in various sectors, despite its ups and downs, comprises the bulk of it.
Is this your first time hearing about them? Take your first steps into the digital currency by following their official Twitter accounts below:
The latest Tweets from Bitcoin News (@BTCTN). Official Twitter account forhttps://t.co/Jqtg9VTLxD Follow us for all…twitter.com
The latest Tweets from Ethereum (@ethereumproject). Open source platform to write and distribute decentralized…twitter.com