Cryptocurrency has taken over the planet with buzz and promise for a decentralized method for transactions. Well before Bitcoin or Ethereum emerged and became household words and the topics of heated debate, other cryptographers attempted to create a freer money system.
Before the anonymous Satoshi Nakamoto released the blueprint for what we know as Bitcoin, a cryptographer named David Chaum took at crack at the glass ceiling.
Back in the 90’s, David Chaum launched an anonymous system he called ECash. Perhaps what led to the system’s demise was the structure’s foundation still relied on traditional financial institutions (i.e. credit cards). Offspring of this effort included other forms of new currencies such as BitGold, B-Money, and RPOW; all failed.
These early minds on the right track were unable to hurdle specific challenges in using digital money. Among those challenges were two major obstacles: decentralization and double spending. To avoid double spending, the digital currency user needed to use a third-party clearing house which wouldn’t really work for a system in need of independence from any outside financial institution.
Out of the innovations brought about by Chaum and other cryptographers came Bitcoin in 2008.
Bitcoin was developed by an anonymous creator known only as Satoshi Nakamoto. A white paper was released demonstrating the promise of lower transaction fees to use Bitcoin than pre-established fiat currency through traditional financial systems. The use of the cryptocurrency would operate through a decentralized authority without the use of a physical item. Bitcoin is used and exchanged via public and private keys.
The technology powering Bitcoin and, nowadays, numerous other activities, is well known today as blockchain.
Blockchain isn’t just for cryptocurrency; more and more industries see value in the possibilities of the technology to improve efficiencies and securities.
An actual “blockchain” refers to a public ledger of all transactions within a given system which have never before been executed. The counting of transactions create the ever-growing and completed “blocks” of data in the chain. These blocks are organized in a linear, chronological method with tamper-proof cryptography to dissuade manipulators. Blockchain promotes the ability to work at lower costs with heightened regulatory compliance, less risk, and impressive efficiency.
Bitcoin has inspired more than blockchain applications to other industries; Ethereum is another form of cryptocurrency with a twist on blockchain use.
During 2015, Etheruem entered the crypto scene and is now the largest open-ended decentralized software platform which brought about another security asset; smart contracts and Distributed Applications (ĐApps). These systems operate with zero downtime, control, fraud, or interference from a third party institution.
Co-founder of Ethereum, Vitalik Buterin, responded to Bitcoin Magazine when asked about his inspiration behind his digital platform saying,”I thought [those in the Bitcoin community] weren’t approaching the problem in the right way. I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.”
Ethereum is multifaceted; this digital platform is also a unique programming language operating on a blockchain in order to assist those who wish to build and publish distributed applications. The application potential is tremendous and run on Ethereum’s specific digital coin, Ether. Ether can be used like other digital tokens and is also used within the Ethereal system to run applications and monetize work.
Here’s a breakdown of the basic differences between Bitcoin and Ethereum:
- Bitcoin permits only public transactions; Ethereum allows for both permissible (public) and permission-less (private) transactions.
- The average block time for Ethereum is 10 seconds to Bitcoin’s 12 which makes way for more block confirmations.
- Ethereum employs a “proof of stake” system whereas Bitcoin makes use of the “proof of work” system to confirm transactions.
- In essence, there are more Ether coins then Bitcoins; estimates indicate only half of Ether will be mined by 2021 whereas most of the Bitcoins, capped at 21 million, have already been mined.
- Perhaps most significantly, Bitcoin trades cryptocurrency exclusively while Ethereum offers other methods of exchange in addition to cryptocurrency in the forms of smart contracts and the Ethereal Virtual Machine (EVM).
Which is the best cryptocurrency? Your priorities will decide whether Ethereum or Bitcoin is right for you.
The real question is: “What is the individual’s purpose for using digital currency or blockchain technology?”
Bitcoin was designed simply to be an alternative to regular money. Ethereum, on the other hand, has more layers on its unique platform for peer-to-peer contracts and applications through use of its own currency. Ethereum was not set up to only provide a method of transaction for those exchanging some form of currency for goods and services.
If you just want a way to pay for things with digital money, the remaining Bitcoins might be adequate for you to explore. However, if you want more out of the experience of using blockchain technology, Ethereum is in a better position to provide a unique, explorative, secure blockchain application experience.
To learn more about decentralized cryptocurrency and blockchain technology use, read Decentralized Cryptocurrency: What You Need to Know.