What is the Difference Between Bitcoin and Ethereum?


If you've been following Bitcoin for a while, you might have heard the term Ethereum pop up frequently in recent years. What does it have to do with Bitcoin, you ask? Well, while Bitcoin and Ethereum have similar technologies at their core, they each have very different aims.

They are both based on blockchain technology, which is a distributed and decentralized shared ledger that is both transparent and essentially impossible to alter. The technology was originally developed for Bitcoin as the basis of the digital currency. That's essentially all Bitcoin is–a digital currency that has many advantages over traditional forms of money. It can be used for buying and selling goods and is already accepted by a huge number of online businesses. One of the downsides of Bitcoin is that as the first currency of its kind, it faces an uphill battle from international regulatory bodies.

Ethereum aims to solve completely different problems. Sure, it is powered by a token called ether and it can also be used to create other currencies, but at its core, Ethereum is much more. Ethereum takes blockchain technology in a completely different direction, using it to create a distributed computing platform. One of the key features of Ethereum is its smart contract functionality, which can help to facilitate and enforce contracts.

Distributed Applications

At the core of Ethereum are distributed applications. These use the decentralized and transparent nature of blockchain technology to avoid downtime from crashes, keep third party interference out and avoid fraud. Ether is used as a way to distribute resources between applications.

Distributed Autonomous Organizations

Let's say you have a great idea for a new tech startup, but you have no money. You're a nobody with a big dream, so you can't get any venture capital. You could turn to Kickstarter or IndieGogo, but they take a big cut of your budget in fees–up to 10%–and they might interfere with your project. The good news is that with Ethereum, you don't need them anymore. You can take your idea to the Ethereum community and use the platform to set up a Distributed Autonomous Organization (DAO).

With a DAO, Ethereum can provide the structure for your organization. You can copy the code from Ethereum's website to create your own currency, which can be used as proof of membership and to represent shares. It allows members to put forward their own proposals and then vote on the direction of the project, bringing democracy to businesses and other organizations. This system helps to reduce the bureaucratic costs associated with traditional organizations. Smart contracts facilitate and enforce the agreements of the project, which helps to avoid the cost and interference associated with lawyers, courts and the police.

The Final Word: Bitcoin vs Ethereum

There are a few other differences between Bitcoin and Ethereum, such as the programming language that they are based on, as well as the blocktime, but these are technical details rather than big picture concepts. The most important distinction between the two is that Bitcoin is essentially just money. Ethereum, on the other hand, is a platform that aims to facilitate applications, projects and organizations using blockchain technology instead of traditional institutions and authorizing bodies.