Bitcoin vs Ethereum: Comparing the Two Blockchain Giants

There are many different ways to compare Bitcoin vs Ethereum. Investors can look at differences and similarities in scalability, security, decentralization, adoption, or community. If one thing is for certain, the two are inextricably tied together as the industry brand names at the moment.

It’s ironic how similar they look from the trading perspective. BTC and ETH make 60% of the average global market cap and a combined 60% of market dominance. But when it comes to fundamental analysis, other than both being blockchains, one has little to do with the other.

How are such different projects close competitors? Could Ethereum flip Bitcoin? Could we see a new “Bitcoin” outperform both?

Let’s compare Bitcoin vs Ethereum to find out.

BTC Fundamentals

Bitcoin is the first popularized cryptocurrency, which is why it has the largest market capitalization and trading volume. The anonymous creator (known as Satoshi Nakamoto) designed this public-blockchain currency as an alternative payment system. A revolutionary achievement at the time that now means very little, given that 1000s of tokens have this feature.

Still, Bitcoin has the highest adoption by far. It’s also the most stable cryptocurrency (arguably more than under-collateralized stablecoins) because of its market size and secure technology. You can now use Bitcoin on exchanges, BTC ATMs, online stores, payment service providers, and even local businesses.

It’s the first successful use case of proof-of-work (PoW).

PoW is a consensus mechanism used to decide how and who should verify transaction blocks. The Bitcoin algorithm requires validators (computers) to solve a mathematical puzzle via trial and error. The first validator that gives an approximate solution wins the block and updates the official blockchain.

In PoW, we call this process Bitcoin mining. The winning validator earns rewards for every block (e.g., 12.5 BTC plus transaction fees), which adds to the circulating token supply. There are currently less than 21M Bitcoins, which is the maximum supply.

As we approach that number, mining becomes more expensive (just as it does for cyber-attackers). Bitcoin consumes +0.55% of the global electricity production. So while PoW is safer, it’s nowhere as efficient as Ethereum’s model.

ETH Fundamentals

If Bitcoin is the first blockchain payment system, Ethereum is the first utility token. Trading Bitcoin is sending money. Trading Ethereum is leveraging developer features.

Simply put, Ethereum helps to build other crypto projects. Developers no longer need to design all blockchain infrastructure. They can borrow features from the ETH blockchain by paying ETH (AKA gas fees). Vitalik Buterin launched Ethereum in 2015 and is the smart-contract pioneer.

Smart contracts are programs that integrate blockchain features (like payments) for any application. Because it’s autonomous code, smart contracts are faster, cheaper, and safer than traditional 3rd-parties. Not only developers can build on Ethereum but build Ethereum itself because of Proof-of-Stake (PoS).

The PoS is a probabilistic consensus algorithm based on token contribution (instead of processing power like PoW). It involves buying Ethereum and locking the amount for a time period (AKA staking). If you stake 50% of ETH’s total-value-locked (TVL), you get a ~50% chance of winning the block.

High TVLs make cyberattacks more expensive and unlikely, which is why users receive interest rewards when staking large amounts for months.

As a developer-focused blockchain, Ethereum has created the largest dApp marketplace (decentralized applications) to date. Ethereum isn’t popular because it’s especially useful, but because it has the most use cases: exchanges, DAOs, games, NFT marketplaces, and infrastructure extensions (better known as layer-2 solutions).

Key Similarities: Bitcoin vs Ethereum

Here’s what Bitcoin and Ethereum have in common, from the most to least obvious:

They have similar market stats

According to CoinMarketCap:

• The market cap of BTC has been $1.2T – $0.4T. ETH ranges from $0.55T – $0.15T
• All-time-highs are $69,045 for BTC and $4,878 for ETH
• ROI when buying at all-time-lows is 32,049% for BTC and 263,734% for ETH. One more reason ETH might flip BTC in the future
• BTC and ETH have a circulating supply of +19M (21M cap) and +121M (no cap)
• There is an average 24h volume of $40M of BTC and $25M of ETH

Numbers will be more alike over time because BTC and ETH are 75% correlated.

They have correlated prices

Bitcoin and Ethereum are popular choices when looking for “safer” investments. They have lower volatility, higher capitalization, and more trading pairs. 

In fact, these pairs bond the liquidity of BTC and ETH, which is one reason for their price correlation (also known as the Heart’s law). It’s no coincidence that many altcoins have BTC and ETH pairs. Every coin that has a BTC or ETH pair (including ERC-20 tokens and NFTs) moves with its price.

They’re blockchain pioneers

BTC and ETH have the first mover’s advantage in cryptocurrency and blockchain tech. Ethereum is the smart contract pioneer and Bitcoin is the first currency. Innovation is the reason similar projects weren’t as successful (LTC, ETC), even though they were early in the market.

Both blockchains undergo periodic updates based on community suggestions. e.g., Bitcoin Taproot Upgrade and Ethereum 2.0.

They share similar infrastructure

While Bitcoin and Ethereum have different uses, the infrastructure isn’t that different. Both blockchains are decentralized, permissionless, and public. Before the 2.0. version, Ethereum used proof-of-work like Bitcoin.

Also, both blockchains have added value to finance regardless of prices. Bitcoin leads to crypto adoption, as it’s the first interaction most people have with blockchain. Ethereum leads DeFi, and powers promising projects like Pulsechain, HEX, and LiquidLoans.

They have scalability limitations

Ironically, innovation can be a burden. Early projects are rarely scalable. And while they both improve based on regular updates, they’re not upgrading fast enough compared to newer altcoins.

Modern blockchains often offer <$0.01 fees and <1s of block time. Bitcoin fees are reasonable, but it takes ~10 minutes to validate one block. Ethereum has a block time of <10 seconds, but fees are as unreasonable as $40-$400 per trade.

See Blockchain Trilemma

Key Differences Bitcoin vs Ethereum

Bitcoin might have ruled the markets so far. But past performance doesn’t guarantee future results. To find out which one is viable today, let’s compare Bitcoin vs Ethereum:

Network Performance

On average, Bitcoin transaction blocks take 10 minutes and weigh 1MB. Ethereum blocks take 10 seconds and weigh ~80KB. There are over 350,000 ETH validators and ~15,000 BTC validators.

Ironically, network performance affects Ethereum the most. Even with proof-of-stake, network fees aren’t nearly as competitive as other blockchains and Ethereum L2s. This means that zero-fee blockchains will have more applications and eventually outgrow the ETH marketplace.

In comparison, Bitcoin is inexpensive. It’s also possible to reduce block time in future updates. Not without challenges: scalability, validator rewards, and mining efficiency.

Algorithm Efficiency

As the circulating supply approaches 21M BTC, mining becomes inefficient. Regardless of how long that takes, BTC block rewards are already halving every four years. As validators earn less, they need more electricity and mining devices to operate, which isn’t sustainable.

While Ethereum isn’t the most efficient blockchain, it has massively improved since 2020’s upgrade. Validators went from mining ETH to staking ETH2. Ethereum now saves 99% of power consumption since it abandoned PoW.

Utility

What’s Bitcoin for someone uninterested in crypto? An alternative payment system, a way to store value, a market benchmark, and little more. 

What about Ethereum? You can use it to build Web 3.0., the Metaverse, P2E video games, DeFi apps, NFT marketplaces, and anything entrepreneurs can come up with. At its default, Ethereum helps to build better blockchains, from L2s like Polygon to forks like Pulsechain.

The Problems With BTC

You may have wondered: when will Bitcoin reach $100K, when $1M? The higher your target prices, the more influence comes from the project’s fundamentals. And Bitcoin has a LOT left to improve:

• Low throughput: Without scalability, adoption can only help the Bitcoin price so far. Every block mined slows down transaction speed because of hash difficulty. Depending on demand, transactions take anywhere from 7 minutes to 3 hours.
• Spaghetti code: Unlike Ethereum, there’s no defined developer team behind Bitcoin. Every update is an amalgamation of code, often with many dependencies and no cohesion. Not only is it inefficient but hard to debug.
• Platform hacks: There’s no doubt that Bitcoin’s proof-of-work is safer than proof-of-stake. The problem isn’t the network, but the way people store their crypto (custodial wallets). When first-timers buy Bitcoin, it’s often on centralized exchanges, which is far riskier than a Web3 wallet.
• Close-minded community: The future of Bitcoin will NOT be sustainable, because the community refuses to abandon PoW. Bitcoin maximalists also tend to overlook potential “Bitcoin killers” with more use cases outside payments. It’s hard to think outside money when that’s all your blockchain does.
• Weak incentives: Bitcoin only offers financial incentives to validators. Since money rules decisions, users often create mining pools and centralize the network. Imagine what would happen to the already-low performance once they mine the last Bitcoin.

The Problems With ETH

If Ethereum didn’t have any problems, there wouldn’t be as many forks, L2s, and smart-contract competitors. ETH might reach five figures, but will it stay on the crypto podium? At least one of the following needs attention:

• Below-competitive gas fees: Ethereum has successfully reduced fees from $100+ to under $50 after years of development. While that’s no small feat, we won’t see gas fees below $10 in a while. Every day, smart-contract competitors are gaining ground, offering $0.50 to $0.00025 in fees.
• Scalability issues: Even with Ethereum 2.0, it seems scalability will be a recurrent problem for years. It’s not that ETH isn’t scalable. It’s that Ethereum has unsustainable growth rates because of all emerging movements: DeFi, NFTs, Metaverse.
• Network congestion: Even if Ethereum reduced fees, they’d be just as volatile because of congestion. In critical market moments, overpriced quotes and failed transactions can counter the best trading strategy. Layer-2 blockchains are temporary solutions.
• Low security: With enough ETH and a bit of luck, big validators could dominate the network. If you’re the largest holder, you get the highest staking rewards, so it’s a matter of time before one user controls 50% (if not +80%) of the network. Not everybody has 32 ETH to become a validator, and those who do might team up.
• Unlimited supply: It’s unclear what an inflation bug would do to Bitcoin. On Ethereum, not only would it cost millions of dollars but could send ETH prices to zero. Along with every project built on it.

What Is Pulsechain and Why Is It Better?

If you get bored comparing Bitcoin vs Ethereum, PulseChain is here to save the day. Both BTC and ETH have their own mountains to climb and are far from perfect.

Bitcoin received the Taproot upgrade in 2021, so there’s not much coming in the next few years (let alone replacing PoW). Ethereum 2.0 started in 2020 and finishes this 2022 with “the Merge.” What’s next is the launch of an anticipated ETH hard fork, Pulsechain.

Pulsechain is a copy of the Ethereum network and all of its ERC-20 projects. 

Once live, it could increase the throughput of ETH by four times, reduce fees on both chains, and increase the Ethereum price. ETH users that join this efficient network will get copies of all their tokens on Pulsechain. Unlike ETH’s 0.51%, PLS has no inflation, so it’s safer to hold, stake, and yield-farm.