Software & Apps Cryptocurrency Ethereum vs Bitcoin Cryptocurrency: What's the Difference? Bitcoin is worth more, but Ethereum provides more innovation by Ryan Dube Writer Ryan Dube is a freelance contributor to Lifewire and former Managing Editor of MakeUseOf, senior IT Analyst, and an automation engineer. our editorial process Facebook Twitter LinkedIn Ryan Dube Updated on January 09, 2020 Cryptocurrency What Are Bitcoins? Tweet Share Email Bitcoin was the first cryptocurrency ever invented. Since its launch in 2009, it has led to a massive investment vehicle. There are Bitcoin addresses valued at $100,000 or more, with Bitcoin values hovering around $9000 per coin for the past few years. Ethereum arrived in 2015 and even though it's based on the same blockchain technology, it immediately became the second place competitor for cryptocurrency investment. Photographer is my life. / Moment / Getty Images However, the introduction of Ethereum brought the world more than just a new digital currency. It also introduced a new way for app developers to utilize blockchain technology for more than just coin transactions. Ethereum smart contract technology introduced an innovative approach for programmers to send data, money, and other transactions over the secure blockchain foundation. Bitcoin is still worth far more than Ether, but the technology introduced by Ethereum has led to numerous technological innovations far beyond anything Bitcoin ever offered. Bitcoin or Ethereum: Overall Findings Bitcoin Founded in 2009 by Satoshi Nakamoto. Main purpose was an alternative currency. Used for Initial Coin Offering (ICO) investments. Digital coin market leader. Ethereum Founded in 2015 by Vitalik Buterin. Main purpose was Smart Contracts. Used for Initial Coin Offering (ICO) investments. Blockchain innovation leader. Bitcoin was a breakthrough innovation in 2009, described in detail by its creator Satoshi Nakamoto in a detailed white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." The core purpose of Bitcoin was to provide people with an alternative currency that wasn't regulated or managed by any "middle man" like a central bank. Instead, all transactions are managed and stored on a large network of "bitcoin miner" nodes known as a blockchain. Ethereum was launched by Vitalik Buterin in 2015. It was built upon the same blockchain technology as Bitcoin, but transactions could include much more information known as "smart contracts". The core purpose of Ethereum was to use smart contracts, Ethereum's own token (Ether), and a proprietary programming language that runs on the blockchain. Ethereum technology opened the door to developers being able to build and run distributed applications on the blockchain. Before you make the decision to invest in any cryptocurrency, understand that the investment risks with cryptocurrency are far higher. There is also no insurance provided (like FDIC for savings accounts) in the case where the value drops significantly and you lose your entire investment. Base Currencies: Ethereum vs Bitcoin Bitcoin Launched as an alternative currency. Highest market value of all digital currencies. Not regulated by a central bank. Only simple notes affixed to transactions. Ethereum Launched to facilitate secure transactions. Second highest market value of all digital currencies. Not regulated by a central bank. Transactions include smart contracts for advanced applications. Currently, it would cost 46.20 Ether to purchase 1 Bitcoin. This difference varies daily, and many fans of Ethereum predict that Ether will hold the same or more value than Bitcoin. The Bitcoin currency is known as Bitcoin and was solely intended to serve as an alternative currency without a "middle man" like a central bank. It allows for anonymous transactions directly between the buyer and the seller. There aren't any physical coins changing hands, only balances tied to crytocurrency accounts, all stored in the secure public ledger. Ethereum currency is known as Ether. While transactions are also anonymous and take place digitally in the same way as bitcoin, each transaction can hold much more information than a Bitcoin transaction. This is because of the integration of "smart contracts" into every transaction. Developers of distributed applications can use the Ethereum platform and proprietary programming language to send, receive, or store information and data securely via the blockchain. Ether currency essentially fuels those transactions. Blockchain Algorithm: Ethereum is More Efficient Bitcoin Uses SHA-256 block algorithm. Transactions take up to 10 minutes. CPU intensive mining. Ethereum Uses Ethash block algorithm. Transactions take up to 12 seconds. Memory intensive mining. In order to understand the difference between how Bitcoin and Ethereum creates anonymous, secure transactions, it's important to understand what a hash is. A hash function will take in text and convert it, using a unique cryptography algorithm, into a number. This number serves as a digital signature and authentication for the coin transaction. Bitcoin is based on the SHA-256 algorithm, which creates a 256-bit key for the transaction. The algorithm is CPU intensive, which means that bitcoin miners require system hardware with very powerful processors. This also means that processing time is extensive, up to 10 minutes per transaction. Ethereum is based on the Ethash algorithm. This algorithm is actually based off two that came before it, one called Dagger and a second called Hashimoto. It's designed to be memory intensive rather than CPU intensive. Because of this, blockchain processing time is much faster; roughly 12 seconds. It also allows Ether mining by miners with light (less-powerful CPUs) is also made possible. Blockchain Features: Ethereum Drives Innovation Bitcoin Simple transactions can only include notes. Based on secure distributed ledger technology. Depends only on nodes (miners) and no third party. Ethereum Uses smart contract technology. No third party interference. Provides developer with extended blockchain operations. Every blockchain, including Bitcoin, provides developers with the ability to process their own code against the blockchain. This means the Bitcoin blockchain allows for application development, but that development is extremely limited. It requires an in-depth understanding of cryptography and mathematics. Ethereum, on the other hand, provides app developers with a powerful platform and programming code. Without deeper understanding of cryptography, it allows developers to create programs that use smart contracts to exchange money, information, or anything else over the secure environment of the Ethereum blockchain. A smart contract can run on the blockchain securely, and without the possibility of third-party hacking or interception. Some examples of how this technology can be used: Ultra-secure transmission and storage of email,Trusted real estate transactions without the requirement of an escrow company.Shipping tracking without the potential for fraud or document manipulation.Secure identity security.Voting technology that prevents the possibility of fraud or tampering. Beyond any other blockchain technology, Ethereum enables advanced applications that deliver secure solutions beyond anything possible without the blockchain. Final Verdict While Bitcoin is clearly the winner in terms of market value, in terms of technical advancement and future innovation, Ethereum leads the way. Ethereum may have been invented much later than Bitcoin, but it reduced the need for computing transaction power, enabled faster transaction time, and served as a platform for future software innovations on an ultra-secure platform. Bitcoin may have been the founding of all future cryptocurrencies, but Ethereum is clearly the future.