Just what is the difference between Bitcoin and Ethereum anyway? (part 1)

One thing you'll know about the crypto space when you've been around long enough is that it can be a very tribal space. You're quickly labeled a "bitcoin-maxi" or a "shitcoiner" (pardon my français) and the whole space in general can be very daunting as a newcomer.

For me this has always made little sense, don't get me wrong, there are projects I like much more than others (and some I actively dislike) but in general I tend to position myself as "pro" things rather than "anti" things and as such, give little to no credence to coins I don't believe in.

For me I love bitcoin and I love ethereum for entirely different reasons. I would go as far as to say other than their use of blockchain they have very little in common. Lets have a look at what I think are the main USPs are for both coins (we'll break down the differences in part 2).

Bitcoin

The crypto OG, the grand-daddy of cryptos, the spark that lit the fire. Without Satoshi's bitcoin whitepaper in 2008 there's a very good case to be made that crypto wouldn't exist today. He proposed two things in his whitepaper that became synonymous with each other for a while (but no longer are) and those are blockchain and bitcoin. It's important we treat them separately.

Blockchain

The technological part of the paper. A way of linking information together. From a high level each transaction gets grouped into a block and each block then needs to be verified (by using what is called a consensus algorithm). Each block then uses a hash (a way of condensing lots of data into 1 big number) as input into the next block. This means that the next block's hash will be dependent on the previous blocks data not having been manipulated. This is where the tech is powerful because data and transactions from previous blocks cannot be changed without invalidating the whole chain and the people validating a block (coming back to consensus algorithm thing) would spot a bad actor trying to manipulate the chain. Btw in bitcoin these all round good guys making sure everything is legit are called miners in bitcoin and validators in ethereum.

Bitcoin

The financial part of the paper. This looked at the irresponsibility of big banks back in the 2008 housing crisis. It said never again. It said we need a system on money that we are in control of. We need a system where central entities like banks cannot use our money with wanton disregard of the consequences. It proposed a way whereby using cryptography each transaction from person A to B is stored in the blockchain and to add an entry you need to have a key. This key is linked mathematically (or cryptographically if you want to get fancy) to an address. Think about your house, you can build a house wherever you want and anyone can see it but only you can unlock it with your key. Voilà, in "crypto speak" those are private keys and public addresses.

The second and important part of bitcoin is the supply is limited. In economics this is called scarcity. There will only ever be 21 million bitcoin in existence and there can never be more. When you hear people saying bitcoin is an inflation hedge it's because our fiat money (money like US dollars, euro or the British Pound) can have it's supply increased by the government (they do print money after all). This is a big factor in inflation which is the process of your money becoming less valuable over time, after all, if you have $100 dollars today and there are $500 in the whole world, you own 20% of all the money. You make more money and now you have $100 out of $2000 then you own 5% of all money and things cost more. Bitcoin protects against this which is why it's sometimes called digital gold (you can't make gold and there's only so much on earth so it is also scarce).

Ethereum

Ethereum was created by a small team of people who were all massive bitcoin fans. But it wanted to do something different. While bitcoin wanted a limited supply and focused on being an actual currency, ethereum wanted to be the decentralized developer paradise. The thought was to use a blockchain just like bitcoin, but instead of (only) transactions being recorded in a block, actual applications (called smart contracts) could be kept in blocks too. These applications are limited in scope but allowed people to put their inventions up on the blockchain and ensure against them ever being removed (remember how I said you can't change the data in a block without invalidating the whole chain).

Think like this, lets say I wanted to create an application that would send ethereum to someone after 24 hours. I could write these rules into a contract and deposit my ethereum into said contract. After 24 hours the recipient could claim the ethereum in the contract, if they tried earlier the contract would reject it. This is a very simple and rudimentary example but there are lending/borrowing sites, betting sites and even decentralized exchanges which all exist as smart contract based applications on the ethereum blockchain.

There's a lot more to ethereum but I will save that for another blog post.

Summary

Congrats if you've made it this far. There will be a part 2 that does a head to head comparison of the two chains/coins but hopefully so far if you've understood this article you can see that in fact these two chains do not pose a threat to one another, quite the opposite, they live in relative peace and harmony.

Stay tuned for a part 2