Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, potential investors should pay attention to some important distinctions.
Ethereum is described as “the world’s programmable blockchain,” positioning itself as an electronic, programmable network with many applications. The Bitcoin blockchain, by contrast, was created only to support the bitcoin cryptocurrency.
The Ethereum platform was founded with broad ambitions to leverage blockchain technology for many diverse applications. Bitcoin was designed strictly as a cryptocurrency.
The maximum number of bitcoins that can enter circulation is 21 million. The amount of ETH that can be created is unlimited, although the time that it takes to process a block of ETH limits how much Ether can be minted each year. The number of Ethereum coins in circulation is more than 118 million at the close of 2021.
One major difference that affects investors is how the Ethereum and Bitcoin networks treat transaction processing fees. These fees, known as “gas” on the Ethereum network, are paid by the participants in Ethereum transactions. The fees associated with Bitcoin transactions are absorbed by the broader Bitcoin network.
A significant way that Ethereum and Bitcoin are similar is that both of the blockchain networks consume vast amounts of energy. Each of these blockchains operates using the proof of work protocol, which is a methodology that requires extensive computing power to validate transactions and mint new currency. Ethereum is gradually transitioning to a different operating protocol known as proof of stake, which uses much less energy.