What is Ethereum and How is it Different from Bitcoin?

Last updated September 2017

It is unlikely that you’ve come this far without hearing a lot about Bitcoin. It is frequently in the news and has become synonymous with the concept of blockchain or cryptocurrency. This is unfortunate, because there are actually many other cryptocurrencies and blockchain dependent technologies that have been developed. Probably the most famous of these “altcoins”, as any coins that are not Bitcoin have been referred to, is Ethereum.

The differences between Ethereum and Bitcoin aren’t as simple as the differences between the US dollar and the British pound. The way each system is designed and what their end purpose is differs greatly between the systems.

On the highest level, Ethereum was actually invented and funded by a single company that has a small team headed by Vitalin Buterin. This team was able to choose bits and pieces of the design of different coins to come up with what they believe to be the best possible coin. Bitcoin was developed by the still anonymous Satoshi Nakamoto, but has been continually improved by a distributed team of miners and developers since its conception.

In terms of purpose, many of Bitcoin’s supporters see it as the route to a decentralized banking system. Usually the people who most fervently support Bitcoin have political beliefs about how the world should be run and dislike anything centralized (e.g. government, banking, websites that can be censored).

Ethereum is actually very different in purpose than Bitcoin, because it is so much more than a replacement for a fiat currency. It is meant to become a world computer of sorts that will run what the developers call “smart contracts” in order to add a blockchain element to anything that can be decentralized. Ether is the name of the coin that the system runs on, but Ethereum could potentially replace many of the centralized applications and functions that are so popular in society today.

This is why many argue that it doesn’t have to be a situation where one coin wins and the other loses, although there are still many overlapping functions that make it possible that they become direct competitors in the future.

Ethereum is relatively new and has a much smaller market capitalization than Bitcoin’s $10 billion, coming in at just below $1 billion. This should be taken in context when you realize that Bitcoin has been around for just over seven years and Ethereum has only just passed two years. Ethereum was designed for maximum scalability because the developers had the chance to look at everything that could be improved within Bitcoin and hardcode that into at the very beginning. It is possible changes will be made to Bitcoin that will allow for increased scalability, but when and if those changes are executed is not yet clear.

It is unclear whether these two systems are in direct competition with each other or if they can eventually complement each other’s strengths. Bitcoin seems to be around to stay, as it has survived many calamities and continued to grow stronger and receive more popular support. Ethereum has huge potential, but is still in the “start-up” stage and it will be exciting to see where it goes.