Bitcoin and Ethereum are among the more prominent cryptocurrencies – at least that is what some people believe. But in actuality, not both of these terms describe a currency.
While Bitcoin indeed is a cryptocurrency, Ethereum is a decentralized platform running smart contracts – and has in itself a digital currency associated to it: Ether. But that is neither here nor there – let’s jump into it.
If you break it down, Bitcoin represents a distributed peer-to-peer cryptocurrency. It is instantly and securely transferable in-between two parties – regardless how much distance lies between them. In its core, it is digital money you can send to any other user in the world.
Due to it being based on the blockchain technology (which you can find more about in our recent blog) it is completely safe to use, fast and immune to fraudulent attacks. While the blockchain technology is essential to the concept of cryptocurrencies, it is mostly associated with Bitcoin since it gained in popularity through Bitcoin coming to the general attention.
Bringing us to Ethereum – the term out of the two, that does not describe a cryptocurrency, but rather a so-called decentralized platform, focused on running smart contracts. A smart contract is a set of promises in digital form, that are associated with diverse protocols and prerequisites linked to the fulfilment of the contract.
Or, put easier:
Ethereum is a platform for contracts, that are capable of auto-executed payment once the terms of the contract have been met – while at the same time being immune to fraud, server downtime, censoring or any other interference by an external party.
As an example:
You and your business partner, a content creator, agree on a contract for the creation of three blog posts they are supposed to upload to your website within a certain deadline. These blog posts have a minimum length of 800 words.
Now, if you have agreed on a contract in the conventional pen-and-paper kind of way, you will have to check his work, determine the length and then manually transfer the agreed sum.
Should you have made use of a smart contract (and if it fulfils other prerequisites), the agreed upon sum will be paid out to the content creator as soon as the blog posts and their length are detected on the webpage – guaranteed and safe.
In comparison to regular, standard paper-contracts they are:
- Less expensive
- More transparent
- Require less execution time
- Have fewer intermediaries
- Immediate, self-executing payments
So, the key competency of Ethereum is providing a decentralized platform. Which does not mean that there is no currency attached to it – Ether.
Two currencies – Two purposes
While Bitcoin is aiming to be an alternative to regular money and as a medium of payment – it aims to replace cash in its current form.
Ether – the currency connected to the platform Ethereum is not to establish a payment alternative but rather to monetize the work of Ethereum and working on the platform, empowering developers and other people working with the platform alike.
In a nutshell
To summarize, all you need to understand when comparing Ethereum and Bitcoin is three terms: Blockchain, smart contract and cryptocurrency.
While Bitcoin is solely a cryptocurrency, Ethereum is a platform for executing smart contracts – but it also has a cryptocurrency attached to it – Ether.