In today's cryptocurrency ecosystem, Bitcoin and Ethereum are often referred to as the two essential pillars. However, behind this apparent similarity lie profoundly different philosophies, technologies, users, and uses. Although often compared, Bitcoin and Ethereum actually meet distinct needs. In this article, I suggest you explore these differences, in order to understand why bitcoin differs from ether as a currency and savings vehicle.
A different origin and a different philosophy
The concept of Ethereum was born from the mind of Vitalik Buterin, a Russian-Canadian fervent Bitcoin supporter, who also co-founded the famous media Bitcoin Magazine. According to his own admission, the episode that revealed to him the need for decentralized systems dates back to 2010. At that time, Blizzard, the publisher of the game World of Warcraft, chose to remove a key element of its favorite wizard character. On this subject, he said:
I fell asleep crying and that day I realized what horrors centralized services could bring.
During the year 2012, he came up with the idea of Ethereum. Although captivated by the potential of Bitcoin, he was worried about two things: the limitation of the functionalities of this system and the proliferation of ancillary projects that wanted to increase the infrastructure. He then planned to design a completely new system that, while drawing on the fundamentals of the Bitcoin protocol, would extend its capabilities through an almost Turing-complete virtual machine. This innovation, he thought, would considerably broaden the fields of application of Blockchain.
In early 2014, Vitalik launched the pre-sale of ethers, the cryptocurrency intended to power its system, in order to finance the development of Ethereum. This fundraiser allowed him to collect 31,591 bitcoins, which corresponded to about 18 million dollars at the time. The Ethereum system will finally see the light of day on July 30, 2015, with the publication of its Genesis block.
The launch of Ethereum is a good illustration of the fundamental discrepancy between Bitcoin and altcoins. It is important to understand that all the bitcoins in circulation were obtained through mining, in accordance with a set of rules that were pre-established since the initial deployment of the protocol. Each unit of bitcoin therefore required an expenditure of energy. On the other hand, in the case of Ethereum, nearly half of the units currently in circulation were issued during a fundraiser, even before the network was launched. In addition, nearly 10% of the ethers were pre-mined in favor of the Ethereum Foundation and some early contributors. So, while Bitcoin can rely on a fair and equitable genesis in the distribution of its currency, Ethereum is more like launching a Startup.
Philosophically, they are also very different. Bitcoin is the product of a reflection initiated by cypherpunks, aiming to provide the Internet with electronic money similar to physical money, that is to say that is both confidential and resistant to censorship. This project is part of a trial and error process that took its roots in the early 1980s.
Ethereum, on the other hand, seems to have germinated in Vitalik Buterin's mind following a frustration related to the World of Warcraft game. Its primary ambition was not so much to revolutionize money as to generalize the application of blockchain technology to a multitude of fields, without meeting a proven need.
Beyond their origins, Ethereum and Bitcoin differ in how they work, so much so that over time, these two systems are becoming less and less alike.
First of all, Bitcoin is based on a consensus algorithm based on proof of work. Since the transition to Ethereum 2.0 in 2022, this system is now based on proof of stake. Although less energy-intensive, this regression of Vitalik's invention obviously raises concerns about the centralization of resources and the resilience of the system in an adversarial environment. I already told you about it in this other article: Bitcoin is not an ecological disaster.
Where the two systems come together is in their common use of a blockchain. But even on this point, they have notable differences. The Bitcoin blockchain is tending to produce one block every ten minutes. While this interval is a limit in terms of transaction confirmation speed and transaction capacity, it nevertheless reinforces Bitcoin's security. Taking into account the inherent latency of any network, a reduction in this interval would lead to a multiplication of the natural branches of the blockchain. However, more branch lines would also mean that more miners would work on blocks that are destined to become obsolete, which would be a waste of proof of work and lead to a significant decrease in overall security. In comparison, the interval on Ethereum is much shorter, as it tends to 12 seconds.
Although recent advances on BitVM have highlighted a certain flexibility in Bitcoin's architecture, the Bitcoin Script language is still relatively limited. In contrast, the Ethereum virtual machine is almost Turing-complete, which means that it allows the use of loops and recursions. However, this flexibility in Ethereum's programmability creates a greater operational burden for network nodes, which are forced to perform more complex checks and validations.
Finally, the two systems do not have the same transaction management. On Bitcoin, we use a UTxOS model (Unspent Transaction Outputs) to represent units of accounts. Each new transaction thus refers to a previous transaction output. Ethereum is based on an account system, which is more intuitive and adapted to smart contracts. On the other hand, this model provides a lower level of confidentiality, adds operational load on the nodes, and does not allow parallel transaction processing.
Uses and use cases
From its birth, Bitcoin was conceptualized as a new form of currency corresponding to the vision of cypherpunks. All the changes made to the protocol since then are in line with its original properties that characterize it: incensurability, confidentiality, resistance to inflation, user sovereignty and system distribution. By freeing itself from financial institutions and the limits imposed by state currencies, Bitcoin is gradually establishing itself as a global currency. This role has been confirmed and consolidated by over a decade of existence and increasing adoption.
The use of bitcoin as a currency is finally part of an almost instinctive logic. As an individual within a society, I must choose a currency to crystallize the value of my work and later enjoy this accumulated value. Any rational individual will inevitably opt for a rare currency, capable of maintaining its purchasing power in the long term, rather than for a currency in perpetual depreciation.
For its part, Ethereum was born with different goals. Rather than a simple electronic cash system, Ethereum aims to be a platform for smart contracts and decentralized applications. Its creators thus called it a “world computer.” This versatility necessarily leads to complexities and problems in terms of security and scalability that Bitcoin avoids in its simplicity. Moreover, ether is positioned more as an instrument at the service of the Ethereum ecosystem than as a currency in its own right. Unlike bitcoin, whose supply is strictly limited to 21 million units, ether has no restrictions when it comes to money printing.
It is precisely for these reasons that bitcoin is a better savings tool. The robustness and predictability of Bitcoin, its distributed system, and its monetary characteristics make it an ideal candidate for storing value sustainably. Unlike Ethereum, whose increasing uses dilute its effectiveness as a currency, Bitcoin focuses on a single task and executes it efficiently.
Two different development strategies
Bitcoin's development strategy is characterized by caution and conservatism. This slow evolution allows Bitcoin to maintain a high level of security and stability, which are essential for an asset that aspires to become a currency. So the natural slowness of the evolution process is actually a strength, as it ensures that major changes are thoroughly examined and have a broad consensus within the community. To address scaling and non-monetary applications, innovation is typically done on higher layers, such as the Lightning Network, in order to limit changes to the main chain.
Conversely, the development of Ethereum is much bolder, with a desire to integrate changes quickly. While this speed has the merit of stimulating innovation, it also brings with it its share of instability and risks, directly on the main chain.
Moreover, development on Bitcoin is naturally decentralized. Although protocol changes often revolve around the majority Bitcoin Core implementation, they come from a multitude of different contributors. Moreover, the inventor of Bitcoin, Satoshi Nakamoto, is still anonymous. Its withdrawal from Bitcoin development in 2011 further reinforces the decentralized and peer-to-peer nature of the system.
In contrast, Ethereum's development is mostly focused on the Ethereum Foundation and key figures like Vitalik Buterin. Once again, this mode of operation is more similar to that of a startup than to a true peer-to-peer system. The lack of a roadmap for Bitcoin is further proof of its decentralized nature, in contrast to Ethereum's more interventionist approach.
This concentration of decision-making power is also explained by the low number of Ethereum users who run their own full nodes. In the case of Bitcoin, it is relatively easy for a user to use their own node. This capability promotes a more distributed governance model, where protocol changes need to obtain a broad consensus before being adopted.
In contrast, the complexity and resource requirements for running an Ethereum node are considerably higher, not least due to the increasing size of the blockchain and smart contracts. In concrete terms, this means that few users run their own Ethereum nodes. As a result, protocol changes are generally imposed by a handful of entities, with no real community input.
Whether it is their origin, their functioning or their development, Bitcoin and Ethereum embody two radically different worlds. Even if they share the use of a blockchain, and sometimes some narratives, their purpose is completely opposite.
While Ethereum wants to be a semi-decentralized platform for smart contracts, Bitcoin focuses only on its role as a peer-to-peer electronic cash system. Its robustness, predictability and monetary characteristics make it a preferred option for savings and everyday transactions.
