Ethereum vs. Bitcoin: How Do ETH and BTC Compare?

Two cryptocurrencies stand out as clear market leaders—Bitcoin and Ethereum. These digital currencies rank first and second by market capitalization and are both based on blockchain technology. But as cryptocurrencies, Bitcoin and Ethereum have some noteworthy differences.

Here’s a closer look at Ethereum vs. Bitcoin. Find out the objectives of each cryptocurrency, and the specifics of each digital asset that can inform you as an investor. 

What’s the Difference Between Ethereum and Bitcoin?

Ethereum and Bitcoin are both digital currencies that use open-source software, meaning that anyone can view the code and contribute. Both use blockchain technology, which can create electronic ledgers that prevent a digital currency from being double spent.

Bitcoin is older than Ethereum and generally slower at processing transactions.Bitcoin transactions can be less expensive than those processed by Ethereum, but that’s due in part to the rapid growth of the Ethereum platform.These are some of the primary differences between Ethereum and Bitcoin:

Consensus Mechanism

Ethereum and Bitcoin both currently use the same operating protocol known as proof-of-work (PoW). The PoW method is resource intensive, meaning that both Ethereum and Bitcoin use vast amounts of computing power and electricity to complete transactions and mint new cryptocurrency.

The Ethereum blockchain is gradually transitioning to using a different consensus mechanism known as proof of stake (PoS). The proof of stake method relies on validators who stake—agree to not trade or sell—their cryptocurrency. Proof-of-stake validators can operate and maintain the blockchain without the need for extensive energy or computing resources.

Average Transaction Cost

Both Ethereum and Bitcoin charge fees in their own currency—ETH or BTC—to process transactions. Those transaction processing fees, paid to the blockchain’s network operators, vary based on network congestion.

The average transaction cost on the Ethereum platform is higher and more variable than Bitcoin’s transaction processing fees. Over the last six months, the cost of a basic Ethereum transaction ranged from about $2 to more than $25. Bitcoin’s average transaction fee ranged approximately between $1.25 and $5 in the same time period.

Average Transaction Time

The Ethereum platform can process a transaction in about 5 minutes, whereas 40 minutes is the time typically required to process a Bitcoin transaction. If you’re sending funds to family abroad, then waiting 40 minutes may not be problematic. But you probably don’t want to wait even 5 minutes when checking out at the grocery store or buying lunch at a sandwich shop. 

Special Feature 

Bitcoin will always hold the distinction of being the first digital currency. In many ways, Bitcoin is structured to resemble digital gold. Bitcoin is electronically “mined” by expending computing resources and electricity to put new coins into circulation, and has a limited supply just like a precious metal.

Ethereum distinguishes itself by being a major blockchain platform that supports the development of its own and many other blockchain projects. Whereas Bitcoin is a closed blockchain that supports only one currency, the Ethereum blockchain—using smart contracts—supports an ecosystem that includes its native currency Ether and many other cryptocurrencies and projects.

Is Bitcoin or Ethereum Right For You?

You may be considering investing in Bitcoin, Ethereum, or both. How might you react to shrap price changes, since the prices of both Bitcoin and Ethereum can be notoriously volatile? You can prepare by first learning about how cryptocurrencies work before investing any money.

Once you’re ready, you may find that it’s easy to get started with crypto investing. Both Ethereum and Bitcoin are widely supported, including by major cryptocurrency exchanges. After establishing an account with an exchange, you can buy and sell digital currencies much like stock traders buy and sell stocks.

The Bottom Line

Ethereum and Bitcoin are the two most valuable cryptocurrencies. But beyond their use of blockchain technology, Bitcoin and Ethereum have many fundamental differences. Investors should learn about the risks of cryptocurrency and how Bitcoin and Ethereum differ before making any digital asset purchases.