All too often we hear heated discussions within the cryptocurrency community over which coin is king. Framed as bitter rivals battling to control the future of crypto, many “Bitcoin vs. Ethereum” debates entirely miss the point that these two currencies serve fundamentally different purposes. While there is nothing wrong with picking favorites, a “one coin to rule them all” mentality doesn’t really do justice to the broad and varied implications for blockchain based currencies.
Comparing Bitcoin vs. Ethereum is like comparing WhatsApp vs. iOS
It doesn’t really make sense. In this analogy, Bitcoin is akin to an application whereas Ethereum is akin to an operating system. Ultimately, this is a pretty accurate way to think about the role of these two projects and how they relate to one another. What do we mean?
Bitcoin was created to do one thing: be a currency. It allows anyone to send money to anyone else, anywhere in the world, via a trustless, peer-2-peer transaction. While Bitcoin was the first instance of a blockchain-based currency, we have seen many other applications for blockchain technology emerge over the past decade. New applications for blockchain are being explored every day, ranging from energy grids to dating websites to corporate finance. Blockchain technology today is a highly innovative and rapidly growing space today across numerous industries. While there are plenty of valid arguments in favor of it being the best digital currency application built on a blockchain, Bitcoin still only represents one such application.
Unlike Bitcoin, Ethereum is not exclusively a cryptocurrency. Ethereum has a cryptographic token, Ether, but this is only one aspect of a much larger framework. Going back to the original analogy, Ethereum is much more like an operating system, which any number of applications can be build to run on, whereas Bitcoin is an individual application. Looking at the two as competitors, as Bitcoin vs. Ethereum, overlooks the fact that they serve entirely different purposes.
What Problems Do Each of These Technologies Solve?
When Satoshi Nakamoto created Bitcoin, he/she/they described it as, “A Peer-to-Peer Electronic Cash System” in the original whitepaper. The first sentence of the Abstract explains, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Very succinctly, we can see the problem: How to send payments directly from one person to another without going through a financial institution? And, the solution: a purely peer-to-peer version of electronic cash. Of course, under the hood, Bitcoin is more complicated than that, but in essence that one initial sentence neatly sums up both why it was created and what it does.
The scope of Bitcoin’s purpose, then, is fairly specific. There are not that many variables involved. We have two parties, Person A and Person B. Both of them have wallets, created with a public and private key. When Person A sends Bitcoin to Person B, we have the two wallet addresses, the amount of Bitcoin, and the time of the transaction to deal with. That gets broadcasted to the Bitcoin network. If all of the data checks out, the transaction is added to a block and verified. We have a system that essentially says if X is valid, then do Y.
What if, however, we want to add some conditional logic to a transaction? For example, what if Person A wants to send money to Person B only if condition C, D, and E are met? And, actually, if only condition C is met, Person A would like to send half of the amount. Also, if Person B doesn’t meet condition D by a certain time, the entire offer is off the table. Additionally, instead of sending money, if condition E is met a block of code will run that gives Person B limited access to a piece of proprietary software. This is a problem of an entirely different scope. It is a problem that Bitcoin was not designed to solve.
While the example above is just a silly hypothetical situation, this kind of logic is involved in solving all kinds of real-world problems. Different factors in a chain of events can lead to different potential outcomes depending on which conditions are met. The potential for blockchain to transform the way that we handle this type of problem solving is, in a very broad sense, a major part of what Ethereum is exploring. Adding the capacity to handle conditional logic into blockchain-based transactions is essentially what Ethereum’s “smart contracts” are designed to do.
While neither of these technologies is perfect, they are certainly not enemies. When we consider the future of cryptocurrency and blockchain technology, framing it as a question of “Bitcoin vs. Ethereum” only narrows the window of possibility. A far better way is perhaps to consider the potential for these two distinct projects to coexist and collaborate, envisioning instead the prospects for “Bitcoin and Ethereum.”