Ethereum vs. Bitcoin: And The Winner Is?

December 11, 2016

Ethereum vs. Bitcoin. The comparison is inevitable and here we ask two key questions. First, which technology is truest to the principles of blockchain? And second, if you had to put money on one of them and only one, which would you go for? This article assumes some knowledge of Ethereum, Bitcoin and blockchain so if these are new to you, circle back to our quick guide to the basics and you can check back later. Otherwise, let the battle begin!

Bitcoin’s first-mover advantage is still paying dividends

Bitcoin’s differentiator is its first-mover advantage not that it is good at what it does. What will allow Bitcoin to continue its dominance is its perceived value projected by the size of its current user base; the so-called ‘network effort’. In and of itself, there is nothing fundamentally wrong with Bitcoin’s reliance on a network effect. Testament to Bitcoin’s resiliency over the course of a decade, over 100,000 merchants now accept Bitcoin in exchange for goods and services, and that number will likely continue to grow. Bitcoin has built up a track record of liquidity, geographical distribution, merchant acceptance and network uptime that no other cryptocurrency comes close to matching yet.

This is not to say that Ethereum has not had a popular following. It is currently the second most popular cryptocurrency behind Bitcoin but the fastest-growing. Over the course of a year, its market cap has risen to $1bn compared to Bitcoin’s current $10bn. With much more room to grow and a wider community of developers utilising the Ethereum network, the market value of Ether is set to continue rising. Bitcoin has so far held onto its sovereignty, but no empire in history has survived forever.

Ultimately, Bitcoin is a one-trick pony and this restricts its growth. Despite stealing the attention (and $1bn) of venture capital funding, the limitations of Bitcoin have become painfully real. Its application beyond financial transactions is stil a mystery. And the fact is that for the general public, Bitcoin will remain a very abstract concept. As with anything that challenges the status quo, Bitcoin inevitably faces the challenge of acceptance by those in power. Regulators and government bodies have yet to formally recognise Bitcoin as a medium of payment or a store of value on par with traditional currencies and physical commodities.

Staying true to the principles of blockchain

While Bitcoin’s core function is to provide an efficient payments solution, Ethereum’s philosophy is much more ambitious in its scope. It extends towards providing a platform for its users to build rules-based applications, establish binding contracts and facilitate a much broader scope of transactions. Hence the commonly-used phrase, ‘what Bitcoin is to money, Ethereum is to law.’

Given its infancy, Ethereum is yet to bring its philsophy to life but its technology is already built in such a way that improves upon Bitcoin’s. The Ethereum blockchain was designed to follow a number of principles and in our opinion does more justice towards fulfilling blockchain’s true potential:

  • First, accesibility is key. Given that Ethereum is meant to be used by anyone to write contracts on, its success will be determined by how simple it is to use. Hence, the bottom level architecture and interfaces of Ethereum have been designed to be as easy to understand as possible. Compelxity, wherever necessary, is pushed to non-core components of the blockchain.

  • Second, users should not be restricted in how they use Ethereum. Unlike Bitcoin, where use of the blockchain for ‘off-label’ purposes such as data storage is discouraged, Ethereum is designed to be neutral to any application on its platform.

  • Third, there are no inherent features on the blockchain. In simple terms, unlike Bitcoin where inherent features exist to facilitate financial transactions, the intention of Ethereum’s design is that if certain features have to be hard-coded, it will be possible for people to do so within the contract itself.

  • Fourth, and probably most crucial, Ethereum’s programming language is Turing-complete, effectively meaning that parameters can be automated in order for a transaction to be completed. On the other hand, Bitcoin was deliberately designed not to be Turing-complete as a way to customise parameters for transactions. The implications for this are wide-ranging and extend beyond just the different approach towards automation.

With Bitcoin, what you see is what you get, and it has proven its worth. With Ethereum, skeptics will be quick to say that it is a jack of all trades but master of none. If you put money on Bitcoin, you will be banking on its network effect. If you invest in Ethereum, you put faith in its improved technology and broader scope of applications. It is still early days for Ethereum and naturally you wouldn’t compare a 10-year old with a toddler in other contexts. Nevertheless, Ethereum is where Bitcoin was in 2010 and with its unlimited opportunities, let’s sit tight and enjoy the ride.


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