A major criticism of proof of work is that it is highly energy-intensive because of the computational power required. Proof of stake substitutes computational power with staking—making it less energy-intensive—and replaces miners with validators, who stake their cryptocurrency holdings to activate the ability to create new blocks.
More importantly, though, the Bitcoin and Ethereum networks are different with respect to their overall aims. While bitcoin was created as an alternative to national currencies and thus aspires to be a medium of exchange and a store of value , Ethereum was intended as a platform to facilitate immutable, programmatic contracts and applications via its own currency.
BTC and ETH are both digital currencies, but the primary purpose of ether is not to establish itself as an alternative monetary system but rather to facilitate and monetize the operation of the Ethereum smart contract and dApp platform. Ethereum is another use case for a blockchain that supports the Bitcoin network and theoretically should not really compete with Bitcoin.
However, the popularity of ether has pushed it into competition with all cryptocurrencies, especially from the perspective of traders. For most of its history since the mid launch, ether has been close behind bitcoin on rankings of the top cryptocurrencies by market cap.
The Ethereum ecosystem is growing by leaps and bounds, thanks to the surging popularity of its dApps in areas such as finance decentralized finance, or DeFi apps , arts and collectibles non-fungible tokens, or NFTs , gaming, and technology. Bitcoin is primarily designed to be an alternative to traditional currencies and hence a medium of exchange and store of value. Ethereum is a programmable blockchain that finds application in numerous areas, including DeFi, smart contracts, and NFTs.
Ethereum is compared to digital silver because it is the second-largest cryptocurrency by market cap and, like the precious metal, has a wide variety of applications. As of Nov. Ethereum Foundation Blog. Mine Ethereum. Your Money. Personal Finance.
Your Practice. Popular Courses. Cryptocurrency Bitcoin. Part of. Guide to Bitcoin. Part Of. Bitcoin Basics. Bitcoin Mining. How to Store Bitcoin. Bitcoin Exchanges. Bitcoin Advantages and Disadvantages. Bitcoin vs. Other Cryptocurrencies. Bitcoin Value and Price. Table of Contents Expand. Table of Contents. Ethereum: An Overview. Ethereum Basics. Key Differences. Key Takeaways Bitcoin signaled the emergence of a radically new form of digital money that operates outside the control of any government or corporation.
With time, people began to realize that one of the underlying innovations of bitcoin, the blockchain, could be utilized for other purposes. Ethereum proposed to utilize blockchain technology not only for maintaining a decentralized payment network but also for storing computer code that can be used to power tamper-proof decentralized financial contracts and applications.
Ether was intended to complement rather than compete with bitcoin, but it has nonetheless emerged as a competitor on cryptocurrency exchanges. What is the main difference in application between Bitcoin and Ethereum? Why is Bitcoin compared to digital gold and Ethereum to digital silver? Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
A digital coin is created on its own blockchain and acts in much the same way as traditional money. It can be used to store value and as a means of exchange between two parties doing business with each other. Tokens, on the other hand, have far more uses than just digital money. Tokens are created on top of an existing blockchain and can be used as part of a software application like to grant access to an app, to verify identity, or to track products moving through a supply chain.
They can represent digital art like with NFTs, or " non-fungible tokens " that certify something as unique. There has even been experimentation using NFTs with physical assets, such as real-life art and real estate. Blockchain technology is open source, meaning any software developer can use the original source code and create something new with it.
Developers have done just that. There are estimated to be more than 10, different cryptocurrencies in circulation at the time of this writing, and the figure keeps increasing. For reference, the number of cryptos surpassed 1, only four years ago. Part of the reason for the surge is the relative ease with which new cryptocurrencies can be created. The source code of one can be used to build another.
For example, the Ethereum network could be used to create your own personal digital coins. Sometimes there are "forks" in the software code that change the rules about how a crypto is governed, which can lead to the creation of a new crypto. Surging crypto prices have led many developers to try getting a cut of the action. And blockchain technology has usefulness beyond just digital currencies.
So, while some cryptos might be a bubble that will eventually pop, the decentralized nature of the technology and the broad scope of how it can be applied in the software world are two reasons why there are so many cryptos. Bitcoin is considered the first cryptocurrency created, and other individual cryptocurrencies are known as "altcoins" a combo word derived from "alternative coin". It's difficult to say which cryptos are the best ones, but Bitcoin and some of the largest altcoins out there are top-tier options because of their scalability, privacy, and the scope of functionality they support.
Table by author. Data source: coinmarketcap. Data as of March 4, There really isn't one "best" cryptocurrency since each has different features built in based on what the developer designed it for. Here's an overview of some of the most popular digital coins and how each is being used.
Bitcoin is regarded as the first decentralized cryptocurrency using blockchain technology to facilitate payments and digital transactions. Instead of using a central bank to control the money supply in an economy like the Federal Reserve in tandem with the U. Department of the Treasury or third parties to verify transactions such as your local bank, credit card issuer, and the merchant's bank , Bitcoin's blockchain acts as a public ledger of all transactions in the history of Bitcoin.
The ledger allows a party to prove they own the Bitcoin they're trying to use and can help prevent fraud and other unapproved tampering with the currency. A decentralized currency can also make peer-to-peer money transfers like those between parties in two different countries faster and less expensive than traditional currency exchanges involving a third-party institution.
Ether is the token used to facilitate transactions on the Ethereum network. Ethereum is both a cryptocurrency the actual coins are measured in units called Ether and a software development sandbox. Tether is a stablecoin, or a currency tied to a fiat currency -- in this case, the U. The idea behind Tether is to combine the benefits of a cryptocurrency such as no need for financial intermediaries with the stability of a currency issued by a sovereign government versus the wild price fluctuations inherent with many cryptos.
Binance Coin is available on the Binance cryptocurrency exchange platform, along with other digital coins that are available for trading. Binance Coin can be used as a type of currency, but it also facilitates tokens that can be used to pay fees on the Binance exchange and to power Binance's DEX decentralized exchange for building apps. Rather than an investment, USD Coin is envisioned as everyday money that can be spent with merchants on the internet.
Investing in cryptocurrencies is a little different than investing in shares of a company. Stock represents ownership of a business and a claim to profits the company generates. Purchasing coins of a cryptocurrency, though, is a speculative bet on the price movement of that digital currency -- which can be highly volatile and is subject to the law of supply and demand since digital currency by itself is not a dynamic asset.
Cryptocurrencies can be exchanged for other digital currencies or for fiat currencies like the U. But there are other ways to make money besides trading. Certain cryptocurrencies can be "staked" to earn rewards.
1. Ethereum (ETH) The first Bitcoin alternative on our list, Ethereum (ETH), is. BTC and ETH are both digital currencies, but the primary purpose of ether is not to establish itself as an alternative monetary system but rather to facilitate. Competitors and Alternatives to Ethereum · IBM Blockchain · Ripple · Microsoft Azure Blockchain · Tangle · Bitcoin · Blockstream.