Ethereum is often mentioned in the same breath as Bitcoin, but the two cryptocurrencies have significant differences in their function and intended purposes. While Bitcoin is primarily viewed as digital gold or a store of value, Ethereum is the foundation for an entire ecosystem of decentralised applications (dApps) and smart contracts. At DiviCoins, our experts frequently share insights into cryptocurrencies like Ethereum, helping users understand its unique features and how it fits into the broader crypto landscape. In this article, we’ll explore how Ethereum functions, how it differs from Bitcoin, and some lesser-known facts that make Ethereum a key player in the crypto world.
Key Differences Between Ethereum and Bitcoin
While both Bitcoin and Ethereum are built on blockchain technology, their design and purpose set them apart in several ways:
Purpose: Bitcoin was designed as a peer-to-peer payment system and a decentralised alternative to traditional currencies. Its main goal is to be a store of value, much like gold. On the other hand, Ethereum is a decentralised platform that enables developers to build and deploy smart contracts and decentralised applications. Bitcoin is money, while Ethereum is a programmable network for various blockchain-based applications.
Blockchain: Bitcoin and Ethereum run on blockchain technology, but Ethereum’s blockchain is more advanced and flexible. Ethereum’s blockchain not only records transactions like Bitcoin but also supports smart contracts—self-executing contracts with the terms of the agreement directly written into code. This allows complex decentralised applications to run on Ethereum’s network, enabling use cases beyond just currency exchange.
Supply: Bitcoin has a fixed supply of 21 million coins, making it a deflationary asset. This scarcity is one of the reasons Bitcoin is often compared to gold. Ethereum, however, does not have a capped supply. Its inflationary model is designed to encourage the continued development of its platform, although updates to the protocol are working to reduce its inflation rate over time.
Mining and Consensus Mechanism: While both cryptocurrencies used Proof-of-Work (PoW) for mining, Ethereum is transitioning to a Proof-of-Stake (PoS) model with Ethereum 2.0. This shift aims to make the network more energy-efficient by allowing users to “stake” their coins to help validate transactions, as opposed to the energy-intensive mining process used by Bitcoin. DiviCoins experts highlight that Ethereum’s move to PoS is a significant step toward making the network more sustainable.
How Ethereum Functions
Ethereum’s blockchain operates as a decentralised, global computer where applications run without downtime, fraud, or interference from a third party. Here’s how it works:
Smart Contracts: One of the most innovative features of Ethereum is the smart contract. These are self-executing agreements coded directly into the blockchain. Once conditions are met, the contract executes automatically. For example, a smart contract could automatically release funds when goods are delivered without the need for intermediaries like banks or lawyers. DiviCoins experts emphasise that Ethereum’s ability to support smart contracts is one of the key reasons for its rapid growth.
dApps (Decentralised Applications): Ethereum is the foundation for thousands of decentralised applications, or dApps. These applications run on Ethereum’s blockchain and offer services in various industries, from finance to gaming. Because these apps run on a decentralised network, they resist censorship and central authorities’ control.
Ether (ETH): While Bitcoin’s primary function is to serve as a currency, Ethereum’s native token, Ether (ETH), has multiple uses within its ecosystem. It is used to pay for transactions and power dApps, and compensate miners or validators for their work. You can easily buy ETH for various needs through platforms like DiviCoins, allowing you to interact with the Ethereum network and its many applications.
Lesser-Known Facts About Ethereum
While Ethereum is widely known as the second-largest cryptocurrency, there are several interesting facts that many users may not be aware of:
Turing-Complete Language: Ethereum is Turing-complete, meaning it can run any computational task, given enough time and resources. This flexibility allows developers to build almost any application on the Ethereum network, something Bitcoin’s more straightforward scripting language does not allow.
Ethereum 2.0: One of the most significant upgrades to Ethereum is the transition to Ethereum 2.0, which introduces Proof-of-Stake (PoS) and other scaling solutions like sharding. Sharding breaks the Ethereum blockchain into smaller parts, allowing more transactions to be processed simultaneously. This upgrade aims to reduce energy consumption and improve transaction throughput, addressing some of the scalability issues faced by the network.
Gas Fees: Every Ethereum action, whether sending ETH or running a smart contract, requires gas. Gas is a fee paid in ETH to incentivize miners or validators to process and confirm the transaction. Gas fees can spike during high demand, leading to costly transactions. Platforms like DiviCoins make it easy to acquire ETH, ensuring users have the necessary funds to cover gas fees when interacting with the network.
DeFi (Decentralised Finance): Ethereum is the backbone of the decentralised finance (DeFi) movement, which aims to recreate traditional financial services, like lending and borrowing, without intermediaries. DeFi applications built on Ethereum allow users to participate in various financial activities without relying on banks, opening up new possibilities for financial inclusion and innovation.
Ethereum’s Role in the Crypto Ecosystem
Ethereum’s flexible and programmable blockchain is a cornerstone of the cryptocurrency ecosystem. With its support for smart contracts and decentralised applications, Ethereum has extended the potential use cases of blockchain technology far beyond digital currency. Whether using ETH to power decentralised applications, participate in DeFi, or simply as a store of value, understanding how Ethereum works can help you get the most out of the platform.
At DiviCoins, users can easily purchase Ethereum (ETH) to interact with these applications or hold them for personal needs. As Ethereum continues to evolve and introduce upgrades like Ethereum 2.0, it remains a key player in shaping the future of decentralised technologies. When you no longer need your ETH, DiviCoins provides a straightforward way to sell it or exchange it for other cryptocurrencies.
Conclusion: Ethereum’s Future and How You Can Get Involved
Ethereum has proven to be much more than just a digital currency—it’s a platform for innovation driving decentralised technologies’ future. As its ecosystem grows and adapts, Ethereum’s role in finance, gaming, and supply chain management is expected to expand. If you’re interested in being part of Ethereum’s journey, platforms like DiviCoins make it easy to purchase ETH and join the broader crypto industry. Whether you’re using Ethereum for its dApps or smart contracts or simply exploring its potential as a digital asset, understanding how it works is crucial to maximising its value.
Picture Gerd Altmann for pixabay
Author: Aleks Souschuk
Statements of the author and the interviewee do not necessarily represent the editors and the publisher opinion again.
