What Is Bitcoin?

A crypto ETF and index fund provider Bitwise Asset Management’s chief investment officer Matt Hougan says Bitcoin can be viewed either as a store of value or as a non-sovereign currency that can be used for payments. As a result, “when you buy Bitcoin, you’re buying a monetary asset,” he says.

An important concept for crypto investors is proof-of-work. According to Routledge, the key to a decentralized blockchain is that one person does not add the blocks all at once. If a solo act were to take place, the market would be centralized, such as a bank or government. In decentralized finance, or DeFi, these blocks are added by a variety of people, making the market competitive. “It’s like a lottery,” Routledge says. A new block is added roughly every 10 periods. For Bitcoin, “proof-of-work runs this lottery,” he says.

Mauricio Di Bartolomeo, chief strategy officer and co-founder of crypto lender Ledn Inc., says the proof-of-work system is intended to make Bitcoin “a better tool for money.” In order for the Bitcoin system to work smoothly, he says, the protocol must be robust, stable, and predictable.

What Is Ethereum?

According to Perfumo, Ethereum is a decentralized world computer that can be used to build decentralized applications and alternative forms of utility. According to Merav Ozair, a Rutgers Business School professor and blockchain expert, Ethereum is similar to iOS and Android, the Ethereum Trading Platform that developers use to build applications.

It means, Di Bartolomeo says, that Ethereum isn’t trying to be just money, but instead it’s trying to be the world’s cloud computer. The Ethereum platform can be used to create self-executing contracts, DeFi protocols, stablecoins, and non-fungible tokens, or NFTs, among other things.

Since so many things built on Ethereum boomed during crypto’s last bull market cycle: NFTs, DeFi and stablecoins, Hougan says, Ethereum did so well during that bull market cycle. Ozair adds that Ethereum could become a decentralized operating system anyone can build on.

In 2007, no one could have predicted that the iPhone would disrupt the taxi industry when it first launched. Routledge compares Ethereum to Apple Inc.’s (AAPL) invention of the iPhone. With its ride-hailing app, Uber Technologies Inc. (UBER) revolutionized the world of transportation just two years after the first iPhone hit shelves. Ethereum has the same potential for disrupting industries as we know them: no one knows what applications could be built on it.

What Are the Differences Between Bitcoin and Ethereum?

After the Ethereum “Merge” was completed on Sept. 15, the newest difference between Bitcoin and Ethereum emerged. Both cryptocurrencies were previously validated by proof-of-work, or PoW. Ethereum, however, was moved to a proof-of-stake, or PoS, mechanism after the long-awaited Merge. BTC uses PoW, but Ethereum is now based on a proof-of-stake.

It is anticipated that the Ethereum network’s energy usage will drop by more than 99% after switching to PoS, which will have an immediate impact. As a whole, cryptocurrencies have been criticized for their large carbon footprint and excessive energy consumption, but ETH has now addressed those issues directly, while Bitcoin has not.

A cryptocurrency's utility is defined by the problem it tries to solve. Routledge describes Bitcoin as a digital gold. He argues that Ethereum is like owning a barrel of oil, since it doesn't seem to have intrinsic value, but it seems to have value and is an alternative to the financial status quo. Ethereum has an additional use case: the development of services on the ETH Trading Platform. He says it is more than just a hedge against gasoline prices.

Beyond Bitcoin being the world’s first cryptocurrency, Adam Sze, head of digital assets at Global X, points out that its formative years coincided with two historic economic crises. The traditional financial ecosystem suffers from two major problems: mistrust and inaccessibility, according to Sze. Bitcoin solves these problems by providing a decentralized network that facilitates global exchanges without the need for a governing body or financial intermediary. You only need an internet connection to participate.