I recently wrote up a long explainer on Bitcoin. Now I’ll try and add a bit more about the #2 cryptocurrency, Ethereum. As of this writing bitcoin is at $98k and $1.9 trillion market cap, and ethereum is at $3500 and a $421 billion market cap.
Bitcoin was the first real internet money. Ethereum is the first real programmable internet money.
Technically bitcoin is programmable with Bitcoin Script, but it is much simpler and not as powerful. Ethereum has a Turing-complete programming language which means you can program any type of computation that can be solved. In practice, this means you see Bitcoin and Ethereum being used for very different things.
Here’s a few differences between Bitcoin and Ethereum.
Creation
Bitcoin was created by the pseudonymous Satoshi Nakamoto, and Ethereum was created in 2013 launched by Vitalik Buterin and other developers.
Token
With the Bitcoin network, bitcoin (BTC) is the native token (same name) and there is a cap of 21 million coins. With the Ethereum network, ether (ETH) is the native token, and there is no set cap. But colloquially, I hear ether and ethereum used interchangeably a lot and people might talk about the price of ethereum when technical ether is the network token. I say ethereum, and if you do that people still know what you mean.
How they create new transactions
Each blockchain network has a consensus mechanism, or process for creating new transactions and saving and propagating them. In Bitcoin, the mechanism is bitcoin mining done through proof of work, with tons of computers, data centers, and energy spent to solve a computationally difficult problem to secure the network. With Ethereum, it started as proof of work and transitioned to proof of stake. Proof of stake is where a smaller group of “validators” are chosen to create new blocks based on how much of ether they “stake” or lock up and put at risk. They earn rewards for securing the network honestly, and bad behavior can lead to validators losing their staked assets. Proof of stake is a lot less energy intensive.
Ethereum is programmable
The really important difference with Ethereum is that it is programmable. Ethereum can almost be thought of as a global computer. You can write programs that run on the ethereum network in a language like Solidity or Vyper. These programs are called smart contracts. A smart contract is a self-executing program on a public blockchain instead of on some private application. This enables the creation of distributed applications (dApps), and other new types of applications like decentralized finance (DeFi). The distributed or decentralized aspect here is that instead of running on the server of one person or one company, the program executes and is available on the public ethereum blockchain network, which anyone can participate in, making it more transparent. These run on the Ethereum Virtual Machine (EVM), and importantly there are many other blockchains that make use of the EVM.
New assets and fungible tokens on Ethereum
Lots of people in crypto or Bitcoin are “Bitcoin Maxis” meaning they only see bitcoin as having value and think many of the other cryptocurrencies, including ethereum, are scams. I think this misses a lot of the point of crypto and a lot of the new value that can be created here.
One amazing value point of Ethereum is that on the Ethereum blockchain you can create other tokens representing other assets (digital or other real assets). One common standard for creating tokens is the ERC-20 standard, which is for the creation of fungible tokens on ethereum. Since anyone can make a token, there are probably over a million tokens, but as of this blog maybe around 1200 valued over $1 million USD. But there are 300 over $100 million USD and currently 75 over $1 billion USD.
Ok- pause and think about what this means. The ethereum network, because of its programmability, has allowed the creation of many massive digital assets and tokens that live on that network. A few large examples are USDT and USDC which are stablecoins, meant to be tokens that hold the value of $1 USD but now available for transacting on ethereum.
Non fungible tokens on Ethereum (NFTs)
Another novel application from ethereum is non-fungible tokens (NFTs), or ERC-721 tokens. These tokens represent digital items that are unique and not interchangeable. They could represent things like digital art, collectibles, or game items. A good way to think about them is like a digital baseball card or a digital ticket. Getting a limited edition baseball card of your favorite player is not the same as any other baseball card — even if they are both baseball cards.
The global NFT market cap today is $8b, and almost all of the large collections are on Ethereum (75% of the top 100 on ethereum, a handful on Solana and Bitcoin). Some of the current most valuable NFTs are CryptoPunks, Bored Apes, and Pudgy Penguins. There are many popular NFT exchanges like OpenSea, Blur, and MagicEden.
Lots more applications on ethereum
Ethereum has lots of applications on it, which is a major difference from Bitcoin. For example there is a domain name system (Ethereum Name Service, or ENS). There are onchain decentralized exchanges like Uniswap. There are onchain lending applications like Aave. There are many, many more.
Easier to use and more powerful
I’ve found ethereum and EVM-based chains to be easier to use. It’s easier to use the block explorers like etherscan to see the blockchain, see your wallet. The wallets are better and more robust, and even easier for mobile. The transactions are faster. The apps can do more, since they aren’t just limited to sending and receiving like bitcoin. (Again there are technically other things you can do on bitcoin, but practically this is extremely, extremely limited).
How to get started
There are a few ways to get started and that you can buy and interact with ethereum. You could buy ethereum on an exchange like Coinbase. You could send it to your own wallet to test out blockchain applications. You could start by testing wallets like Metamask, TrustWallet, Coinbase Wallet, Zerion and Rainbow Wallet. You could try and exchange a token on Uniswap, you could try to buy an NFT on OpenSea.
I think in the future as cryptocurrencies and digital assets expand there is room for more than just bitcoin, as there are already many thriving cryptocurrencies. First try to understand bitcoin, then try to understand ethereum.