The Difference Between Bitcoin, Ethereum, and Blockchain Technology

The words Bitcoin, Ethereum, and blockchain technology have evolved from being aliens in our ears to being household names. Facebook, Twitter, LinkedIn, Instagram. Everywhere you go, you're sure to see any of these three words on those platforms. 

However, some think they're all the same thing. Is there any difference between Bitcoin, Ethereum, and blockchain technology? Let's find out today. 

What is Bitcoin?

Bitcoin is known as the world's most popular cryptocurrency today. It was created in January 2009 by an unknown person we now know as Satoshi Nakamoto. No one knows who created Bitcoin. It has no physical notes or presence and all transactions happen online. It is backed by a decentralized network which means that it is not controlled by a central authority like the banks of governments, unlike fiat currencies. 

You might wonder if there are no physical bills or coins, how can you use Bitcoin? All transactions involving Bitcoin happen over the internet. People can transfer bitcoins directly to each other without the need to go through a bank. There are only 21 million bitcoins in the world. Over 18 million of these have been mined or created. New bitcoins are added to by a process called mining. Bitcoin mining occurs when supercomputers solve mathematical equations in a blockchain network. The reward they get for solving these equations are Bitcoins and those who own these computers and engage in this problem-solving method are called miners. There are so many bitcoin miners making it quite difficult to mine a sizable amount of Bitcoin.

Other than mining, you can also get bitcoin by buying it through a cryptocurrency exchange. A cryptocurrency exchange is a platform that allows people to buy and sell cryptocurrencies and also store them in a custodial wallet. Is there any limit to how many bitcoins you can get? Certainly not! You can get as many Bitcoins as you want and neither do you need to own a whole Bitcoin. 

Each bitcoin is made up of 100 million Satoshi. A Satoshi is the smallest unit of a Bitcoin. So you can buy a fraction of Bitcoin depending on how much money you want to invest in it. It is always advisable that you invest a percentage of your net income into not just Bitcoin but cryptocurrencies as a whole.

What is Ethereum?

Ethereum is regarded as the most popular altcoin as it takes a huge lead over other altcoins by a huge margin. In 2015 Vitalik Buterin amongst others created Ethereum as a solution to the issues of scalability and power consumption that Bitcoin presented at the time. With Ethereum, the idea was to create a new payment system that allows anyone to create an algorithm for wallets. With algorithms, you can receive money and decide how much to spend and who to send money to. All these are under the condition that the algorithms are transparent and no one can alter them.

The Ethereum platform gives developers the ability to create such algorithms also known as smart contracts. Anyone on the Ethereum platform can create smart contracts for their applications. Smart contracts are programs stored on a blockchain that runs when conditions set out in the contract are met. They are usually used to automate the execution of an agreement so that all parties can be certain of the conclusion right away, without the need for any intermediaries or time waste. They can also automate a workflow, starting the following step when certain circumstances are satisfied.

With the help of smart contracts, transactions within the blockchain network become faster and more accurate without any tampering. Today Ethereum is home to thousands of blockchain decentralized applications that make use of smart contracts to create user-friendly applications for users. Decentralized Finance (DeFi), staking, lending and borrowing, non-fungible tokens (NFTs), and many more trending innovations on the blockchain network started on the Ethereum blockchain with the help of smart contracts.

Let's Talk About Blockchain Technology

Imagine that you have a watch and your close friend David does not have one. You decide to give David the watch as a gift.

Now he has a watch while you do not have one. Pretty straightforward, right? 

I had a watch. I gave it to David. 

We do not need a third person to make that transfer for us. Neither can I give another person a watch I don't have anymore. However, David can give this watch to whomever he wishes to and they, in turn, can give the watch to whoever they want to and so on. 

Using that scenario, imagine I have a digital watch and I give you my digital watch. How sure are you that I haven't duplicated millions of copies of that same watch and sent it to millions of people on the internet? 

Sending a digital watch is not the same thing as sending a physical watch. The issue of sending multiple copies of the same thing is what is known as double-spending and this is where blockchain technology comes in. With the help of a ledger which is similar to how people maintain their shops, an accounts book can be opened where all transactions are recorded.

However, how can we be sure that the administrator will not tamper with the data to sell or steal digital watches for himself or herself? Why do we need a central party for transactions like this if it can be done without them? 

What if everyone had a copy of the ledger on their system and could maintain it by validating the transactions on the ledger while getting a digital watch as a reward for each successful transaction? This idea is blockchain technology.

Blockchain technology allows me to send a digital watch to David without the need for a third party. David does not need to see me to get a digital watch. If I have only one digital watch and I send it to David, I cannot sell a digital watch I do not have to someone else. To be able to sell on this ledger, I will need to own a digital watch. What's more, no one can tamper with the data because no one owns the ledger. Transactions on the ledger are confirmed by different units or blocks that are interconnected together in the ledger.

The Difference Between Bitcoin, Ethereum, and Blockchain Technology

There is an actual difference between Bitcoin, Ethereum, and blockchain technology. However, Bitcoin and Ethereum have similar features. What is that? They are both cryptocurrencies. Cryptocurrencies are digital currencies that are secured by cryptography which makes it nearly impossible to counterfeit or double spend. Simply put, they are digital currencies that are supported by blockchain technology.

Most cryptocurrencies are native tokens of a blockchain network of Project. For example, the cryptocurrency Ether is the native currency for the Ethereum blockchain platform. Ether is not just used for digital transactions but is also used to fuel the Ethereum network.

So a cryptocurrency is a form of digital asset based on a blockchain network that is distributed across a large number of computers. Because of the decentralized nature of blockchain networks, cryptocurrencies are not supervised or controlled by banks or the government. This is one of the most enticing features of cryptocurrencies as people can send and receive funds among themselves digitally, without the need of a third party. 

So if you were to differentiate between Bitcoin, Ethereum, and blockchain technology, we can vividly say that Bitcoin and Ethereum are cryptocurrencies while blockchain technology is a protocol that supports the creation and issuance of cryptocurrencies. Cryptocurrencies such as Bitcoin and Ethereum are not blockchain technology. Rather, they are digital currencies backed by blockchain technology.

That's about it. Have you ever had issues telling the difference between these three? I'll like to read your thoughts and opinions on this topic.