Features
Blockchain technology is used in the implementation of cyrptocurrencies. As of this writing :
- There are 10,037 coins
- The 250 exchanges ranked on traffic, liquidity, trading volumes and confidence in reporting traded between $0 and $13 billion over the last 24 hours
The features described here are those that are common to all blockchains.
- Decentralized network of computers
- Transactions are stored in blocks
- Blocks contain a timestamp
- Each block references a cryptographic hash of the previous block
- The blocks create a ledger of transactions
- Data and the order of the data is verified by consensus mechanisms
- Consensus is met by validation of the data by the majority of nodes
- Proof of Work and Proof of Stake are the most used consensus mechanaisms
- Data immutability means that once data is added to a blockchain it cannot be changed
- Data immutability contributes to security and integrity
- Since each successive block references the previous block using a cryptographic hash of the transaction, it would be costly to change data and update all successive blocks
- Data transparency is provided by posting all transaction detail publicly online
Comparing Consensus Mechanisms
Bitcoin was created before Ethereum and established the Proof of Work (PoW) mechanism for achieving consensus. PoW requires large amounts of computation to create a block and thereby generate a coin. The "miner" as Bitcoin computers are called, established the right to be chosen to create coins by spending a lot of money on hardware and electricity.
Ethereum created the Proof of Stake (PoS) mechanism to improve energy efficiency and lower the barrier of entry for block validation.
Consensus Mechanisms and Security
Traditionally Proof of Work was considered more secure, but that is up for debate as many factors contribute to security and maintaining a decentralized network.
Comparing Bitcoin and Ethereum
Bitcoin
Bitcoin is often referred to as "Gold 2.0" or "digital gold" as it used as a currency that can be transferred, created and stored to accumulate value. Bitcoin is limited to 21 million coins. As of this writing, there are 19,776,187.5 coins. Bitcoin uses a process that will keep the number below 21 million.
Ethereum
In addition to having a native currency, Ethereum also supports decentralized applications known as dApps, and smart contracts. Using Ethereum dApps and smart contracts, developers can create decentralized applications to support decentralized finance (DeFi) and nonfungible tokens (NFTs). When Ethereum started it used PoW, but migrated to PoS. PoS is faster and is energy efficient compared to PoW.
| Feature | Bitcoin | Ethereum |
|---|---|---|
| Used For | Digital Currency | dApps and smart contracts platform |
| Consensus | Proof of Work (PoW) | Proof of Stake (PoS) |
| Function | Peer-to-Peer (P2P) transactions | Execute dApps and smart contracts |
| Fixed Supply | 21 million limit | no limit |
Other Currencies
| Type | Coin | Use Case |
|---|---|---|
| Stablecoins | Tether (USDT) | Pegged to US $ for transactions |
| USD Coin (USDC) | Pegged to US $ and similar to Tether | |
| Payments | Ripple (XRP) | Fast and inexpensive payments involving different fiat currencies |
| Litecoin (LTC) | The "silver" version of Bitcoin that is faster | |
| Smart Contracts | Cardano (ADA) | Environmental stability that facilitates communication between different blockchains |
| Solana(SOL) | High speed with low transaction fees for dApps | |
| Binance Coin (BNB) | Native cryptocurrency of the Binance exchange |