Bitcoin vs Ethereum: Key Differences Compared

Bitcoin vs Ethereum at a Glance

Bitcoin and Ethereum are the two largest cryptocurrencies by market capitalization, but they serve fundamentally different purposes. Bitcoin was designed as a decentralized digital currency and store of value. Ethereum was built as a programmable blockchain that supports smart contracts, decentralized applications, and an entire ecosystem of tokens and protocols.

Understanding the differences between these two networks is essential for anyone evaluating which to use, hold, or build on. The table below provides a high-level comparison across the most important dimensions.

Consensus Mechanism

Bitcoin uses Proof of Work (PoW), a consensus mechanism where miners compete to solve cryptographic puzzles using specialized hardware. This process secures the network and validates transactions but requires significant energy. Bitcoin's mining difficulty adjusts every 2,016 blocks (roughly two weeks) to maintain an average block time of 10 minutes.

Ethereum originally used Proof of Work as well, but transitioned to Proof of Stake (PoS) in September 2022 through an upgrade known as "The Merge." Under PoS, validators stake ETH as collateral to propose and attest to blocks. This reduced Ethereum's energy consumption by approximately 99.95% and eliminated the need for mining hardware.

Both approaches have tradeoffs. PoW provides battle-tested security and true decentralization of block production, but comes with high energy costs. PoS is far more energy-efficient and allows faster finality, but introduces concerns around validator centralization and the capital required to participate (32 ETH minimum to run a solo validator).

Transaction Speed and Throughput

Bitcoin produces a new block approximately every 10 minutes and can process roughly 7 transactions per second on its base layer. This deliberate throughput constraint prioritizes security and decentralization over speed.

Ethereum produces blocks every 12 seconds and handles approximately 15 to 30 transactions per second on Layer 1. While this is significantly faster than Bitcoin, it still falls short of the throughput needed for global-scale applications, which is why both networks rely on Layer 2 solutions for scaling.

For Bitcoin, the Lightning Network enables near-instant payments with negligible fees by moving transactions off the main chain. Spark extends Bitcoin's capabilities further as a Layer 2 that supports fast, low-cost transfers including stablecoins on Bitcoin. For Ethereum, rollup-based Layer 2 networks like Arbitrum, Optimism, and Base process thousands of transactions per second while inheriting Ethereum's security.

Fee Structure

Bitcoin transaction fees are determined by the size of the transaction in virtual bytes and the current demand for block space. During periods of low activity, fees can be under $1. During high congestion, fees have exceeded $50. On average, a standard Bitcoin transaction costs between $1 and $5.

Ethereum fees (known as gas fees) are more volatile because the network handles a wider variety of transaction types. A simple ETH transfer might cost $1 to $5, while a complex smart contract interaction can cost $10 to $50 or more during peak demand. The introduction of EIP-1559 in 2021 added a base fee burn mechanism that makes gas pricing more predictable, but fees still spike during periods of network congestion.

Both networks address high fees through Layer 2 solutions. Bitcoin Lightning transactions cost fractions of a cent. Ethereum Layer 2 rollups reduce fees to a few cents per transaction. For users who prioritize low fees, using a Layer 2 on either network is the practical solution.

Supply Model and Monetary Policy

Bitcoin has a fixed maximum supply of 21 million coins. New bitcoin enters circulation through block rewards paid to miners, and these rewards are cut in half approximately every four years in an event called the "halving." As of the most recent halving in April 2024, the block reward is 3.125 BTC. This predictable, deflationary schedule is central to Bitcoin's value proposition as "digital gold."

Ethereum has no hard supply cap. After The Merge, ETH issuance dropped significantly to approximately 0.5% per year. Combined with the EIP-1559 fee burn mechanism (which destroys a portion of gas fees), Ethereum's net supply can actually decrease during periods of high network activity. This has led some to describe ETH as "ultrasound money," though periods of low activity result in net inflation.

Bitcoin's supply model is simpler and more predictable. Ethereum's supply model is dynamic, tied to both issuance and burn rates that fluctuate with network usage.

Smart Contracts and Programmability

Bitcoin's scripting language (Bitcoin Script) is intentionally limited. It supports basic conditions like multi-signature requirements, time locks, and hash locks, but it does not support loops or complex logic. This design choice prioritizes security and simplicity: fewer features mean a smaller attack surface.

Ethereum was purpose-built for programmability. Its Turing-complete virtual machine (the EVM) executes smart contracts written in Solidity and other languages. This enables an entire ecosystem of decentralized applications: lending protocols, decentralized exchanges, NFT marketplaces, DAOs, and much more. Ethereum's programmability is its core competitive advantage and the reason it hosts the largest DeFi ecosystem.

Bitcoin is increasingly gaining programmable capabilities through Layer 2 solutions and protocol upgrades. The Taproot upgrade (2021) improved Bitcoin's scripting flexibility, and projects like Spark bring smart contract functionality to Bitcoin without compromising its base layer security.

Use Cases

Bitcoin is primarily used as a store of value and a medium of exchange. Its fixed supply, long track record, and network effects make it the dominant asset for long-term holding and institutional adoption. Bitcoin is also used for cross-border payments, especially via the Lightning Network where transactions settle in seconds for minimal fees.

Ethereum is the foundation for decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized applications (dApps). The vast majority of DeFi activity occurs on Ethereum or Ethereum-compatible chains. Ethereum also serves as the settlement layer for most Layer 2 rollups, making it the backbone of an expanding modular blockchain ecosystem.

In practice, many crypto users hold and use both: Bitcoin as a long-term store of value and Ethereum for access to DeFi and on-chain applications.

Which Should You Use?

The answer depends on your goals:

• For long-term savings and a predictable monetary policy, Bitcoin is the established choice. Its fixed supply and simplicity make it the most Lindy asset in crypto.
• For interacting with DeFi protocols, minting NFTs, or building decentralized applications, Ethereum provides the richest ecosystem and the most developer tooling.
• For fast, low-cost payments on Bitcoin, Layer 2 solutions like the Lightning Network and Spark make Bitcoin competitive with any payment network.
• For stablecoin transfers and dollar-denominated payments, both networks support stablecoins, though Ethereum currently hosts the majority of stablecoin volume. Spark is bringing stablecoin support to Bitcoin's Layer 2.

Neither network is strictly "better." They optimize for different properties and serve different use cases. Understanding these tradeoffs is the key to choosing the right tool for the job.

Frequently Asked Questions

Is Bitcoin better than Ethereum?

Neither is objectively better: they serve different purposes. Bitcoin excels as a store of value with its fixed 21 million supply and battle-tested security. Ethereum excels as a programmable platform for DeFi, NFTs, and decentralized applications. The best choice depends on what you need: sound money and long-term savings (Bitcoin) or access to on-chain applications and smart contracts (Ethereum).

Which is faster, Bitcoin or Ethereum?

Ethereum is faster on Layer 1. Ethereum produces blocks every 12 seconds compared to Bitcoin's 10-minute block time, and handles roughly 15 to 30 transactions per second versus Bitcoin's 7. On Layer 2, both networks offer near-instant transaction finality: Bitcoin via the Lightning Network and Spark, Ethereum via rollups like Arbitrum and Optimism.

Why does Ethereum have higher fees?

Ethereum fees tend to be higher because the network processes more complex transactions (smart contract interactions, token swaps, NFT mints) that consume more computational resources. During periods of high demand, competition for block space drives gas prices up. Layer 2 rollups solve this by processing transactions off the main chain and posting compressed data back to Ethereum, reducing fees to a few cents.

Can Bitcoin do smart contracts?

Bitcoin's base layer supports limited scripting capabilities: multi-signature wallets, time-locked transactions, and hash-locked contracts. It does not support the general-purpose smart contracts that Ethereum offers. However, Bitcoin Layer 2 solutions like Spark are bringing smart contract functionality to Bitcoin, enabling DeFi and token operations without compromising the base layer's security model.

Is Ethereum's supply infinite?

Ethereum has no hard supply cap, but its supply is not growing unchecked. After The Merge, new ETH issuance dropped to roughly 0.5% per year. The EIP-1559 burn mechanism destroys a portion of every transaction fee. During periods of high network activity, more ETH is burned than issued, making the supply deflationary. During quiet periods, supply grows slowly. The net effect depends on usage.

Which has more daily transactions?

Ethereum consistently processes more daily transactions than Bitcoin on its base layer: typically around 1 million per day compared to Bitcoin's 300,000 to 500,000. When including Layer 2 activity, Ethereum's total transaction count is significantly higher due to the volume on rollups like Arbitrum, Optimism, and Base. Bitcoin Layer 2 transactions (primarily Lightning) are harder to measure precisely because they occur off-chain.

Should I invest in Bitcoin or Ethereum?

This depends entirely on your risk tolerance, investment thesis, and time horizon. Bitcoin is often viewed as a lower-risk, more conservative crypto investment due to its fixed supply and status as "digital gold." Ethereum offers exposure to the growth of DeFi and on-chain applications but comes with more variability in its monetary policy. Many investors hold both. This is not financial advice: always do your own research.

What are Layer 2 solutions for Bitcoin and Ethereum?

Layer 2 solutions are protocols built on top of a base blockchain that handle transactions off the main chain while inheriting its security. For Bitcoin, the Lightning Network is the most widely used Layer 2, enabling instant payments with sub-cent fees. Spark is a newer Bitcoin Layer 2 that supports stablecoins and token transfers. For Ethereum, the leading Layer 2 solutions are rollups like Arbitrum, Optimism, Base, and zkSync, which batch transactions off-chain and post proofs back to Ethereum for finality.

This tool is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.