Ethereum versus Bitcoin

I really recommend not reading this page. There’s a ton of tribal sniping between different blockchains (see my Blockchain Tribalism FAQ), and it’s pretty ugly. I’ve had to form opinions about this stuff, because I was trying to figure out how crypto might change the world and what the future might look like. But it’s the kind of thing that the market will sort out sooner or later, so if you’re content to wait, you might as well just wait.

You shouldn’t just take my word for any of this stuff; I’m definitely biased (towards Ethereum). But here’s what I think:

I have a huge amount of respect for Bitcoin; this is a shoulders-of-giants kind of thing.
But at this point Bitcoin doesn’t really have anything going for it except for the fact that more people recognize the name (which is important). Bitcoin was brilliant, but it’s obsolete, and I expect it to fade away into irrelevance fairly soon.

“I’m new to all this; what’s the difference between them?”

The big difference is that Ethereum supports a huge rich ecosystem of applications (not just currency, but also all sorts of other financial stuff, as well as social media, gaming, identity, and a bunch of other things), whereas Bitcoin isn’t much more than just a currency.

It’s like the difference between a calculator and a computer. Or between an old cell phone and a smartphone. A whole ecosystem opens up once you have a platform capable of general-purpose computation.

(Still, having a better currency is important! Bitcoiners rightly point out that the ability of the government/central-bank to print money at will has caused all sorts of bad consequences. I’m not going to go into that on this page, because it’s not really a difference between Bitcoin and Ethereum; all the Bitcoiners’ arguments about the massive societal benefits of a decentralized non-inflationary digital currency also apply to ETH.)

“So Ethereum is a jack-of-all-trades, but Bitcoin is extra-good at its own specialized purpose of being ‘digital gold’?”

No. ETH-the-asset is already a better Bitcoin than Bitcoin. The whole point of Bitcoin is to be a decentralized non-inflationary currency, and ETH does a better job of this than BTC does.

The short version of the explanation is basically: lower expenses, higher revenue. Bitcoin is very expensive to secure, and doesn’t take in much in transaction fees, so they make up the difference by cutting their security budget in half every four years and hoping that that somehow doesn’t become a problem.

I think I’m going to move the more-detailed writeup to a couple of separate pages:

But the bottom line is that ETH-the-asset is already a better decentralized non-inflationary currency than BTC is (in addition to Ethereum-the-platform being a whole rich ecosystem of apps), in a way that’s economically sustainable (because Ethereum has made sane technical choices that don’t require massive wasted resources). I’m expecting this to be much better understood fairly soon, and I don’t think Bitcoin is going to survive it.

“Okay, but isn’t Proof Of Work more secure or more decentralized than Proof Of Stake, or something?”

No. I’ll write some stuff about this on my Proof Of Work versus Proof Of Stake page. But yikes, Bitcoin maximalists have some really dumb takes on this.

“Why would Bitcoin fall so far behind? I mean, I can understand why most Bitcoiners would have been skeptical, way back when Ethereum was new, about these newfangled untested overly-ambitious ideas. But now that Ethereum has become more mature and many of its ideas have proven to be viable, why wouldn’t Bitcoin adopt those ideas?”

To some extent, that is happening; e.g. look up “Bitcoin Ordinals” or “Bitcoin Taproot”. The Bitcoin ecosystem has recently been adopting a little bit more programmability (at a glacial pace - they’re still absurdly far behind Ethereum in this regard).

But I think the real answer is something like: Bitcoin has no path forward other than becoming more like Ethereum, and if you’re the kind of person who’s inclined to want that, you might as well just switch to Ethereum.

Nobody is “stuck” in the Bitcoin world for any reason other than psychological. If you’re a Bitcoin enthusiast and then you realize that programmable-blockchains and proof-of-stake are great ideas, you don’t need to fight a long uphill battle trying to convince the die-hard Bitcoiners to move Bitcoin in that direction; you can just sell your BTC and buy ETH and move on with your life.

The global community of Bitcoin advocates is on-average becoming nuttier and nuttier, because the sane ones are leaving for other healthier ecosystems.

“So you’re expecting Ethereum to take Bitcoin’s #1 spot?”

Yeah.

(This is not financial advice.)

“When?”

My guess is: when transactions on Ethereum layer2s are cheap-and-plentiful enough (see my Crypto Tech FAQ page) that there can be mass adoption of apps like social-media and games.

Very few people care about all these arguments about decentralization, or about the holy wars between the adherents of different blockchains.

But people do understand the concept of apps (e.g. the difference between a calculator and a computer, or between a dumbphone and a smartphone). So once the tech is mature enough to support mass adoption, people will start to get the idea after they see the first few popular apps.

And institutional investors who look at Ethereum (there are already plenty of these, but there’ll be a lot more in the future) will have no trouble understanding the concept of “Bitcoin has pointlessly high expenses and pretty low revenue; Ethereum has low expenses and high revenue, so they don’t have to inflate the currency to make up the difference.”

So once it becomes more obvious that it really is very useful to have an application platform that can be trusted to execute apps faithfully and transparently, I’m expecting more financially-literate people to look at the economics of BTC and ETH, and the general idea of “ETH is a better BTC than BTC” to become much more widely understood.

(That was all just wild guesses, of course. Still not financial advice.)