Bitcoin introduced a trustless, peer-to-peer system for transferring value, separate from any central financial institution or authority. This was revolutionary, particularly at the time of Bitcoin’s launch in 2009 just after the financial crisis of the years before, but since that time other cryptocurrencies have followed in Bitcoin’s footsteps and dramatically expanded the possibilities of crypto even further. Ethereum is a prime example. Below, we’ll take a look at what Ethereum is capable of that Bitcoin cannot accomplish.

A Digital Store of Value Vs. a Digital Universe

Satoshi Nakamoto said specifically that Bitcoin was developed as a way of decentralizing the financial system and returning control to individuals, rather than central financial institutions. Bitcoin was the first such system to see widespread success as an alternative to fiat currencies.

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However successful Bitcoin is as a currency system and as a store of value, its primary purpose is relatively limited compared to Ethereum. To be sure, there are many similarities between Bitcoin and Ether, the native token of the Ethereum network. Both systems utilize a decentralized blockchain network which provides a mining reward to individual participants in exchange for their efforts in protecting the security of the network. Both can be considered a store of value and used in many of the same ways as a currency.

Despite these similarities, Ethereum’s fundamental purpose is different from Bitcoin’s. Ethereum has been referred to as a “digital universe,” because the Ethereum network is designed to facilitate the creation of decentralized applications (dApps) through the use of self-executing smart contracts. Ethereum utilizes its own programming language that runs on the blockchain to facilitate this.

Turing Completeness

Another way to think of the differences between Bitcoin and Ethereum is in terms of each system’s Turing-complete status. A system of rules for manipulating data is considered to be Turing-complete (a reference to pioneering computer scientist and mathematician Alan Turing) if it can read programming language with a set of information and can be used to solve any computation problem. Turing machines can be used to help humans to understand complex data systems.

Did you know?

Unlike Bitcoin, Ether mining is not capped at any fixed number.

There is debate as to whether cryptocurrency networks are Turing-complete. Bitcoin scripts, for example, cannot run in infinite loops, meaning that Bitcoin is not a program that doesn’t terminate. Many have cited this as a primary reason why the Bitcoin network is not Turing-complete. Ethereum, on the other hand, is at least closer to being Turing-complete because of the Ethereum Virtual Machine, a state machine which executes a stored program while reading and writing other data to memory.

The limitation to the Ethereum Virtual Machine, and why it may be considered quasi-Turing-complete, is its metering mechanism, gas. When the Ethereum Virtual Machine executes a smart contract, each individual instruction comes with a pre-set cost in terms of gas. The Virtual Machine will only be able to complete the execution if there is sufficient gas available. Because the number of computation steps in an execution process on Ethereum is bounded by a finite amount of gas, the Virtual Machine is not fully recursive and is therefore not truly Turing-complete.

A simpler way to think of the above is that Bitcoin is not designed to complete complex computational processes beyond its basic functions as a currency and store of value. Ethereum is, but it is limited by the gas fees to execute smart contracts.

Cheat Sheet

  • Ethereum’s fundamental purpose is different from Bitcoin’s. Ethereum has been referred to as a “digital universe,” because the Ethereum network is designed to facilitate the creation of decentralized applications (dApps) through the use of self-executing smart contracts.
  • Bitcoin is not designed to complete complex computational processes beyond its basic functions as a currency and store of value. Ethereum is, but it is limited by the gas fees to execute smart contracts.
  • Unlike Bitcoin, Ether mining is not capped at any fixed number.

Up Next

Ethereum is more than just a currency. In the next lesson, we find out about Ethereum's 1001 uses.

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