How can there be so many differences between BGD Belgrade, Ethereum, and Bitcoin?

Ethereum's digital currency ETH seems to have no essential difference from Bitcoin.So today, Mr

Ethereum's digital currency ETH seems to have no essential difference from Bitcoin.

So today, Mr. K will tell you what the digital currency ETH in Ethereum is? What is its role in the Ethereum platform? What is the difference between it and Bitcoin?

What is Ethereum?

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We all know that the core point of Ethereum's application is smart contracts. If you write a rule, it can be executed without the participation of third-party institutions, which is safe and convenient. However, if a smart contract wants to be executed, it also needs a medium. It will be executed through something called a virtual machine in the Ethereum network, which is maintained by all participating miners in the network, To form a computing network belonging to Ethereum.

When you want to execute a smart contract, or do transactions or other things on the Ethereum network, you need to calculate and process through this network, which inevitably consumes a certain amount of network resources. Therefore, you need to bear the cost of running this smart contract, and you cannot use it for no reason, and this cost is called Gas in Ethereum.

In Ethereum's settings, Gas is similar to a fuel that can drive the movement of smart contracts. When Ethereum executes transactions on the blockchain, fuel will gradually be consumed according to specific rules. But the problem arises again. With so many users of Ethereum scattered around the world, when they use the Ethereum platform, they cannot purchase gas through legal currency, right? This cross-border transfer is a major issue, and it may also cause significant price fluctuations in gas, thereby affecting the operation of the network.

So, Ethereum simply designed a digital currency on its own, which can serve as an incentive mechanism for miners to mine and mobilize their enthusiasm, as well as a medium to purchase gas and serve as a transaction fee. So, although Ethereum itself is positioned as a blockchain version of the operating system, it also makes its own digital currency.

What is the difference between Ethereum and Bitcoin?

After understanding what Ethereum is, let's talk about the differences between Ethereum and Bitcoin

1. ETH and Bitcoin have different directions

Firstly, ETH and Bitcoin have completely different directions behind the blockchain system. The positioning of Bitcoin is simply a digital currency, which can be considered as a peer-to-peer electronic cash. It was born to replace fiat currency and solve financial crises, mainly used for payment and value transfer. So the entire blockchain network direction behind Bitcoin is mainly focused on currency, solving transaction and payment problems.

ETH, on the other hand, is different. Although it is also a digital currency with certain transaction attributes, the Ethereum blockchain network behind ETH is positioned as a world-class universal computing platform. It only borrows blockchain technology from Bitcoin and develops towards operating system level applications that lean towards the Internet.

You can create smart contracts and build decentralized applications through Ethereum. Mainly addressing issues such as trust and security. So Ethereum is not just a digital currency, but more like an operating system platform for the Internet, not only possessing the attributes of trading assets, but also its service value.

2. ETH and Bitcoin have different roles

Secondly, due to the different orientations of Ethereum and Bitcoin, their digital currency roles also differ. The direction of Bitcoin is currency, and it wants to become a substitute for conventional currency. Therefore, in the Bitcoin system, the digital currency BTC is an extremely important part, which can be said to be the ultimate embodiment of the entire system. Its role is to serve as a medium for payment transactions and a carrier for value storage.

The goal of Ethereum is an operating system level computing platform, which tends to be more focused on internet services. Its value lies in how many users use Ethereum as a platform and how high-quality services it provides to me. So, this determines that ETH is only an important link in the Ethereum platform, but not a manifestation of the value of all platforms. It is just a monetary tool for improving service quality and processing transactions on Ethereum, making peer-to-peer transactions and applications on the platform more convenient.

So, although both Bitcoin and Ethereum are digital currencies, Bitcoin is intended to become a substitute for fiat currency, as a decentralized electronic cash system that is widely used. The entire system is more like a specific application supported by blockchain technology.

Although Ethereum also has transaction attributes, its main goal is not to become a substitute for fiat currency, but as a tool that allows developers to develop and run distributed applications more conveniently. The entire system also focuses on running a series of decentralized application programming code.

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3. ETH and Bitcoin mechanisms have different principles

Thirdly, the consensus mechanism between Bitcoin and Ethereum is different. In the Bitcoin blockchain network, the consensus mechanism that plays a role in data maintenance is the PoW mechanism, which is the proof of workload mechanism. Its working principle is that everyone participates together, and whoever processes the fastest and best will have the power to record data and receive Bitcoin rewards.

Because the application direction of Bitcoin is currency, and the usage scenario is peer-to-peer payments and transactions without the participation of centralized institutions, Bitcoin strongly needs the two attributes of decentralization and security. Although the PoW mechanism is slow to process transactions and requires a large amount of resources, the degree of security and decentralization is extremely high, which is in line with Bitcoin.

Ethereum adopts the PoS consensus mechanism, also known as the proof of equity mechanism. Its working principle is that everyone participates together, and whoever holds more Ethereum coins is more likely to have the right to record data and receive ETH rewards.

Ethereum's application direction is operating systems, which aims to enable everyone to deploy smart contracts and develop decentralized applications on its systems. Although Ethereum also requires decentralized attributes, it requires higher efficiency and lower cost compared to Bitcoin. Otherwise, your platform's data processing efficiency is too slow and the handling fees are still high. Who is willing to develop on your platform?

So, Ethereum adopts the PoS mechanism, which is not as decentralized as the PoW mechanism, but has faster efficiency and does not require significant resources to process data.

4. ETH and Bitcoin token ecosystems are different

Fourthly, ETH and Bitcoin token ecosystems are different. Bitcoin, as a currency, is supported by consensus value, which is how many people recognize it and use it for trading. Therefore, the token design of Bitcoin is actually an economic model of currency contraction, limiting Bitcoin to only 21 million pieces. This way, due to its scarcity attribute, the price will become higher and higher, making it easier to achieve consensus value.

Unlike Ethereum, the key to supporting its value ecosystem lies in products, which are the services provided and pain points solved by the entire platform. Similar to products such as Android and WeChat, Ethereum is a tool on the Ethereum platform that can be used to purchase gas for handling fees, fundraising, and other usage scenarios. Therefore, in Ethereum's token design, there is no quantity limit for Ethereum coins, with a maximum issuance limit of 18 million yuan per year. The difficulty of mining will also increase over time, and the relative inflation rate will decrease every year.

Overall, although ETH and Bitcoin are both digital currencies, the entire blockchain system represented by each of them has different functions, principles, ecological values, etc. The essence of Ethereum is an operating system level computing center. Ethereum breaks the original positioning of digital currency and creates a new direction on the basis of Bitcoin. In addition to its own monetary value, it also includes the value of the entire product, This is unprecedented, and only by understanding this can we understand why Ethereum is a representative of blockchain 2.0.

Alright, that's all the content of our current science popularization! I don't know if everyone understands? If you have any opinions or questions about blockchain, you can leave a message in the background. Mr. K will answer your questions and provide you with more easily understandable blockchain science popularization content in the future. Stay tuned!