BITCOIN AND ETHEREUM
By CoinTradeUp Team
published in November 02, 2024
Bitcoin and Ethereum are two pillars of the cryptocurrency world, each with its own technical infrastructure and purpose. Bitcoin provides robust and immutable security for value transfer, while Ethereum pushes the boundaries of decentralized computing with its smart contracts and transition to a more eco-friendly and scalable architecture.
Bitcoin and Ethereum are two pillars of the cryptocurrency world, each with its own technical infrastructure and purpose. Bitcoin offers robust and immutable security for the transfer of value, while Ethereum pushes the boundaries of decentralized computing with its smart contracts and its transition toward a more ecological and scalable architecture.
Bitcoin
Protocol and Infrastructure
Bitcoin operates on an open-source protocol and uses a blockchain—a distributed public ledger that records all transactions. Each block contains a list of validated transactions and is linked to the previous block by a cryptographic hash, thus forming an immutable chain.
Bitcoin operates on an open-source protocol and uses a blockchain—a distributed public ledger that records all transactions. Each block contains a list of validated transactions and is linked to the previous block by a cryptographic hash, thus forming an immutable chain.
Proof of Work
Mining is at the heart of the Bitcoin network. Miners use specialized equipment (ASICs) to solve complex cryptographic puzzles. This approach makes the network extremely secure but consumes a lot of energy. When a miner finds the solution to a puzzle, they are rewarded with a certain number of bitcoins, and the transactions are added to the blockchain.
Mining is at the heart of the Bitcoin network. Miners use specialized equipment (ASICs) to solve complex cryptographic puzzles. This approach makes the network extremely secure but consumes a lot of energy. When a miner finds the solution to a puzzle, they are rewarded with a certain number of bitcoins, and the transactions are added to the blockchain.
Hashing Algorithm
Bitcoin uses the SHA-256 algorithm (Secure Hash Algorithm 256 bits), which ensures the security and integrity of the blockchain. This algorithm produces a 256-bit hash, guaranteeing that each entry in the blockchain is unique and tamper-proof.
Bitcoin uses the SHA-256 algorithm (Secure Hash Algorithm 256 bits), which ensures the security and integrity of the blockchain. This algorithm produces a 256-bit hash, guaranteeing that each entry in the blockchain is unique and tamper-proof.
Bitcoin Scripts
Bitcoin transactions are accompanied by simple scripts in a proprietary scripting language. These scripts allow defining spending conditions, such as signature verification to authenticate the owner of the funds. These scripts are limited by their simple and non-Turing-complete nature, which means they cannot execute complex loops.
Bitcoin transactions are accompanied by simple scripts in a proprietary scripting language. These scripts allow defining spending conditions, such as signature verification to authenticate the owner of the funds. These scripts are limited by their simple and non-Turing-complete nature, which means they cannot execute complex loops.
Scalability
The Bitcoin network is limited by its fixed block size of 1 MB and its capacity of about 7 transactions per second (TPS). Second-layer solutions like the Lightning Network have been developed to increase transaction capacity and speed by processing transactions off-chain.
The Bitcoin network is limited by its fixed block size of 1 MB and its capacity of about 7 transactions per second (TPS). Second-layer solutions like the Lightning Network have been developed to increase transaction capacity and speed by processing transactions off-chain.
Ethereum
Programmable Blockchain
Unlike Bitcoin, Ethereum is designed to be a distributed computing platform. Its blockchain is capable of handling smart contracts—autonomous programs that execute when predefined conditions are met.
Unlike Bitcoin, Ethereum is designed to be a distributed computing platform. Its blockchain is capable of handling smart contracts—autonomous programs that execute when predefined conditions are met.
Proof of Stake
Since "The Merge," Ethereum has adopted the Proof of Stake consensus mechanism. This has eliminated the need for energy-intensive mining and has allowed validators to propose and validate blocks based on the amount of ETH they hold and stake. This change has reduced energy consumption by over 99% compared to Proof of Work.
Since "The Merge," Ethereum has adopted the Proof of Stake consensus mechanism. This has eliminated the need for energy-intensive mining and has allowed validators to propose and validate blocks based on the amount of ETH they hold and stake. This change has reduced energy consumption by over 99% compared to Proof of Work.
Ethereum Virtual Machine (EVM)
The EVM is the engine that executes smart contracts on the Ethereum blockchain. It is Turing-complete, which means it can execute any type of complex computation, making Ethereum extremely flexible for developers. Smart contracts are primarily written in Solidity, a programming language inspired by JavaScript and C++.
The EVM is the engine that executes smart contracts on the Ethereum blockchain. It is Turing-complete, which means it can execute any type of complex computation, making Ethereum extremely flexible for developers. Smart contracts are primarily written in Solidity, a programming language inspired by JavaScript and C++.
Transactions and Gas
Every operation on Ethereum requires a cost in "gas." Gas is paid in ETH and serves to compensate validators and prevent infinite loops by assigning a cost to each computation. Gas fees vary depending on the complexity of the operation and network congestion. This ensures that only useful transactions are processed and that network resources are not wasted.
Every operation on Ethereum requires a cost in "gas." Gas is paid in ETH and serves to compensate validators and prevent infinite loops by assigning a cost to each computation. Gas fees vary depending on the complexity of the operation and network congestion. This ensures that only useful transactions are processed and that network resources are not wasted.
Scalability and Layer 2 Solutions
Ethereum, although faster than Bitcoin, encounters scalability issues, especially during peak usage, leading to high gas fees and delays. Layer 2 solutions like Optimistic Rollups and zk-Rollups (zero-knowledge Rollups) allow grouping transactions off-chain and submitting only a proof to the main blockchain, thus reducing congestion and costs.
Ethereum, although faster than Bitcoin, encounters scalability issues, especially during peak usage, leading to high gas fees and delays. Layer 2 solutions like Optimistic Rollups and zk-Rollups (zero-knowledge Rollups) allow grouping transactions off-chain and submitting only a proof to the main blockchain, thus reducing congestion and costs.
Technical Architecture
- Base Block: Each block on Ethereum contains a block header, a set of transactions, and specific metadata. The header contains information such as the Merkle root hash, which ensures the integrity of the transactions.
- Merkle Patricia Tree: Ethereum uses this structure to organize and verify transaction data and the state of the blockchain. This approach allows for more efficient verification and better memory space management.
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