Characteristics of Traditional Currency
Before introducing what Bitcoin is, let's examine the characteristics of traditional currency. First of all, money is an asset used to trade goods or services between people.
Before the familiar currency we currently use emerged, goods like bartering, gold, and stones were used as money. However, due to difficulties in storage, preservation, and transportation, the current form of "currency" such as coins and banknotes appeared.
Through this currency, we directly trade cash offline according to the value of transactions between parties or use credit granted by a trusted institution to make online credit transactions, paying fees in the process.
Traditional currencies are issued by each country's representative issuing institution and are controlled by the state. As a result, different currencies are used in different countries, and there is a problem of having to pay high fees when transferring money abroad. In this way, the existing system incurs various fees and can pose risks from the trading counterparty.
What is Bitcoin?
What if we could trade cash directly online without relying on credit? Cryptocurrency was created to solve the problems of traditional currency with this idea in mind.
Cryptocurrency doesn't require a trusted institution to guarantee credit, and it eliminates the need for fees for credit transactions. As it uses a currency that is not limited to individual countries, it reduces fees incurred during international transfers between countries and enables easy transactions. Additionally, it can reduce the production costs associated with each country's currency issuance and eliminate the storage costs needed to store the currency.
Bitcoin, the first cryptocurrency created using blockchain technology, was developed based on these advantages. Bitcoin was created by an anonymous person or group known as Satoshi Nakamoto. Bitcoin first appeared in the world when Satoshi Nakamoto published a whitepaper in 2008.
Bitcoin is not issued by any country, government, central bank, or institution. Additionally, Bitcoin has a predetermined total issuance. The Bitcoin system is designed to issue a maximum of 21 million bitcoins.
This is a fixed number that cannot be changed, and the issuance decreases by half at regular intervals. This is a significant difference compared to traditional currencies, whose value decreases as more currency is issued.
Bitcoin addresses used in transactions do not contain user information, so it is impossible to determine who is using the address. Lastly, Bitcoin has no physical limitations. Traditional currencies are traded through financial networks, so if the existing banking network is paralyzed, transactions cannot be made. Furthermore, different countries have different financial systems, making international transfers quite complicated.
However, with Bitcoin, individual users can act as banks themselves. All data is stored on the blockchain, and individual users own the blockchain. This means that if you can connect to the Bitcoin network, you can use Bitcoin anytime, anywhere, without restrictions based on countries or currencies.
Therefore, Bitcoin holds significant meaning as an electronic payment system. Everyone using the Bitcoin system can trade electronic currency directly online. There are no fees to pay to banks as intermediaries in currency transactions.
Moreover, Bitcoin is based on blockchain technology, so anyone can check the data stored on the blockchain. In other words, Bitcoin users can verify all transactions happening worldwide if they wish.
Additionally, due to the nature of blockchain technology, it provides strong security against tampering with transaction details or hacking individual user accounts. Unlike traditional currencies, which are issued by specific institutions in each country, Bitcoin is issued according to predefined rules, and anyone can participate in the currency issuance process and benefit from it.
What is Ethereum?
Ethereum is one of the blockchain platforms developed after Bitcoin. Ethereum's founder, Vitalik Buterin, started to conceive ideas for expanding the blockchain while writing articles about Bitcoin and cryptocurrencies for Bitcoin Magazine since 2011. He published these ideas in a whitepaper at the end of 2013.
In 2014, Vitalik Buterin formed the Ethereum Foundation and raised about 20 billion won (approximately 18 million USD) through a crowdfunding method called ICO (Initial Coin Offering) to form a full-time development team. Ethereum was then publicly released worldwide in July 2015. Currently, Ethereum is an open-source project developed in various languages.
Bitcoin, the first blockchain-based cryptocurrency system, is often referred to as the first-generation blockchain. Since then, several blockchain platforms have been derived from Bitcoin to overcome its limitations or achieve other purposes. However, most blockchain platforms have only used blockchain as a means of storing currency.
In contrast, Vitalik Buterin realized that not only Bitcoin's currency transaction records but also additional information and processes, such as contracts, could be recorded. He conceived a system that utilizes the computing resources owned by numerous users worldwide to form a distributed network and records various information such as social media, email, and electronic voting using this platform.
Ultimately, Ethereum was designed based on Bitcoin's blockchain technology and, more precisely, emerged as a distributed computing platform that executes smart contracts that operate as programmed. Ethereum also has a cryptocurrency called Ether (ETH), which is created by the Ethereum platform and can be traded at any time.
Ethereum, which allows the creation of decentralized applications through its smart contract functionality, is called the second-generation blockchain. Since then, many blockchain projects have been developed with Ethereum as a motive or in a form connected to Ethereum.
* What is a Smart Contract? A Smart Contract is a system in which the parties to a contract pre-agree on the terms and program them into an electronic contract document. When all the conditions of the contract are met, the content of the contract is automatically executed.
Comparison between Bitcoin and Ethereum
Ethereum is a blockchain-based platform designed with reference to Bitcoin, so the basic mechanism is very similar to Bitcoin. However, there is a difference that has led Ethereum to evolve into a second-generation blockchain. The biggest difference is the presence or absence of the smart contract feature. Bitcoin is a platform focused on providing a currency function specialized for finance.
Therefore, on the Bitcoin platform, smart contracts are not stored in the blockchain, and the transactions created by participants only involve sending and receiving (Bitcoin) BTC. On the other hand, Ethereum allows not only the cryptocurrency Ether (ETH) but also smart contracts to be stored in the blockchain. As a result, transactions created by participants include not only Ether (ETH) but also various information such as smart contracts and data for utilizing information.
While Bitcoin can only express two states, "used or not used," Ethereum can create various states through smart contracts. For example, it can be further divided into states such as "in transaction," "deposit confirmed," and "transaction completed.”
In summary, while Bitcoin focuses on the currency function that allows for the exchange of cryptocurrencies, Ethereum includes the cryptocurrency function and the ability to utilize smart contracts in various industries.
The Future of Bitcoin and Ethereum
Generally, Bitcoin is compared to digital gold, while Ethereum is likened to Google, which dominated the internet era. Bitcoin is a means of storing value, and Ethereum is valuable as a platform.
Since Ethereum began building its platform ecosystem, it has experienced significant growth through new concepts like DeFi (decentralized finance) and NFT (non-fungible tokens). It has become the second-largest cryptocurrency globally in terms of market capitalization, following Bitcoin. Recently, Ethereum has been undergoing an upgrade process called "Ethereum 2.0" to improve the scalability of its network. This upgrade is solidifying its position as a leading blockchain platform network.
On the other hand, Bitcoin has a limited supply and offers little utility beyond its use as a payment method or for remittance. However, the recent emergence of "Bitcoin Ordinals" has introduced a new phase for Bitcoin. Ordinals is a protocol for issuing NFTs on the Bitcoin blockchain.
In simple terms, it involves storing NFT data (photos, videos, audio, etc.) on the Bitcoin blockchain. The Bitcoin Ordinals concept has become a hot topic in the community, with many NFTs being issued.
There is an opinion that NFTs are not a suitable fit for Bitcoin, which was developed as a payment system. However, the new possibilities of Bitcoin are drawing attention and curiosity.