Blockchains and DLTs can be viewed from two angles. One is purely technical, and one is purely economical. In this two-part series, I’ll be outlining the arguments for why we believe that Ethereum, both as a technical and economic system, is superior to Bitcoin. In this blog. I'll concentrate on the technical side of this argument. In part two, I'll focus on the economical aspects.
Versioning vs Generational Change Processes
Blockchain software, like other software, goes through both a versioning and a generational change process. A versioning process represents incremental improvements, with new features added and bugs fixed. The generational process is more radical. It involves learning from previous generations and then building something new which addresses the fundamental shortcomings of previous generations.
Often, we need to go through the generational steps to evolve the mental model needed to determine the next step. It's fine to abandon and restart a new project because it would be too complex to retrofit the existing software to the new model.
Two Generations of Blockchain Software
Bitcoin and Ethereum represent two generations of blockchain software. Bitcoin was first, proving a point and delivering a proof of concept. Bitcoin showed us how to build a distributed ledger using Proof of Work as a mechanism to reach consensus. On top of Bitcoin, you find just one application. The model is deliberately crippled making it very difficult, if not impossible to build anything more. As a proof of concept, this is fine as limiting the scope is often required to get started.
Ethereum represents the next generation of blockchain software. It introduced the ability to also run small programs, aka smart contracts, on top of the distributed ledger. These contracts represent logic, which can be executed as part of transactions.
Being able to run this logic is the key that enables everything we see being built with Ethereum, including:
It is clear that with these additional capabilities Ethereum is superior to Bitcoin on a technical level.
The Blockchain Communities
If we take a look at the communities that back Bitcoin and Ethereum, the stark contrast in viewpoints and operations becomes clear.
The community actions of the Bitcoin community appear to be much more conservative and unwilling to embrace change. In our opinion, this holds Bitcoin back as a technology and cements its position as a first-generation proof of concept blockchain system.
In contrast, within the Ethereum community, you'll find significantly more openness. This is combined with an eagerness to iterate forward. This forward-thinking mindset will enable the Ethereum 2.0 blockchain in the near future. It will allow for both increased scalability through sharding and better energy efficiency and speed through a Proof of Stake consensus model.
This concludes the brief technical comparison of Ethereum and Bitcoin. In the next blog post, I’ll be considering and comparing some of the economical aspects of Ethereum and Bitcoin.