*Picture from shutterstock.com
As introduction statement I would like to only mention the performance in the last year. Those two crypto currencies dominate the crypto market capitalization among other digital currencies:
Bitcoin (+515.5% in 1 year)
and Ethereum (+2053.8% in 1 year).
What is the technology and what is the main difference?
Both digital currencies use the blockchain technology.
A blockchain is a digital database consisting of data blocks. They are concatenated – and ensure that a transaction remains stored. Thus, no money already sent can be changed afterwards.
The blockchain is stored on many different computers distributed all over the world. It provides a secure transfer for money or data. It is also intended to connect people directly (and make connections like a company or a bank redundant!).
The Ethereum blockchain has a decisive advantage over Bitcoin’s, because it supports smart contract (i.e. intelligent contract applications).*
Smart contracts are (simply explained) computer protocols that facilitate, verify or enforce contract negotiations. They help to automate and better control complex processes. It is a protocol within the Ethereum network that enables large companies to secure business transactions between companies and customers securely and efficiently.
*update from Lucas Betschart (7 minutes after publishing! Thank you so much Lucas – you’re a mutant!): Also Bitcoin has smart contracts! CLTV, CSV, multi-sig are SCs. Lighning is built with SCs. Ethereum adds “turing completeness” – something adds. Also something nobody proofed yet that there is an actual real world need for on a censorship resistant blockchain.
What you need to consider
Basically speaking, banks and other companies are to be made redundant in the Internet using encryption currencies. Yes, you’ve read that correctly.
The fewer actors involved in a transfer of money (“transaction”), the less we can be monitored. So the idea of inventors. Criminals can use this to do illegal business. So the accusation of critics.
At some point the digital currency like Ethereum or Bitcoin will replace the credit card. For us it is important because of the higher data protection. With the handling of transactions via a blockchain, we no longer need to worry that our data will fall into the wrong hands.