At one time, you may have believed that Bitcoin was the same thing as cryptocurrency. You may even still believe that. People frequently use these terms interchangeably, although each has distinct functionalities and identities.
So, are crypto and bitcoin really synonymous? Or, if they are different, what is the difference between the two?
5 Differences Between Crypto and Bitcoin
Cryptocurrency is a general term for all virtual currencies, including Bitcoin. Virtual currencies are a medium of exchange on blockchains that do not depend on centralized authorities like banks and governments.
On the other hand, Bitcoin (BTC) is a digital currency that uses cryptography to facilitate decentralized monetary transactions. As the first cryptocurrency, the popularity of BTC gave rise to the idea that it is the same thing as crypto.
The main difference between cryptocurrency and bitcoin is that bitcoin is one crypto among the thousands of cryptocurrencies available. In contrast, cryptocurrency is a general term describing all virtual currencies.
Here are the specific differences between Bitcoin and crypto:
1. How they are created
Satoshi Nakamoto, pseudonym of a Japanese group, created Bitcoin in 2009 using blockchain technology based on decentralization, cryptography and consensus.
Bitcoin is managed entirely by peer-to-peer global computer networks, making it one of the most decentralized cryptos. The first crypto is based on public-key cryptography or asymmetric cryptography, which means Bitcoin holders have a public address to receive Bitcoin and a private key to spend the asset.
Additionally, Bitcoin uses a Proof of Work (PoW) consensus algorithm to verify and confirm transactions. PoW involves miners (participants in the Bitcoin network) solving complex cryptographic puzzles to verify and confirm new blocks.
However, this is not how all cryptocurrencies are created. Not all cryptos are controlled or created by P2P networks – some are managed by a particular organization. For example, Binance Coin (BNB) is managed by Binance, which controls the supply of BNB.
Although most cryptos use public key cryptography like Bitcoin, they do not all use the same algorithms. For example, Bitcoin uses the RSA algorithm, which allows simultaneous generation of public and private keys. Meanwhile, Ethereum uses the Elliptic Curve Digital Signature Algorithm (ECDSA), allowing you to choose a private key and generate a corresponding public key.
Likewise, not all cryptos use Bitcoin’s consensus model. A commonly used consensus algorithm is Proof of Stake (PoS), where blockchain participants lock up their crypto assets for the ability to verify and confirm transactions. While Bitcoin uses PoW, Ethereum uses PoS, Bitshares uses Delegated Proof of Stake (DPoS), and Ethereum Kovan uses Proof of Authority (PoA).
2. How are they used
Bitcoin was created to facilitate monetary transactions between peers and serve as a store of value. Due to its confidentiality and anonymity, you can safely use the digital asset to perform and record various financial transactions. Due to fluctuating demand and supply, Bitcoin is also an investment and trading instrument.
Meanwhile, cryptocurrency encompasses all types of digital currencies, which have various use cases and functionalities. Many blockchains have cryptocurrencies supporting services such as carbon offsetting, decentralized finance, and gaming.
While Bitcoin focuses on providing decentralized transactions, cryptocurrencies like Ethereum support smart contracts and decentralized applications. Cryptos like Chainlink (LINK) or Binance Coin (BNB) serve as crypto utility tokens for specific digital ecosystems, so you cannot use them outside of their platforms, unlike Bitcoin.
3. How are they stored
All crypto, including Bitcoin, is stored in cryptocurrency wallets. Since cryptography is intangible and cannot be held physically, these wallets store your private and public keys. They can be software-based or hardware-based.
Crypto wallets interact with multiple networks to allow you to send, receive, or use your digital currencies. Accordingly, each crypto has a unique wallet.
You can only store Bitcoin in a Bitcoin wallet; the same goes for other cryptos. This is because Bitcoin is a different blockchain from other cryptocurrencies and its underlying wallet is designed solely to support Bitcoin.
Remember that cryptocurrencies use different public key cryptography algorithms. This also contributes to incompatibility between cryptos and other wallets.
4. Monetary policy and supply
Bitcoin has a fixed supply capacity of 21 million coins. This means that there will only be 21 million Bitcoins.
Bitcoin’s supply cap is a unique part of its design and sets it apart from other cryptocurrencies. Unlike Bitcoin, other cryptocurrencies have a higher maximum supply rate. For example, Ethereum has an infinite maximum supply capacity, Dogecoin has 129.5 billion, and Shiba Inu has a quadrillion.
Bitcoin’s monetary policy also includes regular halving events, where block mining rewards are halved every four years. Only a few other cryptos that use the same consensus algorithm as Bitcoin, such as Litecoin and Monero, perform this halving event.
Due to its fixed supply cap and regular halving events, Bitcoin is quite deflationary; its value increases over time as less is created. In contrast, some cryptocurrencies have monetary policies tied to economic and government policies. Therefore, their supply limits are adjustable. As a result, their inflation and deflation rates are flexible.
5. Market capitalization
Bitcoin market capitalization represents the value of Bitcoin as a single cryptocurrency. Meanwhile, the cryptocurrency market capitalization is the combined value of all cryptocurrencies in circulation.
Bitcoin, mainly because it is the first digital currency, has the highest market capitalization in the crypto space. Due to its large market capitalization, it is a benchmark for the general cryptocurrency market.
Bitcoin’s market cap is over $500 billion, while the broader cryptocurrency market cap is around $1 trillion. This means that Bitcoin has a market dominance of around 40% in the general crypto market. Significant price drops or increases in the value of Bitcoin will impact the crypto market. However, changes in smaller cryptocurrencies may not have much effect on the crypto market.
Moreover, the introduction of new projects and innovations does not influence the market capitalization of Bitcoin. Since Bitcoin has an established position as the most popular and valuable cryptocurrency in the industry, its price value is not entirely controlled by its competitors. In contrast, the market capitalization of many other cryptocurrencies fluctuates based on adoption, usefulness, new projects, and popularity among investors.
3 Similarities Between Crypto and Bitcoin
Despite their differences, Bitcoin and cryptocurrency fall under virtual currencies, so they have several similarities.
1. They are both digital currencies
Cryptocurrency and Bitcoin are digital currencies that exist electronically. They do not have physical forms like banknotes and coins. Generally, they serve as digital means of payment and means of financial exchange.
2. Blockchain Technology
Bitcoin and other cryptocurrencies rely on blockchain technology, a distributed ledger. Blockchain technology records all information and transactions on the network for the security and transparency of Bitcoin or other cryptos.
3. Cryptography
Cryptography plays a vital role in digital currencies. Bitcoin and cryptocurrency use cryptographic techniques to maintain the privacy and security of all transactions made on the blockchain. Cryptography also makes digital currencies safe from counterfeiting and fraud.
Bitcoin and Crypto are not the same
Digital currencies have established themselves in the financial sector, offering fast, inexpensive, secure and transparent transactions. Bitcoin had a leg up on other cryptocurrencies. Its popularity as the premier cryptocurrency gives it dominance over the crypto industry.
However, although Bitcoin is a cryptocurrency, not all cryptocurrencies are Bitcoin. Understanding the differences and similarities between cryptocurrency and Bitcoin is essential for you to take advantage of the benefits of digital currencies.
