Bitcoin and Ethereum – What’s the difference?

As digital assets gain popularity, it is important to understand that while many appear similar, they are not all created equally. Among the plethora of digital assets, Bitcoin¹ and Ethereum have emerged as the largest, accounting for roughly 70% of the total digital asset market capitalization.² Despite often being viewed in a similar light, they differ fundamentally, both in their purposes and the mechanisms that allow the networks to function. This report compares these two digital assets, noting their similarities, differences, and risks.

Bitcoin is the first and largest digital asset platform, accounting for 57% of the total digital asset market capitalization (see Chart 1). It was created in 2009 to address the lack of ability to transfer value electronically without the use of an intermediary. Bitcoin is simply an alternative method to independently transfer value to anybody who has access to the internet. Conceptually it is similar to a person exchanging physical cash with a peer — bitcoin is done virtually.

Unlike traditional payment services, Bitcoin is decentralized, meaning there is no owner or intermediary. Instead, it runs on a network of computers around the globe, abiding by set protocols and rules. In theory, these rules can change. However, in practice, this is highly unlikely due to requirements for updates to be approved by a majority consensus among users.

Decentralization helps promote privacy by preventing any single entity from controlling user data. Playing into the theme of decentralization, Bitcoin supports the implementation of basic smart contract functions. Smart contracts are a program on a blockchain, that automatically runs rules when certain conditions are met, without the use of an intermediary. One example of how a Bitcoin smart contract could be used is in the case that funds need to be locked until a set period, for example parents could utilize a script to release funds to their child once they reach a certain age.

Ethereum was proposed in 2013 and launched by Vitalik Buterin and his team in 2015. The platform is built on many of the same principles initially laid out by Bitcoin such as decentralization. Unlike Bitcoin, however, Ethereum’s founders attempted to broaden the programmability capabilities of blockchain³ technology beyond maintaining a secure ledger for payments. The Ethereum network can handle more complex smart contracts than the Bitcoin network. For example, Ethereum can process a smart contract for a decentralized autonomous organization (DAO), where members lock tokens in a special wallet to vote on proposals, automatically executing decisions like fund allocations based on majority votes and conditional logic. This expanded programmability helps support more complex applications with Ethereum tokens.

Now that there is a basic understanding of the two assets, what are the key differences?

Bitcoin and Ethereum are both highly secure due to their decentralized nature and scale, making it extremely difficult for any single party to successfully alter their networks.⁴ They utilize systems, known as consensus mechanisms, to ensure that transactions are accurate and the network is secure. Bitcoin’s consensus mechanism is considered more complex as it relies on users, known as validators, to compete to solve complex equations in order to process transactions. (These validators are also often referred to as “miners”, but for our purposes we will refer to these users as validators.) Validators are essential as they verify transactions and maintain the blockchains integrity. Validators have an incentive to verify transactions, because they receive a reward for each transaction they confirm. Ethereum, on the other hand, utilizes economic incentives by requiring validators to stake or lock up Ether⁵ as collateral. This deters validators from processing fraudulent transactions, as they run the risk of losing collateral.

In effect, it requires much more energy to keep Bitcoin’s blockchain secure compared to Ethereum’s. In theory, this may also make Bitcoin more secure than Ethereum, as altering the blockchain in a malicious manner would require vast amounts of time and energy. Bitcoin’s protocols also do not change as frequently as Ethereum’s, which have been updated numerous times over the years.

The same mechanisms used to validate transactions and secure the blockchain can also influence supply. In Bitcoin’s case, there is a limited supply of 21 million bitcoins that will ever be issued. Rewards in the form of transaction fees, paid by users, and newly minted bitcoins are distributed to validators once a set of transactions are processed. These same validators disseminate the supply of newly issued coins by selling to the open market to pay for mining expenses, effectively growing the available supply. Over time, supply growth slows as the reward of newly issued bitcoins are cut in half about every four years through a built-in event coded into the software. This prevents too much inflation in the bitcoin supply, making it scarcer over time. For example, validators initially received 50 bitcoins for processing transactions, but today they earn 3.125 bitcoins and validators — following the next halving — will only receive 1.56 bitcoins.

Roughly 95% of all bitcoins have been issued; however, due to the halving process materially slowing supply growth, the 21-million supply limit is not expected to be reached until 2140. Once the final bitcoin has been issued, validators will be rewarded with transaction fees in the form of bitcoin, paid by users, ensuring there is still an incentive to keep the blockchain running. This limited supply creates scarcity and can help support Bitcoin as a store of value. arranging transactions in a block to capture opportunities, like arbitraging prices. All these earnings are divided up proportionally, meaning if you stake more tokens (like putting up more money as collateral), you get a bigger slice of the rewards pie. This encourages people to stake more and helps keep the network secure.

Like Bitcoin, Ethereum validators earn rewards in the form of coins, growing the available supply. However, Ethereum does not have a set supply cap and there is no halving process. In Ethereum’s system, all active validators earn rewards if they are online and perform their duties, such as attesting (voting) to validate blocks, even if they don’t propose a block themselves – rewards come from base fees, tips, and maximal extractable value (MEV), distributed proportionally based on stake. The “base fees” are like a fixed toll everyone pays to make a transaction. “Tips” are optional bonuses users add to their transactions to get processed faster, going directly to the validator who includes them. “Maximal Extractable Value” (MEV) is extra money that validators can make by arranging transactions in a block to capture opportunities, like arbitraging prices. All these earnings are divided up proportionally, meaning if you stake more tokens (like putting up more money as collateral), you get a bigger slice of the rewards pie. This encourages people to stake more and helps keep the network secure.

To help manage supply growth, a base fee from every transaction on the Ethereum network is permanently destroyed (burned), reducing the total amount of outstanding Ether tokens. This makes the supply of Ether more dynamic and when the usage of the Ethereum network is high it can lead to Ether becoming deflationary as more tokens are burned through transaction fees than created through staking rewards, balancing growth with scarcity to potentially support value over time.

For both platforms, validators play a critical role in the security and supply issuance of their respective digital assets. Put simply, they are the key players that keep the blockchains running and secure.

Historically, Bitcoin and Ethereum exhibit high volatility, amplifying drawdowns up to 93% during past market corrections. Digital assets exhibit high volatility primarily due to factors like speculative trading, immature market structures, rapid shifts in investor sentiment, regulatory uncertainty, and low liquidity compared to traditional assets. Despite this, some digital assets are often viewed as stores of value because of their fixed supply, decentralization that may protect against inflation or government interference, and growing institutional adoption, where long-term holders focus on potential appreciation over short-term fluctuations.

Additionally, although digital assets like Bitcoin and Ethereum are commonly referred to as “currencies,” we caution that this may be misleading. They are classified as commodities by the Commodity Futures Trading Commission because they are decentralized digital assets created through mining (validating) or staking, with value being driven by supply, demand, and market forces, rather than being issued or backed by a government or central bank. Bitcoin and Ethereum do not offer profits from a company’s efforts (unlike stocks) and are not designated as official money with legal tender status.

In terms of security risks, Bitcoin and Ethereum networks have remained secure and have resisted security breaches on their networks. Bitcoin’s hash rate, a measure of the computational power used to secure the network, provides stronger deterrence against future hacks. The size and computational power of this network makes it feasibly impractical for a bad actor to maliciously alter the network. While theoretically not impossible, in practice we believe a successful hack is highly unlikely. Additionally, Bitcoin’s security though computational power comes at the expense of higher energy costs, which can present challenges to miners.

Custody options can also present risks for investors. Direct exposure through a digital asset wallet can become a challenge for the average investor, as wallet addresses and passwords are not intuitive and cannot be restored if lost. Indirect exposure through spot exchange-traded funds attempts to remedy these issues, as the assets themselves are typically stored in a digital vault and managed by a trusted custodian. However, indirect exposure through a trusted intermediary creates third-party risk and the potential for fraud. Lastly, digital assets are an evolving asset class subject to regulatory changes. We view the evolving regulatory environment as an ongoing risk for digital assets.

Overall, while Bitcoin and Ethereum may appear similar on the surface, there are many fundamental differences and purposes between the two. Bitcoin pioneered many principles common among digital assets today, such as a focus on decentralization and blockchain technology. Ethereum expanded on these concepts to broaden the use cases beyond payment and a store of value. We believe it’s important to understand their unique differences and how they are being applied to serve different needs within digital assets.

¹ Bitcoin can be referred to as “Bitcoin”, which represents the network itself, and “bitcoin” which is the token used to interact with the network. For this report, we will be referring to the network itself unless stated otherwise.

² Coinmarketcap.com, as of September 5, 2025.

³ Blockchain is a decentralized digital ledger that records transactions across a network of computers in a secure and transparent manner. For a complete introduction, please see Wells Fargo Investment Institute’s (WFII’s) four-part series of reports, “Introduction to digital assets and the next digital era.” March 2025.

⁴ For more details on blockchain security please see Wells Fargo Investment Institute’s (WFII’s) four-part series of reports “Introduction to digital assets and the next digital era.” March 2025.

⁵ Ether is the native coin on the Ethereum blockchain, similar to bitcoin on the Bitcoin blockchain.

This document is a general communication being provided for educational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product or strategy. Any examples used are for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.

Digital assets are not a physical currency, nor legal tender. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. An investor could lose all or a substantial portion of his/her investment. Digital assets have limited operating history or performance. Digital Assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional fiat currencies.

Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. An investor could lose all or a substantial portion of his/her investment. Cryptocurrency has limited operating history or performance. Fees and expenses associated with a cryptocurrency investment may be substantial. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional fiat currencies.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee to its accuracy or completeness.

Wells Fargo Advisors is registered with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions or communications made with Wells Fargo Advisors.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.