JIMMA UNIVERSITY INSTITUTE OF TECHNOLOGY

SCHOOL OF COMPUTING DEPARTMENT OF COMPUTER

SCIENCE

Block-chain group assignment

Group members Name ID No

1. GETACHEW YIZENGAW ………………………………………….RU2357/07

2. YIBELU SBHAT………………………………………………………..RU3325/07

3. MEHARIW ZEWUDIE………………………………………………RU0469/08

4. BIRU MAMO………………………………………………............01059/06
1. What Is The Difference Between Bitcoin and Ethereum?
A great place to dive into cryptocurrency, is to learn about the two biggest cryptos: Bitcoin &
Ethereum. Let's have a look at what makes them different.

If you went out and asked ten random people to name a cryptocurrency they knew about then the
most cited would undoubtedly be Bitcoin and Ethereum. This simply comes down to them being
the two most valuable cryptocurrencies when you look at market cap - as of writing (and remember
these numbers tend to change a lot), all the Bitcoin in existence has a total value over $109
billion and Ethereum over $44 billion. As a result, it is only normal that these two cryptocurrencies
see more headlines in mainstream media and as a result see a wider adoption.

Bitcoin and Ethereum are both examples of cryptocurrencies and therefore digital money transfer
systems may be enough for you. If you are looking to invest, to trade or maybe even start a business
on one of these platforms - then you need to understand their differences in how they work and
what they can be used for. Your ability to understand differences between two different coins is
crucial when it comes to navigating the world of crypto because those differences can be what
decides if a coin proceeds to become a widely accepted standard or if it will drop into obscurity and
become worthless.

Bitcoin is what we refer to as the first ever virtual currency, and when any other crypto rises in
popularity it will always be compared to Bitcoin. It was born in 2008 when a mysterious Satoshi
Nakamoto published a white paper: outlining lower transaction fees than any traditional online
payment provider and regulated by a decentralized authority, a direct opposite to government-issued
currencies. If you are new to crypto, an important aspect to grasp immediately is that there are no
physical Bitcoins, there are only balances associated with public and private keys.

The concept of Bitcoin being accepted and formally recognized as a way of making a payment, has
over the years increased among regulators and government bodies all around the world. You could
say that it currently does occupy its own niche, coexisting in the world’s financial system, even if
it is regularly debated and heavily scrutinized.

When you look into how Bitcoin functions, then you will make the discovery block-chain which is
the technology that powers it. Currently, blockchain is probably the biggest topic in the world of
FinTech (financial technology), but you can also find it appearing in many other industries.

The main attractiveness of blockchain is its ability to provide you with a tamper-proof record of all
transactions on a network, it is a public ledger that can never be manipulated. Many companies
believe it will allow them the possibility of working at lower costs, with reduced risks and an
enhanced efficiency - which is why it is such a sought-after technology.
Ethereum

Whenever you see blockchain technology being used to create & power applications that are outside
the realm of being solely an accounting method for a digital currency then this is often noted as
being Crypto 2.0, blockchain 2.0 or some even call it Bitcoin 2.0. A good example of this would be
our decentralized exchange Saturn-network which would be considered an application that runs
completely on Ethereum.

Ethereum was launched in 2015, it is currently the largest decentralized software platform that
supports smart contracts and also Distributed Applications (dApps) to be built and run. It does this
by providing developers access to a programming language that runs on a blockchain. Running
applications on Ethereum provides the benefit of having no downtime and no interference from a
third party.
The types of applications you can find running on Ethereum is practically limitless you can find
games, exchanges, and marketplaces. One thing unites them all and that is that they are all
powered by its platform-specific cryptographic token, Ether. You can think of Ether as a fuel for
moving things around the Ethereum platform and therefore it is sought out by developers looking
to develop and publish applications on Ethereum.

Broadly speaking Ether is used with two goals in mind: it is traded like many other cryptocurrencies
via a digital currency exchange or it is used inside Ethereum’s network itself to run and monetize
any work. Ethereum likes to say that it can be used to: - “Codify, decentralize, secure and trade just
about anything.”

The key differences between Bitcoin and Ethereum?

Although Bitcoin and Ethereum are both blockchain based, technically the two are different in many
ways. For example, Bitcoin produces a new block on average every 10 minutes, whereas, for
Ethereum this is only 15 seconds. This means that Ethereum is much quicker than Bitcoin, you can
expect transactions to be confirmed in seconds rather than minutes. They also use different hashing
algorithms (the math’s that makes encryption happen), with Bitcoin using SHA-256 and Ethereum
using KECCAK-256.

The Ethereum network also gives developers the possibility of creating other cryptocurrencies, or
tokens, that run off Ethereum’s blockchain. This opens up an even wider amount of use cases &
scenarios, such as being used by organizations to represent shares, voting rights or even to be used
as a means of confirming your identity or authorization credentials.

So with that said, the main difference is that they are occupying different spaces. Sure due to them
being the two biggest cryptocurrencies they will be compared, but are they really in a competition?

Bitcoin Vs Ethereum

While Bitcoin does have an inbuilt scripting language it remains very limited in functionality with
only a few dozen possible operations. Whereas with Ethereum we find what is called a Turing-
complete programming language: meaning any sort of operation is possible. This means that you
could say their biggest difference is having a different purpose.

Bitcoin has been created as the alternative to regular money, therefore it is a method of storing value
and making a payment transaction. Ethereum is developed as a platform to power peer to peer
contracts and applications fueled by its own currency. Therefore, Ethereum’s goal is not to establish
itself as a payment alternative but to promote and monetize the use of itself (attracting more
developers to build and run dApps on their network).
Bitcoin & Ethereum which one is better?

If you do really want to go down the route of comparing the two, then there is really no clear winner:
because they both have a different purpose. Ethereum is without any doubt an advancement of
blockchain technology but it is not trying to achieve the same goals as bitcoin. Therefore, they are
both set very well to establish themselves for worldwide adoption as they are developed with
different intentions in mind.

2. What is the difference between POS and POW?

The main difference between POS and POW (proof of work and proof of stake is based on its
algorithm and its uses. The proof of work (POW) consensus algorithm is the most commonly used in the
blockchain technology. Both Bitcoin and Ether, the two most famous cryptocurrencies, use it. However,
Ethereum, the underlying protocol of Ether, plans to transition to the proof of stake (PoS) algorithm as part
of their development roadmap. This will be a project of high significance and the crypto enthusiasts are
eagerly debating the POW vs. PoS comparison.

What is the POW algorithm?

Cynthia Dwork and Moni Naor had first conceptualized POW in 1993, although Markus Jakobsson
had given the name in 1999. Bitcoin is the most famous implementation of POW and we will use
it to explain the concept.

Transactions in the Bitcoin blockchain are grouped in a memory pool called ‘mempool’ while a
block is created every 10 minutes. Every transaction in mempool needs verification, and ‘miners’
do it. The transaction verification process is called ‘mining’.

The Bitcoin user requesting the transaction provides the transaction data to the miner who then
proceeds to verify the transaction and includes it in the next available block. However, to include
the transaction in the next block the miner needs to know the cryptographic hash value of the last
recorded block and that’s hidden from everyone. This hash value must be referenced for creating a
new block.

To find the hash of the last block the miner must try one number after another in a show of brute
computing power, and no skills are needed. The miners are rewarded with a fraction of the Bitcoin
and hence it’s a competitive process. The successful miner is the one who beats everyone else in
this game and solves this massive mathematical puzzle by using immense computing power. After
finding the hash of the last recorded block the miner announces it to the network for the other nodes
to verify and creates a new block with the transactions in the mempool post verification.
The cryptographic puzzle solved by the miner is asymmetric. It’s moderately hard for the miner but
the other nodes in the network can very easily see the evidence of the massive number crunching
done. Over time the miners find the puzzle easier, and the block generation time reduces from 10
minutes. Hence, the puzzle is revised every 14 days to make it more complex. That effectively
means more computing power will be needed henceforth.

Carrying out a DDoS attack by capturing 51% of the total computing power in this network is too
expensive, and the hacker will end up spending more than he can make off with. Hence POW makes
blockchain very secure.

However, this high security comes at a heavy cost. The ever-increasing computing power of the
nodes requires ever more electrical energy, for e.g. before the end of 2018, Bitcoin mining
operations will consume more energy in Iceland than the total domestic energy consumption of the
country. Bitcoin isn’t backed by any tangible asset and such strain on the environment for a digital
currency is attracting negative media coverage. Also, the involvement of all nodes in the transaction
validation process impacts the scalability and transaction throughput.

Besides, it’s hard for the individual miners to continuously upgrade their hardware to solve ever
more complex mathematical puzzle and foot the increasing electricity bill. Hence there is increasing
centralization of mining with large organized mining rigs dominating the scene. Such indirect
centralization is against blockchain’s core principle of decentralization.

How is the PoS algorithm different?

In case of PoS algorithm, a set of nodes decide to stake their own cryptocurrencies for the
transaction validation. They are called ‘stakers’. The larger the amount of stake and the longer the
duration of the stake, the better are the chances of the staker to get transaction validation
responsibility.

All cryptocurrencies in this network are already created, and there’s no mining. This eliminates the
need to solve a complex cryptographic puzzle. The continuous upgrade of hardware and soaring
energy costs are eliminated, too. The transaction validation process is called ‘forging’.

Also, there isn’t a need for the entire network to be involved in the transaction validation process,
which improves scalability. PoS allows another technology solution to be implemented, and it’s
called ‘sharding’. Originally a concept from database management, where it means storing different
partitions of the database in separate server instance for higher efficiency, in blockchain sharding
means storing horizontal portions of the network in separate groups of nodes. Since no node can
see the entire network, sharding can’t be implemented in conjunction with POW algorithm, and
PoS is needed with separate stakers for separate shards.
POW vs. PoS: which is better?
POW is well-tested and used in many cryptocurrency projects. DDoS attacks on a blockchain
employing this algorithm are impossible with today’s computing technology. However, the high
energy cost, increased strain on the environment, associated adverse media coverage, increasing
centralization of mining operations, and low transaction throughput will likely make it unviable in
the long run. Communities are increasingly concerned about high energy costs of Bitcoin mining,
and China is officially banning all such operations.

The PoS algorithm provides for a more scalable blockchain with higher transaction throughput, and
a few projects have adopted it already, for e.g. DASH cryptocurrency. However, it’s less secure
than the completely decentralized POW algorithm.

It’s possible to buy a majority of the coins in the network, become the staker of choice, and validate
wrong transactions as part of an attack. However, the market economy has a natural safety valve
for this, because the price of the coin will rise significantly when someone tries to buy such massive
amount of coins, making the attackers’ job far more difficult.

It’s also possible for a staker to turn rogue and validate wrong transactions. Ethereum project, as
part of their planned transition to PoS, has designed the ‘Casper’ protocol where such rogue stakers
will be punished by confiscating their staked cryptocurrencies and barring them from staking ever
again.

If the planned implementation of PoS in a protocol as famous as Ethereum goes well, then the
crypto community will probably be reasonably assured about the ability of the PoS algorithm to
keep the network safe. That may tilt the scale in favor of the PoS, and only time will tell which one
will be the blockchain consensus algorithm for the future.

Learn more about edChain: An open-source, decentralized library that enables sharing of
educational content across apps and organizations. The system allows full attribution to the content
creator. Their Stellar blockchain platform facilitates governing the relationship and payment
transactions between the service provider and consumer with smart contracts.

Proof of Work (POW)

With Proof of Work, your miner (the computer or group of machines under your control) does the
following:
  Takes from the internet the order to process some transactions. In other words, it takes from
the miners geographically closest to it a set of transactions it's supposed to verify, in which
it is written who's sending how much of a cryptocurrency to whom.

 The miner then builds a block– a list of transactions that need to be validated. How many
transactions per block depends on the size of those transactions. Those which send from
many addresses to many addresses are much larger than those sending money from one to
maybe one or two addresses.

 The miner combines all the data from this block (literally glues them together), adds some
more data into the mix, and then tries to guess the final bit of data which will result in a
valid hash when hashed For example, in Bitcoin, the hash has to be prepended by a certain
number of zeroes. The computer, thus, does the following: “Try summing up all of this and
the number 1. Incorrect? Okay, try summing up all of this and number 2. Incorrect? Okay,
try…”

 The computer's processing power will dictate how many of such guesses per second it can
do.

 After a successful guess, the computer gets a block reward which is currently 12.5 BTC in
Bitcoin, or 6.18 XMR in a system like Monero, etc.

The profits of mining this way will vary by hardware, software, and currency – we've gone into
some detail.

The advantages of POW are:

 Outside factor effect. With the POW mechanism, the production and circulation of
money requires external factors like power and hardware. It is not possible to get the
expense of power or production of hardware back. It’s simple to pool mine.

 It's easy to just grab another computer's calculated hashes, combine them into one big
pool of hashes, and have many computers hashing together, splitting the profits.
  It’s useful for areas with surplus electricity, like China with its hydroelectric dams.

The disadvantages of POW are:

 POW isn't possible on smaller and weaker devices like smartphones. Not only do these
devices lack the space to store hundreds of gigabytes of blockchain data, but they're
also not computationally powerful enough to mine effectively. The battery would be
emptied very quickly, not really accomplishing anything.

 POW mining is slow. With Bitcoin, it's one block every 10 minutes, and the transactions
that fit inside that block will be processed. Anything else has to wait for the next block.
This causes long waiting periods or expensive transactions (those that attach a higher
transaction fee are processed faster).

 POW is already spending enormous amounts of electricity. Simply mining a single

block costs more electricity than some countries need in a whole year. This will only
get worse. The dependence of a cryptocurrency on electricity is unsustainable in all but
the most stable environments. This dependency also means that a more expensive
electricity bill or a government-imposed limit to the types of spending electricity can
be used for can stop an entire crypto currency

 POW allows for the centralization of mining. China already has 80% of the world's
Bitcoin hashing power, and if their cartels join forces, we've got an 80% attack, not
a 51% attack.

 Because the block-reward keeps decreasing, miners keep getting fewer and fewer
tokens of a mined block chain. At the same time, as more people are mining, the mining
 difficulty increases, so it gets harder and harder to mine. This makes mining more and
more expensive compared to profits, and fewer people bother with it, exiting the system.
The currency self-sabotages. Less hash- power among the miners also makes the 51%
attack more likely.

Examples of PoS coins: Ethereum (soon), BlackCoin, CoinMagi, Diamond, Mintcoin, OKCash,
HyperStake, Quotient, etc.
The advantages of PoS are:

speedy processing of transactions

contrary to pow, not harmful to the environment
not vulnerable to a state attack: no need for enormous amounts of electricity
can be performed on smaller and weaker devices because there's no need to download the
whole blockchain, and since there's no need for much computational power either, can be
easily adopted by the mainstream

The downsides of PoS are:

 No external factors. Given that the stake is a part of the system itself, the whole game is
internal. This means that someone with enough money to invest exclusively into the
destruction of this system can do so by investing only money, as opposed to Bitcoin where
they need to invest money, time, expertise, hardware, electricity, and more – all external
factors.

 The rich get richer. Those who have had their Ether the longest (the age of the Ether in an
account is as much of a factor as the amount is) also have the best chances of becoming
validators. This means their chances to earn more Ether on top of their existing pile also
increases. This is different from Bitcoin's “rich get richer” system because there the rich
have to keep investing in hardware and knowledge to remain competitive. It also hurts
more to sabotage the network.