Bitcoin and Ethereum: differences and smart contracts explained for beginners

Bitcoin and Ethereum are the two networks most often cited when talking about cryptocurrencies, but they do not do the same thing. This article explains the differences in simple terms, introduces smart contracts and shows their risks, using the original papers and the official documentation as reference. It contains no price comparisons or purchase suggestions.

Bitcoin: direct payments without an intermediary

The paper that introduced Bitcoin in 2008 proposes a system of direct electronic payments between parties, without going through a financial institution, and solves the double-spending problem, that is the same value being spent twice, with a peer-to-peer network. The network timestamps transactions with a chain of proof of work: the longest chain is taken as the valid history. Bitcoin therefore starts with a precise and limited purpose: moving value verifiably from one person to another.

Ethereum: a programmable platform

Ethereum's founding paper starts from an observation: beyond the currency, the arguably more important part of the Bitcoin experiment is blockchain technology as a tool of distributed consensus. Ethereum uses it to offer a platform on which programs run, not only transfers of value. Since 2022 Ethereum has used proof of stake: according to its documentation, validators deposit ETH as collateral, must check new blocks, and some or all of the amount can be destroyed if they try to defraud the network. To become a validator you must deposit 32 ETH and run three pieces of software. Bitcoin, by contrast, uses proof of work, in which computing power is spent.

What a smart contract is

According to the Ethereum documentation, a smart contract is simply a program that runs on the blockchain: a collection of code and data that sits at a specific address. It is not controlled by a user, but is deployed to the network and runs as programmed. Users interact with it by sending transactions that trigger one of its functions. It can define rules, like a traditional contract, and enforce them automatically through code. The documentation uses the image of a vending machine: you put in the required value and get the expected result, without intermediaries.

The risks of smart contracts

The same mechanism that makes smart contracts reliable also makes them rigid. The documentation states that, by default, they cannot be deleted and that interactions with them are irreversible. If the code contains an error, the error is executed with the same precision. A recent example: on 1 October 2026 CoinDesk reported an exploit of about $3.8 million on the NEAR Intents platform, which the project attributed to an error in the interaction between its deposit and withdrawal system and the smart contract. The project said it had fixed the vulnerability and that the attacker returned all the funds the next day. It is a case with a happy ending, but it shows how a flaw in the code can halt a service and move value in unintended ways.

Fees and scalability

When a network is heavily used, transactions slow down and fees rise. The Ethereum documentation describes this: as demand grows, gas prices, that is fees, go up because those sending transactions try to outbid each other, which can make using the network very expensive. Scaling solutions try to increase speed and capacity without sacrificing decentralisation and security. Among them are so-called layer 2 solutions, which process transactions off the main network while taking advantage of its security model. These technologies are still evolving, as the same documentation notes.

How to find your bearings

For a beginner, a sober summary:

• Bitcoin: a network designed to transfer value between parties, with simple rules that change little;
• Ethereum: a network designed to run programs and build services on top of the blockchain, with more flexibility and therefore more surface for risk;
• smart contract: code that applies rules automatically, useful when the rules are clear and the code has been verified, risky when it is new or unchecked;
• fees: they vary with network use and should be checked before every operation.

For an SME, the useful criterion is not choosing a network, but understanding the use case: payment, data recording or automation of rules. Only then is the technology assessed, with code verification and clarity on who is responsible in case of error.

Sources

• Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2008: https://bitcoin.org/bitcoin.pdf
• ethereum.org, Ethereum whitepaper: https://ethereum.org/en/whitepaper/
• ethereum.org, Intro to smart contracts (developer documentation): https://ethereum.org/en/developers/docs/smart-contracts/
• ethereum.org, Proof-of-stake: https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/
• ethereum.org, Scaling: https://ethereum.org/en/developers/docs/scaling/
• CoinDesk, NEAR Intents hit by $3.8 million exploit as crypto's rough year of hacks continues, 1 October 2026: https://www.coindesk.com/tech/2026/10/01/near-intents-hit-by-usd3-8-million-exploit-as-crypto-s-rough-year-of-hacks-continues

Information, not advice.