There are many differences between traditional, storage hot water heaters and tankless water heater systems.  The first hot water heater, invented in the 1870's, was an instant or on demand hot water heater.  The on demand concept is the most efficient method for heating water and thus influenced the design of the very first hot water heater.  It was not until 1889 that the first storage hot water heater was invented and became commercially available.  Below is a brief explanation of the differences between storage hot water heaters and tankless water heater systems which explains Why Tankless is the most efficient and reliable method for heating water.       

The Storage Method – How It Works

Tank Water Heater

• Conventional tank water heaters store a specific amount of water, the most common sizes are 30, 40, 50, 66 and 80 gallons, the stored water is kept to a specific temperature by a thermostat.
• When the stored water reaches its set temperature the thermostats disconnect the power going to the element and the tank stops consuming energy.
• Throughout the day the stored water looses temperature, a principle known as Stand-by Loss. The elements turn on and consume energy to bring the water back up to temperature. This process goes on 24 hours a day, 7 days a week even if no hot water is being used.
• When hot water is used, and depleted from the storage tank, it is replaced with ground temperature water. This causes the stored water to experience a further heat loss, referred to as Cycling Loss, requiring the elements to turn on and consume energy.
• Because of cycling loss, a tank heater can only produce about 80% of it’s capacity in continuous hot water and then there will be no hot water available for 30 to 40 minutes until the stored water temperature reaches its set point. 
• Once the demand for hot water has ceased the elements within the tank may stay on for 30 to 40 minutes afterward depending on how much water within the tank has been used and the temperature of the ground water inlet.  
• Up to 20% of energy loss can be attributed to the inefficiencies associated with Stand-by loss and Cycling Loss...

The On Demand Method – How It Works

Tankless Water Heater

• All tankless water heaters operate under the same principle, cold water goes in one side, is heated “instantly”, and goes out the other side. The Instant Heat Method is also commonly referred to as “ON DEMAND.” 
• "On Demand" is a more accurate description of this heating concept because although the water is heated "instantly" within the tankless hot water heater it still needs to pass through the same length of pipe as a tank heater so hot water will not arrive to the point of use instantly. 
• One of the many advantages of an electric tankless water heater, and more specifically an ECOSMART tankless water heater, is the ability to install the heaters closer to the point of use.  This reduces the amount of travel time within the pipes and provides hot water more quickly to the point of use.
• Because electric tankless water heaters eliminate Stand-by Loss and Cycling Loss and only heat the hot water that is demanded they can reduce water heating costs by up to 60%.   
• It is important to have a basic understanding of the Physics of Heating Water to understand the On Demand concept and properly size a tankless water heater.

There are 3 pieces of information that are necessary to determine:

Watts – the amount of energy necessary to heat a given demand.

Temperature Rise – The difference between the inlet water temperature and the set outlet temperature.

Flow Rate – Measure in Gallons Per Minute (GPM) represents the amount of water that will be heated at one time.

• Physics: It takes 1,470 Watts to heat 1 gpm 10°F “instantaneously.”
• The formula to determine how many Watts are necessary to heat a certain demand is as follows:
• WATTS = TEMPERATURE RISE x GALLONS PER MINUTE x 147
• This formula can be rearranged to solve for different pieces of information:    
• To determine the gallons per minute achievable for a given temperature rise with a specific model:
• GPM = Watts within Model # ÷ (Temperature Rise x 147)
• To determine the obtainable temperature Rise (TR) for a given gallons per minute: TR = Watts within Model # ÷ (GPM x 147)