In recent years, Bitcoin, the golden child of the cryptosphere, has enjoyed great popularity and acceptance as a store of value, while Ether – the native cryptocurrency of the Ethereum blockchain – has remained stable. in second place.
But with a majority of the best DeFi (Decentralized Finance), dApps (decentralized applications), and Non-Fungible Tokens (NFT) protocols – don’t worry, I’ll explain all of these terms below – currently running on the Ethereum blockchain. , the price of Ether is now appreciating faster than that of Bitcoin. In fact, after gains of 260% on the year (compared to an 87% increase with Bitcoin) and more than 15% in gains this week, the coin hit a record high of just over $ 2,740 at the time of writing this article.
The rising value of Ether, associated with growing attention from large institutions like Mastercard, JPMorgan and UBS, the excitement of ‘Ethereum 2.0’ and the complete migration to a Proof-of-Stake (PoS) consensus mechanism (more info below as well), the coin seems well positioned for more. new gains. This begs the question: Will Ethereum overtake Bitcoin?
CRYPTO-SAVVY is an occasional series of Reverse this explains the world of cryptocurrency and where it is going next.
Bitcoin vs. Ethereum
Before we dive into the attributes of Ethereum, let’s take a look at one of the most significant differences between Bitcoin and Ether: their consensus mechanisms.
As many readers are probably aware, a central part of blockchain technology is the distributed ledger, which contains a record of all previous transactions, stored on a network of computers across the world. It is necessary for the functioning of the distributed registry to ensure that the entire network agrees with the contents of the registry, and that is the job of the consensus mechanism.
Although Ether is currently being migrate to a different consensus mechanism, the two major cryptocurrencies currently operate on Proof of Work (PoW) consensus. With PoW, the probability of mining a block is determined by the amount of computational work done by the miner, with a reward given to the first miner for solving each block’s crypto puzzle.
As network miners compete with each other using computing power, mining communities tend to become more centralized over time. This aspect worries some, as control of blockchain networks is shifting from the larger community to fewer and fewer hands. This decreases the security of the blockchain and is also quite contrary to the decentralized philosophy of cryptocurrencies themselves.
Wary of the drawbacks of PoW and facing increasing pressure to reduce the power consumption of the underlying protocol, developers of the Ethereum blockchain are in the midst of an ambitious move towards a consensus mechanism called proof of stake ( PoS). Dubbed Ethereum 2.0, the change aims to increase the speed, efficiency and scalability of the blockchain while subsequently providing a more environmentally friendly validation process.
The pieces come together, albeit slowly. Ethereum 2.0 phase 0, called “Serenity”, was launched on December 1, 2020. And on April 15 of this year, the so-called “Berlin” upgrade was successfully implemented. Although there is no fixed date for the completion of the transition to PoS (to the frustration of many), last month, Ethereum founder Vitalik Buterin released a blog post detailing how the network transition could be executed faster than the developers initially anticipated – potentially good news after months of delays attributed to mismanagement and bugs.
According to Charles Hoskinson, founder of the Cardano cryptocurrency, the main advantage of Ethereum 2.0 is that the network will not have “gigantic overhead and energy costs” (in deciding who can do a block), the protocols will be therefore “much lighter and massively more energy efficient. These are, needless to say, all the features that only add to Ethereum’s appeal to investors and traders – once the transition is complete.
Ethereum: dApps and DeFi
As a digital currency, Bitcoin is designed with a more limited range of use cases – being the asset of choice for investors looking for a store of value investment. Ethereum, on the other hand, is not just a cryptocurrency. It’s a network that supports smart contracts: programs running on the blockchain that can run automatically when certain conditions are met. Related, Ethereum also hosts Decentralized Funding (DeFi) projects. Smart contracts allow developers to create more advanced functionality than just sending and receiving cryptocurrency; these programs are what we call decentralized applications, dApps.
There are DeFi apps that allow you to create stablecoins (cryptocurrencies whose value is pegged to the US dollar), lend money to earn interest on coins, and implement investment strategies. automated and advanced. A particularly fun and unique example of dApps that run on the Ethereum blockchain is Crypto kittens, where users collect, breed, and sell digital chats. All of this means that there is a lot of money flowing into Ethereum: at least $ 41 billion (and more) is currently locked in DeFi projects on the blockchain, up from just $ 4 billion eight months ago. These distinct and advanced features highlight the growth and innovation associated with the Ethereum blockchain, and are part of the reason some people in the cryptosphere are increasingly excited about the potential Ethereum has to offer.
Bitcoin, Ethereum or… both?
As stated, there is a lot of excitement surrounding Ethereum – remember, Ether has just reached all-time highs! But until the aforementioned Ethereum 2.0 is a known amount, doubts remain about its ability to meet the already large need for bandwidth to support transactions. And while the launch of this enhanced Ethereum network is a testament to the strength of the project, it also represents a change and, therefore, a risk.
When it comes to price, all things considered, it is very possible that Ether will continue to outperform Bitcoin in 2021. Even though Ethereum has yet to fully realize the benefits of the growing popularity of DeFi dApps and NFT. “The explosion in the NFT market will directly benefit the value of ETH, and I think ETH has room to grow until its price encompasses the current excitement,” says writer and analyst Noam Levenson.
Remembering that institutional investors have played a pivotal role in increasing the value of Bitcoin over the past year, will more traditional investment giants turn to Ethereum? If that happens, “it would mean traditional institutions validating not only the current value of ETH, but the Ethereum ecosystem as a whole,” according to Haohan Xu, CEO of the digital asset trading network. Apifiny.
In the last few months alone, we’ve seen more and more evidence that institutional investors in fact realize the value of the Ethereum ecosystem. Grayscale Investments, the world’s largest digital asset manager, added nearly $ 1 billion to their cryptocurrency trusts over a 24 hour period. That included $ 586.5 million in ETH (compared to $ 283.3 million in BTC) – historically those numbers would more than likely be reversed. In addition, according to documents filed with the Securities and Exchange Commission (SEC), two ETH funds launched by Galaxy Digital (a cryptocurrency asset management company run by Mike Novogratz, a notorious Bitcoin bull) have up to now received at least $ 32.1 million investment. These moves by financial giants like Grayscale and Galaxy are further igniting the conversation and representing an increasingly positive sentiment around the second largest cryptocurrency.
In closing, let me remind readers that there is another way to look at this BTC vs. ETH debate; maybe we need to ask ourselves “why can’t we all get along?” Invictus Capital analyst Jason Peckham points out that while Bitcoin and Ethereum are naturally compared to each other, it doesn’t really make much sense as the two compete for “separate and mutually beneficial use cases.” », And investors are going to have it both ways. for different reasons.
Bitcoin is often thought of as a “currency token” and Ether a “utility token”. For this reason, Ether is unlikely to overtake Bitcoin in terms of market capitalization. The two are different heads of the same animal. And while there is growing interest in what Ethereum can offer, the “digital gold” that is Bitcoin, at least to this day, remains king.
“BTC is unlikely to be dethroned as the leading cryptocurrency, but the growth shown on the Ethereum blockchain is hard to bet,” said Peckham, adding that “BTC’s ‘digital gold’ narrative is straightforward, which is beneficial in attracting new users who might be intimidated by the seemingly more complex and dynamically evolving ETH narrative.”