Written by: DeFi Surfer
Compiled by: Block unicorn
Ethereum has won the spot as the most frequently used cryptocurrency on the market, not just as the hardest money.
One of the most important questions new capital entering the crypto ecosystem must ask is where to stake their money, and as the two largest cryptocurrencies with over 50% of the market cap, Bitcoin vs. Ethereum’s relative question may be looking to transcend the asset class. The most important questions asked by institutions and high net worth individuals.
Bitcoin is the #1 crypto asset of all time, dominating the crypto asset class 13 years after the first cryptocurrency was created.
OG (Old Age) cryptocurrencies are currently worth $420 billion, accounting for approximately 38% of the market capitalization of all cryptocurrencies. Bitcoin has the highest brand recognition, and its search volume is about three times that of Ethereum, which ranks second. It also received the most institutional investment. Bitcoin is the only cryptocurrency in which publicly traded company MicroStrategy and one country, El Salvador, are fully invested.
Bitcoin's rise from nothing to a $1 trillion-plus asset in a little over 10 years is perhaps the most incredible technology story of all time. However, despite Bitcoin’s high status today, it is likely that it will lose its dominance over time. Bitcoin may even become irrelevant in the near future. It is not enough to simply be the "hardest currency", the most decentralized and the most secure.
These are all desirable attributes of an Internet-native currency, but they are unlikely to define a successful Internet currency, which will ultimately be the most used currency.
By this most important metric, Ethereum is the best bet as the number one and most durable cryptocurrency in the future.
The cryptocurrency that is used by the most people will be successful
Fiat currencies are one monetary instrument that cryptocurrencies seek to disrupt, specifically the king of fiat currencies, the U.S. dollar (USD), which is the best example of how adoption, rather than other possible “definition” factors, makes cryptocurrencies successful.
From an asset perspective alone, the U.S. dollar has serious flaws. A core property of the dollar is that it will always lose value. Over the past century, the U.S. dollar has lost more than 96% of its value. Economist Amos estimates that annual currency depreciation could be as high as 8%.
Furthermore, the U.S. dollar is used as a tool of aggression by its creator, the U.S. government. The dollar's status as the global reserve currency allows the United States to finance ongoing wars, forcing other countries to submit to U.S. policies under the threat of sanctions or even aggression and violence.
The dollar’s defining attributes as a financing medium for devaluation and hostile hegemony are not ideal for its users—American citizens or America’s trading partners, but that is beside the point.
Despite amassing a trade deficit of over $10 trillion and a recent attempt to erase a country from the global financial system, 59% of global foreign exchange transactions are conducted in U.S. dollars. The second and third most common currencies are the euro at 21%, a basket of “other” currencies at 10%, and the U.S. dollar leading the way.
Why is this happening? Because the US dollar is the most common currency. The United States of America has the largest economy and military in the world. After decades of growing trade and military power, the U.S. dollar has become the world's most used currency. As the largest consumer market and military power, the United States dictates terms of trade far exceeding its 24% share of global GDP.
This is despite the fact that the dollar is depreciating every year and the United States has a history of foreign aggression. In other words, it is not the attributes of the dollar that determine its success, but its acceptance.
Bitcoin is unlikely to become the most used cryptocurrency
Ethereum has significant advantages over Bitcoin in terms of potential widespread adoption. This advantage spans two common and interrelated areas - technology and culture. Ethereum’s technology and culture foster innovation and encourage adoption, Bitcoin’s does not.
The key characteristic of Bitcoin is its immutability, and of all cryptocurrencies, Bitcoin is the most immune to change. The final limit is always only 21 million coins, "the hardest money in the world." Since Bitcoin is the least susceptible to change, it is touted as the ultimate store of value (SoV).
To its credit, the SoV MEME (Ultimate Store of Value Meme) opened up cryptocurrency’s first $1 trillion+ use case. However, Bitcoin’s core SoV use case creates several underappreciated issues for the #1 cryptocurrency.
What exactly are you doing with a store of value? Holding it, accumulating it, hoarding it in order to consume it at an uncertain point in time in the future, in other words, is not very useful.
This value proposition sounds a lot like other existing store of value, namely gold. While gold remains the world's largest asset by market capitalization, at about $11 trillion, the yellow metal's share of global assets is shrinking.
Gold has little utility and no yield (i.e. cash flow). Competing stores of value, such as stocks, bonds and real estate, on the other hand, pay those who hold them through earnings. Additionally, stocks and real estate typically appreciate at a faster rate than gold and provide increasing returns on the investor's cost basis through growing cash flows.
More capital appreciation coupled with growing cash flow? What’s the point of holding gold for savers? It’s a good question, and one that’s getting better as Ethereum and other income-producing cryptoassets get better understanding, this question may be more relevant to Bitcoin.
While Bitcoin improves on some of gold's weaknesses, such as transportability and divisibility, the greatest value proposition of a static technology is that it actually does nothing. In a competitive market, Bitcoin may be outclassed by superior competitors. Displacement, like gold is losing to income-producing assets. Again, the Bitcoin community doesn’t take this seriously enough, and Bitcoin’s value proposition as a “sit back and forth” asset advocates converting its growing influence into a future store of value.
Bitcoin’s long-term security model depends on a strong fee market for “mining rewards,” which today account for 98% of Bitcoin’s security budget (about $18 million, compared with daily fees of $300,000), and mining rewards decrease every four years Half. Bitcoin’s halving reward determines that Bitcoin’s rewards are rapidly decaying and will need to be replaced by powerful fee generation in the near future.
The use case for a store of value is inconsistent with the high volume of activity and therefore the fees. From cycle to cycle, the fees generated by the Bitcoin network fell by more than 60% in BTC terms:
This problem may get worse over time. Uncertainty over whether Bitcoin can generate enough fees to support the network long-term has raised doubts about the cryptocurrency’s appeal as a store of value asset.
In other words, can Bitcoin really be a store of value if users cannot say with 100% certainty whether the Bitcoin network will exist in 100 years, 50 years, or maybe even just 20 years?
Ethereum encourages adoption and innovation
In contrast, Ethereum encourages adoption in a fundamentally different way than Bitcoin. The most important feature of Ethereum is the smart contract function. The smart contract function realizes a virtuous cycle of development and user acquisition that Bitcoin does not have.
The ability to develop applications on Etherum and issue tokens at critical times to developers and early users to benefit from their work is probably the most important difference between the two chains.
For much of its history, and even today, the United States has provided coveted resources, such as cheap land, education, and strong property rights, to encourage entrepreneurs to build companies, fuel the growth of the U.S. economy, and continually improve the quality of its citizens. standard of living.
Likewise, Ethereum offers developers the opportunity to build innovative applications that unlock tremendous value for users brave enough to explore the cryptocurrency and public blockchain frontiers.
The first breakthrough application was the Initial Coin Offering (ICO) in 2017. The second is decentralized finance (DeFi) applications in 2020, such as Uniswap and Aave, and the most recent breakthrough application is non-fungible tokens-NFT in 2021.
All these applications attract new users to Ethereum and encourage use of the blockchain. In fact, Ethereum has attracted twice as many users as Bitcoin, as measured by addresses with balances greater than $0 (Ethereum 86 million / Bitcoin 43 million), and generated 47 times more fees in the past 12 months (Ethereum $9 billion/Bitcoin $200 million), even though Ethereum is 6 years younger than Bitcoin.
Ethereum has made thousands of individuals rich beyond simply holding it, and the cumulative value of applications built on top of it is tens of billions of dollars.
As long as it's possible to build new applications and reap rewards for taking the risk, Ethereum will continue to attract talented developers and early adopters to create the next frontier of applications, thereby attracting Ethereum's next billion users .
This technology reflects the culture of Ethereum. Bitcoin culture is extremely conservative and resistant to change, while Ethereum culture is open, self-aware, and risk-seeking.
The most prominent example of Ethereum’s culture of innovation is Ethereum’s merger, which, along with its shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus, was a highly risky move for an already highly successful chain. However, the merger undoubtedly makes Ethereum stronger, providing more security at less cost and energy consumption.
Perhaps most importantly, the merger provides Ethereum token holders with the opportunity to earn income. Depending on the staking rate and activity percentage on Ethereum, Ethereum stakers may earn between 5-10%.
Since Bitcoin is unable to generate raw returns, a merged Ethereum may gradually attract more capital, just as gold continues to lose its share of global assets to income-generating alternatives such as stocks, bonds and real estate.
But the merger is just one part of a much longer roadmap that will follow Ethereum over the next decade:
The Surge (introducing sharding to achieve massive expansion of the Ethereum blockchain).
The Verge (introducing Verkle trees and further extending them).
The Purge (lean storage and bad debt).
The Splurge (a series of smaller upgrades to ensure Ethereum runs smoothly).
For any cryptocurrency that aspires to be number one in the long term, a strong fee market will be crucial. With Ethereum, you know there is a strong fee market today, and developers will likely continue to be heavily incentivized to develop on the chain and attract more users to grow the fee market in the coming decades.
With every dollar invested in crypto assets, new investors are constantly asking themselves, why risk a bet on Bitcoin now that Ethereum has surpassed it? They'll figure it out.
It’s all about adoption, and Ethereum encourages innovation and adoption
all in all:
Adoption and ubiquity determine the success of an existing currency (like the U.S. dollar), not attributes of the currency like "soundness."
Relative to Bitcoin, Ethereum has built a superior system to encourage adoption. Compared with Bitcoin, which has no applications and no revenue, a strong application ecosystem and revenue-generating attributes may attract more and more users and capital.
Without a vibrant fee market, cryptocurrencies are unlikely to thrive in the long term. The Ethereum model maximizes the likelihood of generating strong fees in the future. Not so with the Bitcoin model.
Just like gold was surpassed by fiat currencies and yield-generating store-of-value assets, Bitcoin is likely to be surpassed by technologies with stronger value propositions such as Ethereum.
The Ethereum community’s ability to foster innovation and chart a compelling path toward building an increasingly robust public blockchain over the coming decades suggests that Ethereum is more likely to become the most adopted, largest and most scalable public blockchain in the medium to long term. The largest cryptocurrency. Furthermore, Ethereum’s culture of risk-taking and innovation suggests that Ethereum is at low risk of being overtaken by alternative technologies in the future.
Therefore, Ethereum is the best choice.
**This article only represents the views of the original author and does not constitute any investment opinions or recommendations.
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