Can Ethereum Overtake Bitcoin? These signs tell you the answer

For a long time, Bitcoin has been called "digital gold", while Ethereum's vision is to become the "world computer". In the long history of cryptocurrency, the characteristics and performance of Bitcoin and Ethereum have been constantly tested and verified by time.

Bitcoin has been compared to "gold" because of its scarcity, it is outside the traditional payment system, it is safe, private, has a fixed supply, and can be transferred, so it is increasingly used as a value A tool for storing and hedging risk. In addition to currency, Ethereum also allows assets in the form of code to create a variety of applications and products, including financing tools, DeFi, and more.

The upsurge of DeFi and the vigorous development of the NFT sector in 2020 have opened up a huge imagination space for the value capture of ETH. The value and potential of Ethereum have also attracted more and more attention from institutions and banks. Since July 2020, the trading price of ETH has risen from $226 to $2516, an increase of more than 1013%, compared with the highest price of this year ($4371), an increase of 1834%.

In 2021, with the accelerated entry of institutions, the view that "Ethereum may surpass Bitcoin" will continue to be raised and emphasized, which has aroused investors' thinking. On May 25, Todd Morley, founder of Guggenheim Investment Company, said in an interview with Bloomberg TV that the utility of Ethereum is "much higher" than Bitcoin. The Wall Street banking giant Goldman Sachs issued two reports stating that "Ethereum is likely to replace Bitcoin and become the dominant value storage method."

Is it really possible for Ethereum to overtake Bitcoin? When will it catch up with Bitcoin? Undoubtedly, the topic remains controversial. Opponents believe that Bitcoin will always be the king of cryptocurrencies, while supporters believe that there are multiple signs that Ethereum is catching up with Bitcoin.

1. "Flip Index": the possibility of surpassing Bitcoin

First of all, here is an interesting index, "Flippening Index", launched by Blockchain Center, this index represents the possibility of Ethereum (ETH) replacing Bitcoin (BTC) as the largest cryptocurrency. Originally, it was only used to describe the hypothetical moment when the market value of Ethereum surpassed that of Bitcoin in the future. Later, this index used 8 indicators to measure the advantages of Ethereum over Bitcoin, including the number of nodes, transaction volume and total transaction fees, number of transactions, number of active addresses, Google search interest, etc.

The current data shows that the Flippening index is 47.3%, that is to say, Ethereum has a 47% possibility of surpassing Bitcoin. Of course, the main determinant of who is the largest cryptocurrency is its market cap, which is still far higher than Ethereum at $614.3 billion and Ethereum at $290.2 billion. However, compared to the beginning of the year, Bitcoin market capitalization accounts for about 70% of the crypto market, and Ethereum accounts for 12.8%. And now, Bitcoin only accounts for 39.6% of the market and Ethereum accounts for 18.8%. This trend shows that the crypto market share is rapidly being eaten away by Ethereum and other altcoins.

2. The settlement transaction volume of Ethereum has surpassed that of Bitcoin

Speaking of important metrics for measuring a blockchain network, one of them is its actual utility in promoting economic activity, represented numerically as the total value of settlements. Generally, the more value settled on the blockchain, the greater the economic utility of the network. Ethereum is a general-purpose, programmable settlement layer. Most USD stablecoin transfers, DeFi protocols, and NFT transactions are implemented through Ethereum. Compared with Bitcoin, ETH’s transaction volume already has a significant advantage.

According to a Messari research report, the transaction volume of Ethereum has surpassed that of Bitcoin in the past month. As of May 21, the data shows that the daily trading volume of Ethereum has exceeded 20 billion US dollars.

This shows that Ethereum has surpassed Bitcoin in value as a settlement currency, while Bitcoin is being used more as a store of value.

3. Ethereum network transaction fees hit a record high

According to The Block Research data, Ethereum surpassed Bitcoin in adjusted on-chain transaction volume and miner revenue in May, with adjusted on-chain transaction volume increasing by 35.4% to an all-time high of $1.07 trillion. Spot trading volume on centralized exchanges rose 38% to an all-time high of $2.18 trillion.

In addition, CoinMetrics statistics show that Ethereum miner revenue hit a record high of $2.35 billion in May, while Bitcoin miner revenue was $1.45 billion.

This means that Ethereum has higher ledger costs than Bitcoin. The Ethereum network currently pays miners more than Bitcoin, and miners are more sticky and incentivized. At the same time, with the increase in the number of nodes, the security of the network is correspondingly improved. In other words, distributed ledgers are also more secure.

4. Eth2 will bring advantages to Ethereum in terms of energy consumption

Recently, Bitcoin’s energy consumption and environmental protection issues have once again been brought to the table, which has also become one of the reasons why Tesla no longer accepts Bitcoin payments. This incident has once again aroused everyone’s attention and discussion on switching to the PoS mechanism. And Eth2's new proof-of-stake blockchain validation is believed to address growing environmental and security concerns. Industry insiders, including V God and Messari senior research analyst Ryan Watkins, believe that with the transition to Eth2 (Ethereum 2.0 network) and PoS (Proof of Stake), it will be possible for Ethereum to eventually surpass Bitcoin.

Vitalik recently stated at the StartmeupHK virtual conference that Ethereum is about to transition to the proof-of-stake consensus mechanism (PoS) as a solution to the energy consumption problem of the blockchain. In its infancy and with little battle-testing, it could eventually reduce Ethereum's energy consumption by a factor of 10,000. As users increasingly demand energy efficiency and environmentally friendly options, if Bitcoin continues to use PoW, the current largest Bitcoin blockchain in the world will eventually be "left behind."

Additionally, Ethereum’s upcoming Eth2 upgrade and EIP 1559 deployment will convert ETH into a productive asset with a potentially deflationary monetary policy. This will help ethereum gain mainstream adoption and increase its appeal as a store of value asset.

5. The practical use and innovative potential of Ethereum

As the largest underlying blockchain, the Ethereum ecosystem supports smart contracts and supports developers to create new applications on its platform. Almost 80% of DApps are built on Ethereum. Ethereum can also securely and privately store almost all information on a decentralized ledger. This information can be tokenized and traded. This means that the Ethereum platform has the potential to become a large marketplace for trusted information. For example, through the use of NFT to sell digital art and collectibles online, more intellectual property, archives, etc. are issued on the chain, and this is only a small part of its practical use.

More importantly, Ethereum has brought new trends and waves such as DeFi and NFT to the encryption field, thereby establishing a diversified and large-scale economic ecology. Nick Tomaino, founder of cryptocurrency venture capital firm 1confirmation, even believes that without Ethereum, Bitcoin would not have its current market value.

The innovative gameplay and high-return benefits on Ethereum have brought more and more new users to the encryption field, and most of the settlements are based on ETH. This means that while Bitcoin is only used as a store of value, Ethereum can also be used as a payment system while being used as a store of value. Over time, the boom in decentralized applications and the popularity of more innovative fields like DeFi and NFT will allow Ethereum to attract new users faster than Bitcoin.

This is why Goldman Sachs concluded that ETH has a good chance of overtaking Bitcoin as the dominant digital store of value given the importance of practical use in determining store of value.

As for whether Ethereum can surpass Bitcoin, we will give time to verify.