HomeCryptoThe great crypto flippening: Can Ethereum overtake Bitcoin?

The great crypto flippening: Can Ethereum overtake Bitcoin?

“Ethereum’s ascent to the top of the cryptoverse seems unstoppable,” declared Nigel Green in mid-August, and it’s not onerous to see why the deVere CEO thinks this. DeFi is on a tear, NFTs are mushrooming, Ethereum (ETH) stays extra scalable than Bitcoin (BTC) and it additionally affords extra makes use of together with sensible contracts. Moreover, Ethereum will quickly transfer to a proof-of-stake (PoS) consensus algorithm, seeking to be extra eco-friendly than Bitcoin’s energy-intensive proof-of-work (PoW) protocol.

“Ethereum is already years ahead of Bitcoin in everything but price and fame,” mentioned Green earlier this yr, including: “There’s a real sense that 2021 is the year for Ether. Its time has come.” But, is it actually a foregone conclusion that the world’s first, largest and best-known cryptocurrency is able to relinquish its market-cap crown? Maybe not.

“If you look at CoinMarketCap’s homepage over the past five years, Ethereum is usually sitting in second position, right under Bitcoin — and it really hasn’t moved from that number two spot in any permanent way since its launch,” Molly Jane Zuckerman, content material lead at CoinMarketCap, informed Cointelegraph, including: “History shows us that there is only one cryptocurrency that can ever claim the ‘king of the cryptoverse’ title.”

So, is there an opportunity for a flippening — the time period usually used to explain a reversal of ETH and BTC? Are altcoins nonetheless benefiting from the sunshine that shines upon Bitcoin or are they stepping out and changing into widespread by themselves? Ultimately, can the 2 even be in contrast since they’re seen to serve completely different functions throughout the crypto and the broader finance area?

Not a executed deal

“Ethereum’s eventual dominance is hardly a sure thing,” commented Eswar Prasad, professor of economics at Cornell University and writer of the soon-to-be-published e-book, “The Future of Money.” There could possibly be technical issues with Ethereum’s change to the PoS consensus protocol, “and there are many risks of attacks on DeFi products that could undermine confidence in those products and in Ethereum itself,” he informed Cointelegraph.

Still, Bitcoin hasn’t confirmed itself as an efficient medium of alternate, added Prasad, and its blockchain has solely “limited functionality” in contrast with Ethereum, particularly on the subject of decentralized finance (DeFi): “Ethereum provides more flexibility, especially for DeFi products and services, and it has the potential to become a viable and efficient medium of exchange, featuring both low latency and high throughput for transactions.”

Maybe Green went a bit too far, instructed affiliate professor of finance on the University of Western Australia Lee Smales. “Inevitable” is a powerful phrase, in any case, he informed Cointelegraph, “but, I’d say it’s highly likely that this will occur — although the recent rally in Bitcoin has outpaced that in Ethereum and has maybe delayed the timing a little bit. I would suspect it [flippening] happens in the next two to three years.”

So, how lengthy?

Many appear to be betting on Ethereum and the query is usually: not if however when? Ether might surpass Bitcoin because the crypto world’s prime retailer of worth within the coming years, mentioned Goldman Sachs analysts in July, whereas deVere’s Green put the flippening “probably within five years.”

“I think it will be difficult for ETH to flip Bitcoin any time soon,” Justin Hartzman, CEO and co-founder of Canadian-based crypto alternate CoinSmart, informed Cointelegraph. “The next [BTC] halving is in 2024, which will inevitably push the price up. Also, keep in mind that ‘Ethereum killers’ like Cardano and Tezos are coming up big time. If they work out, they could siphon out a lot of potential market cap from Ethereum’s kitty.” If the buying and selling of locations does happen, “I could see it potentially happening in five to six years.”

“I don’t believe in terms of market cap and overall valuation that Ethereum will surpass Bitcoin,” CEO of Banz Capital John Iadeluca informed Cointelegraph, including: “Bitcoin stands as the global ‘introduction’ to cryptocurrency, at least for the foreseeable future. For example, I don’t see any scenario where the SEC approves an Ethereum ETF prior to approving a Bitcoin ETF.”

Jason Peckham, an analyst at funding administration agency Invictus Capital, informed Cointelegraph: “I disagree that it’s inevitable. In fact, five years is enough time for an outsider to flip ETH and BTC both.” So much hinges on how the 2 crypto communities handle their regulatory challenges, he added, in addition to inside components, just like the tempo “at which ETH has been burnt at post-EIP-1559,” which ought to make it much less inflationary and doubtlessly extra engaging to traders. He added:

“If I had to pin it on one thing, I would say that ETH needs the supercycle/double bubble thesis to play out. That should allow for its various sectors to continue prospering in a way that won’t be possible in a bear market, which would likely be bearish for ETH relative to BTC as we have seen historically.”

Environmental components should even be taken under consideration. Bitcoin mining’s prodigious use of electrical energy has been lengthy recognized, however when Elon Musk drew wider consideration to it earlier this yr, BTC’s worth plunged. While Bitcoin has rallied since then, “the energy [issue] continues to garner attention,” mentioned Smales, and that ought to solely intensify. “So, the Ethereum move to PoS creates an additional advantage that could result in the flip occurring sooner.”

What might derail Ethereum?

Green recounted that ETH had already gained 300% in 2021, in contrast with solely 55% for BTC, and it has outperformed all different property through the first half of the yr. Is there something that would halt its momentum?

In order to remain in competition for flippening BTC, Ethereum wants to keep up its function as the most important sensible contract platform, nevertheless, some new rivals proceed to emerge. “POS is not completely proven as of yet,” mentioned Smales, and it might evolve in order that the market is dominated by just a few very massive gamers — primarily centralizing it — creating market frictions and presumably even greater transaction charges.

The EIP-1559 improve was speculated to make Ethereum fuel charges extra manageable, however in line with YCharts, the common fuel charges have reached a three-month excessive. Given that the fuel charges have positioned a steady pressure on the usability of the community, the improve to Ethereum 2.0, or Eth2, can not come quickly sufficient.

Moreover, Bitcoin isn’t standing nonetheless, technologically talking. “The planned Taproot upgrade could significantly enhance Bitcoin’s efficiency, privacy and the functionality of its blockchain,” mentioned Prasad.

Bitcoin additionally enjoys the “first mover” benefit which might be essential with networks. “The case for BTC’s dominance boils down to its superior Lindy Effect,” Peckham informed Cointelegraph, referring to an idea popularized by Nicholas Taleb which holds that the older a know-how is, the longer will likely be its life expectancy. “Together with this is the long-term trend towards stronger-handed market participants holding the majority of Bitcoin while the rest of the world continues to be drawn into owning their stake in the headline cryptocurrency,” added Peckham.

Still, Ethereum appears to have momentum now. “The trends in the crypto markets have indeed been shifting towards Ethereum ever since the explosion of the DeFi summer, followed by the continuing popularity of NFTs,” mentioned Zuckerman, as Peckham added:

“Cohorts of users were drawn into Ethereum for DeFi and for NFTs, while Bitcoin is less diverse in its range of uses by comparison. Most of what crypto natives like myself are excited about in crypto right now is either built on Ethereum or an Ethereum competitor.”

Ethereum has the richest ecosystem within the crypto area, and DeFi, which largely lives on Ethereum, right now holds huge quantities in whole worth locked, regardless of the early summer season downturn and assertions that DeFi was only a bubble with no inherent worth.

“DeFi had its strictest test yet and passed with flying colors. The number of DeFi users has already passed 3.25 million as utility and use cases increase every day,” mentioned Hartzman, including: “With more applications and users coming in, Ethereum could leverage Metcalfe’s Law and exponentially increase its overall network value.”

Are Bitcoin and Ethereum actually comparable?

Upon additional reflection, although, does it even make sense to match Bitcoin with Ethereum? One is a (putative) type of cash, the opposite is a platform, a brand new supercomputer powering Web 3.0, upon which one can construct new applied sciences, arguably.

Right now, the 2 platforms carry out completely different duties. Once the consequences of the Taproot improve come to the forefront and builders begin developing a DeFi ecosystem across the Bitcoin community, then that would flip into an entire new argument. For proper now, nevertheless, Bitcoin is primarily a store-of-value whereas Ethereum is a decentralized utility platform. “This is not a ‘Coca-Cola vs Pepsi’ debate. This is a ‘gold vs internet’ debate,” mentioned Hartzman.

“Both Ethereum and Bitcoin are cryptocurrencies, but vision-wise, they pursue two very different goals,” added Iadeluca: “I don’t believe Bitcoin and Ethereum are in competition with one another; rather, I believe their respective growth compliments one another.”

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“From a technical standpoint, they are fundamentally different,” acknowledged Peckham, however from an investor’s perspective, it does make some sense to match them.

“Bitcoin is unique as a store-of-value,” mentioned Hartzman. “There really is nothing quite like Bitcoin, and there won’t be anything like it any time soon. However, having said all that, it is impossible to bet against Ethereum due to its incredible network value, rich community and pace of innovation.”

Peckham informed Cointelegraph: “As a trader right now, I’m more optimistic about Ethereum in terms of price action. I think it will continue to offer superior upside to Bitcoin in a bull run.”

Rather than selecting a winner, although, “a more realistic prospect,” Prasad informed Cointelegraph, is that “over the next few years, Bitcoin and Ethereum cement their joint dominance of the crypto space while the competition between their adherents leads to innovations in both ecosystems.”