- Ethereum’s Ether is the second-largest cryptocurrency after Bitcoin, with a market cap of US$273.19 billion.
- Ethereum is an open software platform that allows users worldwide to create software and applications, making it a “global computer” of sorts.
- Although Bitcoin has the largest market cap of any crypto, Ethereum has closed the gap on Bitcoin’s market share percentage in the past twelve months, surging 1000% compared to Bitcoin’s 300%.
- People are starting to recognise the functional capabilities of the Ethereum network more, most notably the decentralised finance (DeFi) which Ethereum offers.
- Data from Digitalcoin signals the outlook on Ethereum by the end of 2021 to be quite bullish, predicting a rise to US$3,594.08 by January 2022.
Although Ethereum market cap is around 40% of Bitcoin’s, its growth has considerably outperformed Bitcoin’s in the past twelve months.
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What is Ethereum and why is it outperforming Bitcoin?
Contrary to popular opinion, Ethereum is not actually a cryptocurrency in the same way Bitcoin is. Ethereum is an open software platform that allows users worldwide to create software and applications, making it a “global computer” of sorts. The applications and software on this network need something to power it since no one person owns Ethereum. It is essentially owned by all the users. To solve this problem, Ethereum creates a currency called Ether which is subsequently bought and sold to then power the network.
A good analogy is: If Ethereum is the car, Ether is the petrol that powers the car.
Bitcoin does not work like this. Instead, Bitcoin is simply a cryptocurrency. However, it was the first cryptocurrency ever created, and thus, it has maintained some branding power since its creation in 2009.
Bitcoin’s market dominance has been undeniable over the past decade, and even when Ethereum burst onto the market in 2015, Bitcoin took the lion’s share of the market.
However, in the past twelve months, Ethereum has closed the gap on Bitcoin’s market share percentage, surging 1000% compared to Bitcoin’s 300%.
Why the Surge?
There are a couple of significant reasons as to why Ethereum has been outperforming Bitcoin recently.
One of those reason’s is that people are more and more starting to recognise the functional capabilities of the Ethereum network, most notably the decentralised finance (DeFi) which Ethereum offers.
DeFi uses crypto technology to create traditional forms of finance, including loans interest and insurance, something that Bitcoin cannot offer.
Moreover, the rise in popularity of the Non Fungible Tokens (NFTs), which includes the exclusive selling of art, music and even internet memes is a result of Ethereum’s network capabilities. Just to demonstrate how profitable NFTs are, the famous meme “Charlie Bit My Finger” – a minute-long video of two brothers, which had been viewed on YouTube over a billion times – sold for close to US$1 million last month.
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What Does This All Mean?
Two Prime’s Nathan Cox told Forbes that Ethereum would supersede Bitcoin in the long term, describing Bitcoin as digital gold, but Ethereum as digital oil.
However, this is certainly not to say that Bitcoin’s days are over. The “king of cryptos” has seen an astronomical surge in this year alone following Tesla’s (NASDAQ:TSLA) US$1.5 billion investment as well as its decision to allow customers to pay for their vehicles using the digital currency.
The decision from Tesla was short-lived with Tesla Chief Executive, Elon Musk, announcing on Twitter in May that Tesla would no longer accept Bitcoin as a payment option.
Musk’s controversial decision resulted in a steep dive for Bitcoin as it went from a record high of US$65,000 at the beginning of May to a drop below US$50,000 by May 13.
Musk’s reasoning for this decision is the second prominent reason for Ethereum’s recent surge.
In his Twitter announcement, Musk cited the reason for his decision of Tesla ceasing to accept Bitcoin as the harmful damage the mining of Bitcoin has on the environment, calling for renewable energy audits by Bitcoin miners.
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Ethereum’s Move from “Proof of Work to “Proof of Stake”
Until recently, both Ethereum and Bitcoin’s mining methods were similar in that they both used “Proof of Work” as their mining methods. This means that in order to mine one coin, a miner is required to solve a complex mathematical problem using computers. However, this method has proven harmful to the environment due to the tremendous amount of energy required to mine their respective crypto coins.
Following Tesla’s decision to cease accepting Bitcoin as a payment method, it was revealed by the Cambridge Center for Alternative Finance, that the energy consumed for Bitcoin mining is on an annual basis is equal to that of some small countries.
Ethereum’s move to the “Proof of Stake” method for mining their coins means that rather than having computers to solve the mathematical problems required to release coins, instead Ethereum’s “Proof of Stake” requires people to verify transactions, making it much more energy efficient and thus more environmentally friendly.
So, where is Ethereum headed?
At the time of writing, the cost of one Bitcoin was ~US$37,857, and the price of Ethereum stood at US$2,351.65.
Data from Digitalcoin signals the outlook on Ethereum by the end of 2021 to be quite bullish, predicting a rise to US$3,594.08 by January 2022.
However, volatility is a big factor while predicting the price of a cryptocurrency, Bitcoin being a prime example. Thus, while 2021 end is barely six months away, predicting Ethereum’s price is anybody’s guess.