What Will It Take For Ethereum To Overtake Bitcoin?

Highlights

• Bitcoin’s market cap hit an all-time high of US$1.25 trillion just few days ago. It now sits at US$1.15 trillion
• Bitcoin’s real world value lies in its ability to be a viable alternative to fiat currency. Of course, this value increases in concert with how widely accepted Bitcoin becomes.

Bitcoin’s dominance in the cryptocurrency market, in a space where there now exists over 4,000 tokens, has reigned for so long that cryptocurrency is practically synonymous with Bitcoin – much like Kleenex is synonymous with tissues or Colgate with toothpaste.

The second ranked cryptocurrency by market capitalisation is Ethereum. Although they’re both technically cryptocurrencies, in many ways they’re different in terms of what real world value they have to offer.

2021 has seen Ethereum close the gap on Bitcoin quite considerably. The question is: can Ethereum ever overtake Bitcoin as being the world’s premier digital currency?

The Current Situation

As it stands currently, Bitcoin’s market cap hit an all-time high of US$1.25 trillion just eight days ago. It now sits at US$1.15 trillion – not far from its previous all time peak of US$1.18 trillion which it hit in April this year before a mass market correction sent it plummeting to the point where it lost more than half its value.

Ethereum, on the other hand, has a current market cap of US$497.41 billion, which is marginally higher than its previous peak of US$497.39 billion, which it hit in May of this year.

The Difference Between the Inherent Values of Bitcoin and Ethereum

While there is an objective dollar value that separates the two leading digital currencies, their respective values in what they offer the public are very different.

While Bitcoin’s price is at US$61,799.47, Ethereum’s is considerably less at US$ 4,400.84 as on 29 October 2021 at 2:29 PM AEDT. Consider, though, that Ethereum’s total token supply is five and a half times that of Bitcoin.

Bitcoin’s Value

Further to their price value, they offer different possibilities. Bitcoin is a pure crypto blockchain. Indeed, it’s technology is the first of its kind and its original intention was to provide an digital, decentralised, peer-to-peer alternative to fiat currency. Essentially, it’s the digital equivalent to paying for a good or service with cash. In a world which has become increasingly cashless; where payments can easily be made online with a credit or debit card or by simply tapping one’s card to purchase anything from groceries to electrical goods, the idea of a form of currency where one can maintain anonymity and forego leaving a paper trail, was readily welcomed. Further to that point, it’s only become more desired as Bitcoin has been rapidly introduced to the masses in the past five years.

And therein lies Bitcoin’s real-world value. An alternative to fiat currency. Of course this value increases in concert with how widely accepted Bitcoin becomes.

History was made this year when in September, El Salvador became the first country on earth to accept Bitcoin as legal tender alongside the US dollar. The reasons for the central American nation’s adoption of the premier crypto makes sense, at least on paper, when one takes into account the vast amount of its citizens who work abroad (mainly in the US) who are now able to send remittances back to their home country without third parties taking out a sizeable chunk in fees and other charges.

As such, other Central American nations with a large workers sending money home from overseas, will be watching the El Salvador Bitcoin experiment and may well follow suit.

It’s developments like these that will see Bitcoin’s value rise.

There is, of course, a flip side to that coin.  That is, if the process of exposing Bitcoin to the mainstream is diminished, this will result in a diminished value.

The main threat of this comes in the form of regulation, which has well and truly begun in some countries. Earlier in October, the Chinese government enforced their most definitive ban yet putting a blanket ban on the trading of all digital assets as well as the shutting down and prohibition of crypto mining throughout the country.

Other governments around the world have expressed a desire for tighter regulation surrounding cryptocurrencies as a result of various concerns, including their propensity in attracting criminal activities.

The push and pull of acceptance and adoption versus regulation prohibition will guide Bitcoin’s value.

Ethereum’s Value

Ethereum differs to Bitcoin in that it’s blockchain is designed to offer capabilities beyond its digital currency, which is called Ether (ETH). Where is bitcoins block chain is a pure cryptocurrency Ethereum is what’s known as a smart contract-driven platform. This means that it is able to host programs which are known as decentralised applications – or DApps. These DApps include decentralised finance (DeFi) applications which are programs that provide finance services without the need for a third party such as the bank including loans and interest.

Other DApps include web browser plug-ins, an Ethereum Name Service, which produces a personalised and straightforward Ether wallet address as well as all-in-one sign-in, profile, and cloud storage. In fact there are over 3,000 DApps available on Ethereum’s platform offering an array of service.

This is primarily where Ethereum differs to Bitcoin. Whereas Bitcoin is purely a cryptocurrency designed to pay for goods and services as an alternative to fiat, Ethereum is its own network with a range of programs which offer its own services.

The huge plus for Ethereum which sets it apart from Bitcoin is the availability of NFTs or non-fungible tokens. These are unique digital files which can take the form of art, music, video, poetry and basically anything you can fit onto a digital file. There are now hundreds of an NFTs, some of which have become popular collectables such as the Bores Ape Yacht Club which contain thousands of digital drawings of unique bored apes. Some of these have been some for tens of thousands of dollars and the most expensive of which sold for US$2.7 million on October 20 this year. Source

Again, Ethereum’s blockchain allows for the creation of NFTs. Bitcoin’s blockchain doesn’t.

Therefore, the capability of Ethereum’s blockchain is where it derives its value.

Source: © Nouiss | Megapixl.com

Ethereum’s Upgrade

Although the Ethereum blockchain has expanded massively this year as a result of things like the booming NFT market, its value has been held back somewhat as a result of delays surrounding its long awaited upgrade.

So while Ethereum allows for the creation of DApps and NFTs, its blockchain is old and worn, meaning it’s  increasing popularity has made its transaction rate slow and its fees expensive which is why its upgrade can’t come soon enough. However delays in the development of Etherium 2.0 have meant that users have migrated to other similar and newer blockchains like Solana (SOL) and Cardano (ADA)  both of whom have had stellar years.

So Will ETH Supersede BTC?

If Ethereum was to overtake Bitcoin in terms of market cap value, it’s likely not going to happen any time soon. Ethereum’s future growth depends largely on its growing and evolving technology which is somewhat hindered at present until its upgrade is complete, which is not likely to happen until late next year, at the earliest. It will be interesting to see the extent to which the platform will expand when upgrades are complete.

Bitcoin’s growth, on the other hand, depends largely on the two opposing forces of acceptance versus restriction. These forces are in constant battle and will continue to be in the foreseeable future. If 2021 is anything to go by, acceptance and adoption of Bitcoin is winning.