Data shows that Ethereum will likely overtake Bitcoin in the not-too-distant future.
By Billy Endres
Bitcoin (BTC) was the dawn of an era as far as decentralized technology and revolutionary cryptography. However, not a lot has changed. The King of crypto appears stuck in old ways while technology advances rapidly.
Ethereum (ETH) is dominating the layer-1 blockchain race. It lays the groundwork for thousands of projects and has plans for a greener, more scalable future.
While Bitcoin and Ethereum both play considerable roles in the future of blockchain, they are moving in different directions.
To determine if Ethereum has what it takes to flip Bitcoin, let’s compare the cryptocurrencies through a data-driven analysis of market changes, future use cases and adoption potential.
Market dominance
Market dominance refers to the percentage of the total cryptocurrency market cap a particular coin or token holds — in this case, BTC and ETH.
Investors use this percentage to help identify adoption and utilization rates and to gauge market sentiment.
While Bitcoin was once seen as a haven for periods of market uncertainty, dominance data indicates that this may no longer be the case.
The crypto market has witnessed exponential growth in adoption and an influx of institutional funds since the bull run of 2020. A total of 49 cryptocurrencies are currently worth over $1 billion.
Increased liquidity has provided relative stability throughout the broader market and led investors to diversify their portfolios in the form of altcoins. This shift in confidence has seen Bitcoin’s market dominance plummet from over 70% in 2020 to its current all-time low range of 38%.
BTC: Market Cap Dominance | source: Messari
During the same period, Ethereum’s market dominance has nearly tripled and is currently sitting at about 20%. This growth is primarily due to the 3,000-plus decentralized applications (dApps) running on its blockchain.
DeFi, NFTs, and layer-2 Ethereum scaling projects have gained enormous traction. While fundamentally different, these projects all have one commonality — they require ETH to transact on the network, which has led to a significant increase in demand.
ETH: Market Cap Dominance | source: Messari
Utility
Bitcoin and gold possess similar traits. They’re both tradable assets and finite mined resources. It’s no surprise that many have coined Bitcoin “digital gold.”
Comparing Bitcoin to gold as a store of value and recognizing it as a digital currency is an impressive feat. However, its utility doesn’t go far beyond this.
It doesn’t support smart contracts, and is volatile and challenging to use as a day-to-day payment network.
The Ethereum blockchain lays the groundwork for thousands of dApps to build upon. Its smart contract functionality allows for payments and self-executing agreements between parties without needing an intermediary.
With an entire ecosystem of projects hosted on its network, Ethereum is a fundamental pillar in the ongoing construction of the crypto space.
Mining vs. staking
Conversations of concern surrounding the environmental impacts of cryptocurrency mining have grown over the past few years, and with good reason.
Bitcoin mining currently consumes 128TWh per year — more energy than some countries.
Bitcoin: Energy Consumption | Source: Digiconomist
Due to the resource-intensive mining of BTC, many large companies that are required to adhere to environmentally sustainable guidelines (ESG) have been forced out of Bitcoin investments.
Since its inception, Ethereum has operated under the same mining consensus protocol as Bitcoin, proof-of-work (PoW). However, Ethereum’s recent Merge upgrade rectifies the blockchain’s environmental footprint and ends its mining era.
Ethereum’s PoW consensus has been replaced by proof-of-stake (PoS). Staking allows network participants to act as validators from any computer (node) and drastically lowers the entry to blockchain participation.
The Ethereum Foundation estimates that the transition to staking will result in a 99.95% drop in energy consumption.
This upgraded, energy-efficient Ethereum opens the door to corporate businesses looking to invest in the crypto space, as they will now be able to do so while adhering to ESG.
The Merge was a monolithic milestone and was in development for several years. During this time, a testnet known as the Beacon Chain ran parallel to the mainnet. The Beacon Chain allowed testing during development and ensured a smooth transition from PoW to PoS.
While the Merge upgrade officially saw ETH mining switched off, the Beacon Chain and its testnet functionality have allowed stakers (validators) to trial-run the blockchain since 2020. Since then, over 13 million ETH have been locked up via staking — approximately 11% of the circulating supply.
Ethereum: Total Value Staked | Source: CryptoQuant
The amount of Ethereum staked is steadily increasing. With this upward trajectory and the continued development of dApps building on its blockchain, an ETH supply imbalance will likely occur, pushing prices to the upside.
BTC staking?
Many argue that Bitcoin should follow Ethereum’s lead and switch to a PoS consensus mechanism. While possible, it’s improbable. For this to occur, 51% of the Bitcoin network would be required to vote in favor of the change.
Large mining corporations hold over 1.85 million Bitcoin — approximately 10% of its 19.149 million circulating supply. Miners have an influential voice and a large portion of the network’s voting power.
Bitcoin: Miner Reserves | source CryptoQuant
Miners have invested billions of dollars in the hardware to run their operations. Since switching to PoS would obsolete these operations, they have little incentive to vote in favor of a consensus change.
Yes, the environmental benefits would be enormous. However, if history has proven anything, it’s that the environment is generally overlooked in favor of profits.
Mainstream adoption
Bitcoin is fast becoming recognized as a mainstream asset class and a store of value.
However, to put things into perspective, gold currently has a total market cap of 11.4 trillion, while Bitcoin’s market cap sits at about 400 billion.
This massive gap in valuation shows that Bitcoin and decentralized technologies are very much in their infancy and have a long way to go in competing with traditional financial assets.
If Bitcoin can further capitalize on institutional investments and mainstream adoption, it will likely follow the steady upward trajectory historically witnessed by gold and precious metals.
Ethereum is moving towards a greener future. Its roadmap has many challenging but potentially groundbreaking updates, including sharding. The sharding upgrade aims to solve the scalability trilemma and, if successful, will lower ETH gas fees and increase network throughput.
Suppose Ethereum can accomplish its roadmap milestones and maintain the growth seen over the past few years. These upgrades will go a long way toward helping grow Web3, the Metaverse and the future of decentralized technology.
The Flippening
The Flippening — as it’s colloquially known — refers to the hypothetical moment the Ethereum market cap surpasses that of Bitcoin. While this once seemed like a pipe dream, it’s becoming more and more likely.
It’s easy to speculate and pick favorites. However, data doesn’t lie. Ethereum dominance has grown threefold in the same period that Bitcoin’s market share has been cut in half.
The altcoin market is maturing, and many successful projects are utilizing the Ethereum network, all requiring ETH to transact.
Bitcoin mining is leaving its mark on the planet, while Ethereum shifts to a greener future and has a roadmap full of upgrades and technological advancements.
Although many variables are at play, if adoption continues at its current rate, the Flippening will likely occur in the not-too-distant future.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
