Bitcoin is the king of cryptocurrency.
Since the creation of Bitcoin, we have seen dozens of altcoins hit the market such as
Cardano, Ethereum, and of course DogeCoin.
Despite these introductions though, there has been little doubt that Bitcoin has always
remained the leader.
But, when you consider the merits of ethereum and the shortfalls of bitcoin, Bitcoin’s
dominance isn’t nearly as clear over the long term.
So, here’s why Ethereum will squash Bitcoin.
Before we get into the merits of ethereum, let’s first take a look at the origins of
Ethereum, as this will tell us a lot about the future potential of Ethereum.
Ethereum was founded by Vitalik Buterin and Gavin Wood in 2015.
Vitalik had been in the crypto space since his teenage years and he had even co-founded
bitcoin magazine in 2012.
Though he loved blockchain technology and the potential of decentralized finance, he
had one major gripe with bitcoin.
He says that people in the bitcoin community “weren’t approaching the problem in the
right way.”
According to Vitalik, it seemed like the bitcoin community was targeting individual applications
as opposed to blockchain technology as a whole.
So, Vitalyk would start pitching his vision for a better cryptocurrency in 2013.
Just a year later, Vitalyk and Gavin would crowdfund $18 million to develop Ethereum,
and we would see Ethereum hit the market in 2015.
Fun fact, Vitalik was just 21 years old when he launched Ethereum.
Anyway, a common misconception is that Ethereum is another cryptocurrency just like Bitcoin,
but this is actually not true.
Ethereum is actually just a platform/technology.
One cryptocurrency that is built on this platform is Ether, and Ether is actually what people
are investing into when they say they bought ethereum.
As you can see, Ether was not developed as a me too coin or as a quick cash grab.
No, Ether was developed on the Ethereum platform which was meticulously designed to fix the
flaws of Bitcoin.
So, it’s not surprising to see that Ethereum is far stronger than Bitcoin in several aspects
such as utility.
Bitcoin is often described to be digital gold, and that’s a pretty accurate description.
Like gold, you don’t really do much with bitcoin.
Some people argue that bitcoin can be used for transactions, but no one buying bitcoin
is really looking to spend it, at least not in the short term.
People investing into bitcoin are either looking to make some quick cash in the bull run or
they’re looking to hold for decades.
So, like gold, Bitcoin is really just a store of value, albeit a rather voltalite one at
this point.
Ethereum on the other hand has several use cases such as smart contracts.
Smart contracts are basically just regular contracts, but the overseeing entity is just
lines of code.
Right now, we have plenty of overseeing authorities that make sure that all parties involved in
a contract are fairly treated, and that the terms of the contract are met.
A great example of a real life contract is paying taxes.
We pay taxes to the government, and the government ideally uses that money to better our lives.
In the meantime, there are several overseeing authorities that make sure everything runs
smoothly.
For instance, if someone doesn’t pay their taxes, they may be arrested by the police
or raided by the FBI in extreme situations.
In this scenario, the police and FBI are the overseeing authorities.
Similarly, if the government abuses their power and spends money in wasteful ways, citizens
have the right to sue the government through the courts in which case the courts are the
overseeing authority.
The problem with this system is that the overseeing authority is inefficient and/or biased.
Smart contracts aim to eliminate this issue by making the overseeing authorities blockchain
technology.
When a smart contract is created, lines of code are written that describe the various
terms of the contract.
The blockchain will automatically enforce the terms of the contract and ensure that
all parties are fairly served.
Going back to the tax example, the blockchain would keep track of all the money you make
in a year, and it will automatically calculate and deduct the appropriate amount from your
crypto wallet at the end of the year and transfer it to the IRS.
As you can see, this technology is extremely useful within the financial industry.
Everything from taxes, loans, insurance, purchases, securities trading, and basically anything
that involves transactions can benefit from smart contracts.
And right now, Ethereum is the primary platform capable of this service.
Aside from smart contracts, Ethereum also allows anyone to create programs on the Ethereum
platform that would benefit from blockchain technology and Ether.
These programs are called decentralized applications and one of the most popular decentralized
applications is NFTs.
NFTs are built on the Ethereum platform and allow individuals to buy digital files such
as images, videos, and audio.
Now, I’m not quite convinced about the usefulness of NFTS and I know a lot of you guys aren’t
either.
But that doesn’t really matter as NFTs are just an example of a decentralized application.
A more practical application may be a decentralized social media platform.
Social media giants like Facebook, Google, and Twitter not only have full control over
what is posted on their platforms, but they also have heaps of information stored about
all of us.
This makes many of us uncomfortable for obvious reasons.
With a decentralized social media platform, not only would any one entity not be able
to censor certain information, but there also wouldn’t be a corporate giant tracking each
and every one of our posts.
There’s millions upon millions of use cases for decentralized applications, and like with
smart contracts, Ethereum is the leader by far within this space as well.
So, ethereum not only offers a cryptocurrency like Bitcoin, but it also offers an entire
platform for smart contracts and decentralized applications giving Ether and Ethereum much
more utility.
Aside from being much more useful, Ethereum is also much more eco friendly.
I think you guys probably already heard about Elon’s tweet that suggests that Bitcoin
mining burns large amounts of coal and that Bitcoin is therefore environmentally unfriendly.
People were quick to point out that 70% of bitcoin mining is done using renewable energy.
But, I don’t think this is what Elon Musk was really referring to when he bashed on
bitcoin mining.
I think his main point was that Bitcoin’s energy/transaction is unfavorable which he
points out at the end of the tweet saying quote “We are also looking at other cryptocurrencies
that use <1% of Bitcoin’s energy/transaction.”
Even if bitcoin was only mined with renewable energy, the energy/transaction would still
be just as unfavorable as Elon points out.
Ether, however, is far more efficient when it comes to energy/transaction because unlike
bitcoin which uses a proof of work model, ethereum is shifting to use a proof of stake
model.
Most of you guys are likely unfamiliar with both of these models, so let's take a deeper
look at each of them.
Bitcoin mining as well as traditional ethereum mining rely on the proof of work model, and
I think the best way to explain this model is through an example with iPhones.
Let's say that you and a friend work at an iPhone repair shop.
This repair shop specializes in unlocking bricked iPhones.
All of the iPhones at this shop have a 4 digit passcode and unlimited attempts, but neither
of you know what the passcode is.
The owner of the shop, however, knows what all the passcodes are, and he wants you guys
to try all of the combinations and see if you arrive at the same passcode as him.
For every passcode you confirm with him, he promises to pay you $10.
You’re a pretty fast typer, and you’re able to test out 100 passcodes every single
minute.
Given that there are 10,000 total combinations, it takes you 5000 attempts on average to crack
the passcode.
At 100 passcodes per minute, you end up confirming a passcode once every 50 minutes meaning that
you earn about $12 per hour.
Your friend on the other hand is an extremely fast typer and he’s able to test out 1000
passcodes every minute.
At that rate, he’s able to confirm a passcode once every 5 minutes earning himself $120
every single hour.
In a proof of work model, this is exactly what miners are doing, but at a much larger
scale.
Whenever a bitcoin transaction occurs, a unique 64 digit hexadecimal number is created.
Miners are given the task of guessing and confirming this number, and whoever verifies
the transaction first is rewarded some bitcoin.
As you can see though, this is an extremely inefficient process.
When you’re guessing iPhone passcodes, on average you waste 4999 tries on every single
iPhone.
This means that 99.98% of your attempts are a complete waste of time, energy, and resources.
This inefficiency gives bitcoin a very high energy consumption per transaction.
Ethereum has also used this model for basically their entire lifetime, but they are currently
in the process of switching to proof of stake, and they expect the transition to be completed
by the end of 2021.
In a proof of stake model, everything is exactly the same except for the brute force part.
Going back to the iPhone example, the owner of the iPhone shop recognizes that having
both of you brute force the passcodes is extremely inefficient.
As a result he decides to tell you the passcode, and he just wants you to enter the passcode
and make sure that it really is the right passcode.
He tells either of you the passcode of an iPhone based on how much he can trust both
of you.
His trust in you is based on how long you have worked at the shop and how much equity
you own in the shop.
Let’s say both of you have been working at the shop for the same amount of time, but
you only own 1% of the shop while your friend owns 10% of the shop.
In this scenario, the shop owner trusts your friend 10 times more than you.
So, he gives your friend 10 times the number of phones to verify as he gives you.
If one of you guys lie about a verification or try to trick the shop owner in any manner,
you’ll lose a portion of your stake in the business based on how malicious your action
was.
In terms of the Ethereum universe, the trust you have is based on how much ether you own
and how long you have owned your ether.
You need to have a minimum of 32 ether to become a staker, and if you decide to become
a staker, the network will give you transactions to verify based on your credibility.
If you don’t fulfill your responsibility of verifying these transactions or you try
to hack the network or something, you will lose portions or all of your ether.
In a proof of stake model, you’re not wasting any computing power, so the energy/transaction
is oftentimes hundreds if not thousands of times less than a proof of work model.
But wait a minute, couldn’t bitcoin just shift to a proof of stake model?
Well, it definitely could and experts predict that it will eventually happen.
However, a lot of the bitcoin community is extremely reluctant to make the switch.
They claim that the proof of stake model is less secure than the proof of work model.
But, several altcoins have been using the proof of stake model for years at this point,
and there has been no evidence of less security.
If anything, proof of stake is even more secure as the people verifying transactions have
a strong incentive to keep the given crypto strong as they hold large amounts of it.
Moreover, proof of work models have their own security risks such as being 51% attacked.
I think the primary reason a large part of the bitcoin community is against the proof
of stake model is because they already invested large amounts of money into mining equipment.
And that computing power would basically become useless if bitcoin transitions to proof of
stake.
Nonetheless, the general consensus is that bitcoin will eventually move to proof of stake
and that proof of stake is the future.
This means that Ether is the largest crypto supporting this significantly more efficient
verification method.
So, ethereum not only offers more utility, but it has also proven to be much more flexible.
Despite all of these advantages, for me, Bitcoin has always been the better option for one
reason which is that Bitcoin has a limited supply while Ether does not.
Likely one of the largest problems with fiat currency is that governments keep printing
more of it which continuously devalues the currency.
And one of the main appeals of bitcoin is that it has limited supply.
But as I looked deeper into this, my mind was changed.
Here’s the thing, though bitcoin has a limited supply, the last bitcoin isn’t expected
to be mined till 2140.
So, bitcoin will be inflating for the entirety of our lives.
More importantly though, Ether will actually have a lower inflation rate than Bitcoin.
The bitcoin inflation rate is currently 1.76% per year.
Once Ether completes the switch to proof of stake though, its inflation rate is expected
to be less than 1%.
This isn’t just an accident either.
Since the creation of Ether, the developers have been keen to keep the inflation rate
of Ether comparable to Bitcoin if not less.
So, despite having unlimited supply, Ether is actually just as deflationary as Bitcoin
if not more.
And that brings me onto my final point which is that if Bitcoin is the digital gold, Ethereum
is the digital oil.
Every year, 35 billion barrels of oil are consumed.
Right now, the cost per barrel of oil is about $60 and that’s actually about the average
over the last 50 years.
This means that roughly $2.1 trillion worth of oil is consumed every year.
Meanwhile, the entire market cap of gold is only $11 trillion.
And, that’s not even taking into account the industries that oil makes possible such
as the automobile industry and the aviation industry and agriculture industry and the
plastic industry and countless more.
Oil accounts for tens of trillions of dollars of economic output every single year, and
I believe that this is the role Ethereum will play in the larger global economy in terms
of blockchain technology.
When will Ethereum actually take over bitcoin then?
Well, I don’t think the price per ether will ever surpass Bitcoin; however, I do believe
that Ether’s market cap will eventually surpass Bitcoin’s market cap.
Right now, Ether’s market cap is about 40% of that of Bitcoin.
But, we are experiencing a massive crash right now/potentially entering a bear market.
At the peak of the last bull cycle, Ether’s market cap peaked at 72% of that of Bitcoin.
If we do have another pump this cycle, it’s very possible that Ether reaches 80 or 90%
of Bitcoin’s market cap or it might even barely surpass bitcoin’s market cap.
However, I don’t think Ether will be able to sustain the lead at this point in time.
During the next bear market, Ether will likely end up falling far greater than bitcoin in
terms of percentage once again.
In the 2025 bull market though, there’s a high probability in my opinion that Ether
at least momentarily overtakes bitcoin.
And by the 2030s, I think people will start to realize the massive utilitarian potential
of Ethereum and that Ether will sustainably overtake Bitcoin and become the new king of
crypto.
Again, this isn’t to say that Bitcoin will fail, but simply that Ether will be even bigger
than Bitcoin.
If you’re still not convinced, just take a look at history.
The pioneer of an industry is almost never the final victor.
Ford was the first to introduce mass production automobiles, but General Motors ended up being
the bigger automobile company.
AOL and Yahoo seemed to be the winners of the internet in the 1990s, but we now know
that that title goes to Google.
IBM introduced the first smartphone in the world in 1994, but now, no one even knows
they made a smartphone.
Will Bitcoin be any different?
Comment that down below.
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