Is Ethereum expected to surpass Bitcoin? The emergence of BRC20 may bring about a tug-of-war

In most fields, the battle between the top and the second is often fierce. Bitcoin and Ethereum, which dominate the crypto space, have also begun competing for "community consensus share".

In most fields, the battle between the top and the second is often fierce. Bitcoin and Ethereum, which dominate the crypto space, have also begun competing for "community consensus share".

In the past two years, with a series of upgrades such as Ethereum's transition to PoS, the opening of staking withdrawals, and the implementation of Layer2, coupled with the prosperity of the ecosystem, all aspects have become more and more competitive, attracting many members of the Bitcoin community (including forked communities such as BCH and BSV) to join. Perhaps it is time to talk about the possibility of Ethereum's market value surpassing Bitcoin. As a former "copycat", Ethereum's surpassing Bitcoin is happening, and it is not just a "dream" .

Mainstream funds have been paying attention to Bitcoin and Ethereum. Which one will perform better in the next round of market?

The main difference between Ethereum and Bitcoin

Bitcoin and Ethereum were not originally in a dead-end opposition relationship, including the community. However, the crypto community is not that large. The most important thing for Bitcoin is how to maintain its "consensus share", while for Ethereum, the community must continue to "attract consensus". The comparison between the two is always talked about with great relish:

1. Different overall routes: one is digital gold, the other is digital oil

The goal of Bitcoin is to be a decentralized medium of value exchange and value storage, while the mission given to Ethereum when it was born was to become a smart contract platform to run decentralized applications. ETH is used to pay for the "gas" for contract execution, so BTC and ETH are also called digital gold and digital oil .

2. The data storage model for recording transactions is different

Bitcoin uses the UTXO model to record transactions, which is one of Bitcoin's major advantages and one of its important technical solutions. This method can keep the record "database" lightweight for a long time, and Bitcoin nodes can always verify transactions quickly and efficiently, which is the key to the long-term stable operation of the system.

Ethereum uses an account model, perhaps to allow for flexibility in recording account status, but this forces Ethereum to face the dilemma of "state explosion", which has not yet been resolved.

In short, as time goes by, the account model will accumulate new status data and become a burden on consensus nodes. The system will become more and more bloated, and finally limit the development of Ethereum. This may be solved in future upgrades.

3. Different consensus mechanisms

After Ethereum switched to PoS, it parted ways with the PoW consensus mechanism. As for why it abandoned the PoW consensus mechanism that made Bitcoin so powerful, it is a long story, which will be discussed below.

4. Other differences

• Transaction speed: Bitcoin's block interval is 10 minutes, while Ethereum's block interval is 13 seconds. Usually, a Bitcoin transaction takes tens of minutes to be confirmed, while Ethereum may be completed in minutes.

• Main transaction purposes: Bitcoin transactions are mainly transfers, while transactions on Ethereum can include contract execution in addition to transfers.

In what ways has Ethereum surpassed Bitcoin?

Although the two have different routes and each has its own advantages, and their respective advantages in their respective fields are obvious and do not require too much comparison, in some important intersection angles, Ethereum has indeed begun to surpass Bitcoin.

1. Ecological infrastructure

The platform-based Ethereum ecosystem is prosperous, and there is no need to compare it. Thanks to this, Ethereum's ecological infrastructure has surpassed Bitcoin .

The diversification of Ethereum wallet clients, including the Little Fox Wallet and numerous hardware wallets, has become the direct user-facing entrance to the Metaverse and Web3.0. User habits of Ethereum wallet clients have been formed, which has also become the foundation for the prosperity of the new EVM public chain . The addition of competitive new public chains has increased the prosperity of EVM-related developers and related cross-chain ecosystems, feeding back to the Ethereum ecosystem.

In addition, careful friends will find that some market software will display the number of platforms where crypto assets are listed. The number of CEX platforms where Ethereum is listed has always exceeded that of Bitcoin . If DEX, the future of crypto asset exchange, is added, Ethereum is indeed relatively ahead.

2. On-chain transfer and settlement amount

According to data from money-movers, Ethereum currently transfers and settles nearly 30 billion US dollars in assets on the chain, while Bitcoin's figure is more than 4 billion US dollars, which is an order of magnitude different.

If cross-chain is the future, then cross-chain liquidity data is also very important. From the CryptoFlows data chart, we can see that the total amount of funds entering and leaving the Ethereum cross-chain exceeds 10 billion US dollars, and the amount of funds entering and leaving the Bitcoin cross-chain is around 6 billion US dollars.

In general, Ethereum has already taken the lead among all public chain ecosystems in terms of on-chain fund transfer and settlement, and cross-chain fund inflow and outflow data.

3.Token Supply

Many people believe that the high value of Bitcoin is largely due to its supply rules, which are constant and halved every four years. Ethereum has entered a period of deflation, which gives it the capital to compete head-on with Bitcoin, a "digital gold" that is based on scarcity .

 Screenshot from: Ultra sound money

Many people believe that Ethereum has become a "super-robust currency" for the following reasons:

• Ethereum implemented the EIP-1559 upgrade in August 2021, reducing the circulating supply of ETH by burning a portion of the base fee for each transaction.

• Ethereum completed the merger from Proof of Work (PoW) to Proof of Stake (PoS) in December 2021. The staking rewards (floating) under the POS mechanism are greatly reduced compared to the fixed block rewards under the PoW mechanism .

• With the continuous prosperity of the ecosystem and the advancement of DeFi, NFT, Metaverse, Web3.0, and Layer2, the usage rate and demand for Ethereum continue to increase, which increases the demand for ETH as a payment fee and collateral , thereby pushing up the transaction volume on Ethereum and the burn volume of EIP-1559.

Recently, Ethereum's 7-day annualized deflation rate is about 1%, which means that 1.2 million ETH are reduced every year.

To summarize, the claim that Ethereum is a super-sound currency is based on its decreasing supply and increasing demand , which makes Ethereum highly scarce and valuable, and also makes it deflationary and anti-inflationary.

4. Decentralization (controversial)

After the transition to PoS, the total number of Ethereum validators has exceeded 560,000 and continues to grow. In the past, the Ethereum community boasted that:

• Ethereum 2.0 adopts the Proof of Stake (PoS) consensus mechanism, which can reduce dependence on computing resources and energy, reduce the centralization and monopoly of mining pools, and improve the security and sustainability of the system.

• The node distribution of Ethereum 2.0 is wider and more decentralized than that of Bitcoin.

• Ethereum 2.0's future sharding solution will improve the scalability and throughput of the system, while also reducing the burden and cost of a single validator node.

In summary, the Ethereum community believes that Ethereum has made the system more decentralized through upgrades, with higher security, scalability and innovation .

Bitcoin is not a vegetarian

It is said that each has its own merits. Although Bitcoin is not as radical as Ethereum, it does not mean that the Bitcoin community will just sit back and do nothing:

1. Bitcoin’s safe-haven properties play a huge role

The recent banking crisis has caused more people to re-examine the safe-haven properties of Bitcoin. In the face of the collapse of systemic risks in traditional finance, Bitcoin has begun to substitute for or even partially replace the function of gold, and may go further in the future .

The current global gold market value exceeds 8 trillion US dollars, while the market value of Bitcoin is only more than 500 billion US dollars. In other words, whether it is partial substitution or the possibility of potentially surpassing gold in the future, there is still a lot of room for development.

2. Ecological Explosion

Ethereum has its own ecosystem, and the development of Bitcoin's ecosystem has not stagnated. The upper-level smart contract application ecosystem based on Bitcoin, including Stacks, RIF, etc., BitcoinFi and BitcoinNFT are also quietly thriving.

The recently popular BRC20 has also attracted a lot of attention . Compared with the ERC20 of the Ethereum ecosystem, although BRC20 still has a certain threshold, it is early enough, and the "Bitcoin ecosystem" alone is enough to attract attention. At the same time, the unique distribution method with stronger decentralization attributes also brings a different new narrative.

Of course, we should also pay attention to the risk of short-term heat loss. Directly engraving BRC20 Token on the Bitcoin mainnet is essentially old wine in a new bottle. BRC20's scalability, functions, performance, user habits, infrastructure, etc. are far inferior to ERC20 , which runs counter to the "capacity expansion" that the crypto industry has been exploring for innovation. Without a sustainable direction, BRC20 will not last long.

 Overview of exploration of Bitcoin functionality since 2012. Source: The Block Research

In terms of payment, the Lightning Network is making steady progress . According to 1ML data, the Lightning Network capacity exceeds 5,000 BTC, the current number of nodes is 16,367, and the number of channels is 74,178. At the same time, many leading platforms have begun to support the charging and withdrawal of the Lightning Network.

 Image source: 1ML

summary

Ethereum surpasses Bitcoin, from an impossible dream to a reality, which seems like an inspirational story. Bitcoin is as stable as a rock, and Ethereum is actively innovating. Perhaps the battle between Bitcoin and Ethereum will continue for a long time, but they both have a bright future. No matter success or failure, they will only compete for the top spot.