Ethereum the new hard currency?

A debate has raged over the possibility of Ethereum becoming hard money , ultimately highlighting that the digital asset has more disadvantages than anything else.

Charles Edwards, founder of Bitcoin Investment Management Platform, shared a chart showing the circulating supply activity of Ethereum and Bitcoin, and argued that “Ethereum has entered the hard currency game. Over the past 3 months, Ethereum’s inflation rate has been lower than Bitcoin’s.”

“Hard money is not just about low inflation in supply, but also about the invariance of inflation – even if OPEC decides to restrict the supply rate, oil will not suddenly become hard money.”

Hard cash or hard fees?

Throughout the short history of the cryptocurrency boom, many have debated the possibility of cryptocurrencies surpassing fiat currencies at some point.

This is a feasible future scenario for Bitcoin, but one that other cryptocurrencies can only dream of.

As Investopedia explains, "hard currencies maintain a stable market value relative to physical goods and services and a strong exchange rate relative to foreign currencies," and their uses involve "lower transaction costs and risks."

In the case of cryptocurrency, hard money means a certain coin that cannot be arbitrarily modified.

Unlike Bitcoin, Ethereum’s rules can, and have, changed.

Its supply plans have been revised more than once, suggesting it can be constantly changing.

The burning of ETH makes it temporarily deflationary, seeking a higher market cap.

But because of the malleable nature of Ethereum’s protocol and issuance schedule, the above chart doesn’t prove that the digital currency can even come close to hard money.

In addition, there are the inevitable high gas fees, which are expected to be significantly reduced by Layer 2 by 2023, but will most likely not be enough to meet consumer spending, commercial and mainstream adoption.

The price can incentivize people to hold ETH, but not to trade it, whereas other centralized blockchains like Cardano have proven to be more economical.

Although Ethereum’s inflation rate is lower than Bitcoin’s, its supply also sets the digital coin below Bitcoin’s standard.

The limited supply of Bitcoin is 21 million. 80% of the coins have been mined, but it will take more than 100 years to mine new coins.

This is said to create digital scarcity, where on the Ethereum side , the circulating supply is unknown and has no overall cap .

Some users also believe that “deflationary base assets are bad for Ethereum applications” and that this will actually be a problem for its future growth.

Ethereum in DeFi

Recently, analysts at JPMorgan, which previously favored Ethereum over Bitcoin, said that ETH is losing its dominance in the decentralized finance (DeFi) space due to the emergence of new strong competitors such as Terra, Avalanche, and Solana.

Ethereum’s share of total value locked in DeFi fell from nearly 100% in 2021 to 70% by the end of the year and may continue to fall.

Analysts at the Wall Street banking giant believe the necessary expansion of the network “may be too late,” according to Bloomberg.

“In other words, in our view, Ethereum is currently in a fierce competition to maintain its dominance in the application space, and the outcome of this competition is far from a given,”

Experts believe that this loss of dominance could bring a downward trend to ETH’s price.

Ethereum Price

At the time of writing, Ethereum is trading at $2,451.

ETH is trading at $2.451 on the daily chart | Source: ETH UST aicoin