Ethereum ETH/USD continues its astronomical rise as favorable fundamentals motivate buyers to pile up and drive demand for the coin, overtaking major publicly traded firms as proponents talk about it potentially overtaking top cryptocurrency Bitcoin BTC/USD.
What Happened: According to crypto and stock market cap tracking service Infinite Market Cap, Ethereum's market cap — standing at over $329 billion at press time— is now higher than Paypal Holdings Inc (NASDAQ: PYPL), Bank of America Corp (NYSE: BAC), Adobe Inc.'s ADBE, Nike Inc.'s NKE, Comcast Corporation's CMCSA, Pfizer's PFE, and Toyota TM.
While overtaking blue-chip companies is a notable accomplishment on its own, Ethereum proponents now hope to take on much harder to tackle objectives.
What It Means: Ethereum proponents are talking about the "flippening" — a hypothetical situation in which Ether's market cap surpasses that of Bitcoin.
CEO of a crypto finance platform Celsius Network Alex Mashinsky, recently argued that this event is already happening.
He noted that recently the users of his platform started holding more Ether than Bitcoin.
The firm manages a notable $17 billion, and the top asset they hold is Ether.
Pantera Capital CEO Dan Morehead recently said that fundamentals are likely to push Ether higher until it eventually overtakes Bitcoin as the top cryptocurrency.
According to him, Ethereum has a lower environmental impact, potential applications, and protocol upgrades, with one happening today.
For instance, he cited the Ethereum Improvement Proposal (EIP) 1559, an upgrade that activated on the coin's blockchain today and will lead to thousands of Ethers being burned (destroyed forever) each day, countering the coin's inflation.
The same update will also improve Ethereum's usability by making transaction fees more predictable and increasing transaction efficiency by implementing variable block size, allowing for a single block to process double the number of transactions that was previously possible.
EIP-1559's impact is expected to increase in the future when Ethereum finally transitions to a Proof-of-Stake (PoS) algorithm from its current Proof-of-Work (PoW) implementation.
The reason is that operating a PoS network is much more energy-efficient than operating one that uses PoW, allowing developers to reduce new coin issuance while still subsidizing network maintenance enough to keep it secure.
PoS networks not needing energy-intensive "mining" operations also means that it is widely viewed as a much greener option, which makes them a much more welcome investment option among institutional investors.
One example of this working against Bitcoin is Tesla Inc's TSLA decision to stop accepting it over environmental concerns, with many speculating that the real reason was actually shareholder pressure.
Morehead said that he expects "people who want to store wealth, doing it in (Ether) rather than just Bitcoin."
How Are Ether And Bitcoin Different?
Bitcoin is intended to be money that cannot be controlled by any central government or financial institution that was created as a reaction to the monetary policy and governments playing a major role in 2008's financial crisis.
Ethereum, on the other hand, was first marketed as the "world computer" and was meant to allow to automate finance and financial organizations through programmable money through so-called "smart contracts."
Thus, those two assets are significantly different in their stated purpose and features, Bitcoin being slowly evolving but more stable and Ethereum being more fast-paced in its update schedule, gaining new features more often, which in turn makes it potentially less secure.
Before judging Bitcoin for its slow-paced evolution, we need to understand that adding any new code to any software is an opportunity for bugs and cybersecurity vulnerabilities to make their way into the system.
Bitcoin is much more focused on being as decentralized and secure as possible, making the network a safer bet if what you are after is reliability.
It may look like a dinosaur eating lots of coal, with low transaction throughput and with much more limited programmability, but this is the cost of its security and reliability.
Bitcoin was believed by many to be the better long-term investment option when compared to Ethereum's, due to its hardcoded limit of 21 million of the coins ever available to mine, while Ethereum has no hard limit, an inflation rate exceeding 4%, and circulating supply just under 117 million ETH as of press time. Still, with the introduction of EIP-1559, the long-term views of some experts shifted in Ether's favor.
When it comes to real-world utility — important for assigning a value floor for assets beyond their speculative appeal — both the coins delivered only part of what they were meant to achieve, but both could still deliver all of their original promises.
Bitcoin was meant to become the world's currency beyond any government's or bank's control, and while it managed to keep its independence from any centralized entity, it failed in becoming a practical currency as of yet.
What Else: Scalability may be the biggest obstacle: Bitcoin is currently able to process only between 3.3 and 7 transactions per second, with transactions usually taking hours and costing tens of dollars in fees.
Bitcoin's current transaction processing capabilities are a far cry from Visa's 1,700 instantaneous transactions per second and the even higher transaction processing speed that would be needed for an asset to become the world's currency.
Still, software developers are making increasingly practical and secure ways to spend Bitcoin instantly, with nearly no fees and scalability limits with developments such as "lightning network."
Similarly, Ethereum promised to deliver a decentralized network that would serve as the "internet of money" and allow the world's organization to operate on it.
But after the network started being used after spawning decentralized finance (DeFi), non-fungible tokens (NFTs), and other decentralized applications (DApps), it encountered the same problem as Bitcoin — with network strain, increased transactions became too costly and slow.
Also, Ethereum attracted developers trying to solve its scalability limitations and got its own scalability solutions such as Optimism, which already runs decentralized exchanges, or some even getting its own native currency Polygon MATIC/USD.
That being said, neither of the two blockchains has yet delivered everything that they hoped to achieve despite such solutions.
Another thing that sets apart Ethereum and Bitcoin is their decentralization.
While you can easily run a full Bitcoin node on less than $100 worth of computer hardware, it is much more expensive to run an Ethereum full node.
This is an important metric because full node operators are sentinels ensuring that miners, mining pools, and other network operators do not collude and lead to the blockchain actions against the set rules.
Since full nodes make networks more secure, a security-centric network, such as Bitcoin, prioritized getting as many nodes as possible by keeping it simple to ensure that full node network and hardware requirements are low and anyone can run a node.
Ethereum, on the other hand, prioritized features and created a much more feature-rich blockchain that can fix any issues at a later time.
This results in a network that has more features, but it had a critical vulnerability that could have broken it for two years until it was fixed in late May.
The Final Verdict
Which cryptocurrency is better? Well, it really depends on what you are looking for.
If you're after a dependable and secure network but lower, then Bitcoin is the obvious choice.
If you want all of the latest features, smart contracts, decentralized exchanges, and much more, then Ether is the choice among the two.
Which one is the better investment and store of value? This is a much harder question that really depends on the value that we assign to the features of both coins.
There's no clear-cut answer that is objectively true since — as with most things in life — it is just too complicated for there to be a simple answer.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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