Will Ethereum ultimately overtake Bitcoin after it receives its upgrade?
The price of ether, the world’s second most valuable cryptocurrency, has been hitting new highs ahead of a big update to its underlying platform, ethereum. Ether is presently valued at slightly around US$500 billion (£363 billion) in total. That’s still less than half of the value of the most popular cryptocurrency, bitcoin.
But, might this improvement, which is a critical step toward a much greener and quicker version of the present system, propel ethereum to the top of the internet’s platform rankings?
To begin, it’s critical to comprehend the differences between bitcoin and ethereum. Bitcoin is a digital currency that allows users to transmit money to one another without the use of banks. It is based on blockchain technology, which is an online ledger in which transactions are verified and recorded by a decentralised network of computers called validators.
Validators are rewarded for their efforts by earning freshly created bitcoins, a process known as “mining.” To add to the appeal, bitcoin is quite rare: there are only about 18 million coins in circulation, and the protocol states that there can never be more than 21 million.
Market Cap: Ether vs bitcoin by total value
Ether is comparable to bitcoin in that it functions in a similar fashion, but it is not the same. It’s an open-source software platform that developers are using to create thousands of blockchain-based apps all around the world.
This implies that these applications can all run independently of a company’s control. Cryptocurrency exchanges, insurance systems, and new types of games are just a few examples.
Smart contracts, which are automated agreements that ensure that money and assets change hands when specific criteria are met, are at the heart of the platform. Ether is used in all transactions on the network, and the site’s success is why ether has been the second-largest cryptocurrency behind bitcoin for the past several years. The fact that ether powers the platform – it’s even called “gas costs” – gives it the usefulness and inherent worth that bitcoin lacks.
Why is Ethereum 2.0 being developed?
However, Ethereum has a number of serious flaws. The first is that gas prices have skyrocketed in recent years as the network has grown in popularity and become increasingly crowded.
Validators give the greatest priority to those who are ready to pay the most for their transactions. For example, the typical transaction on crypto exchange Uniswap costs roughly US$44 in gas fees at the time of writing.
Bitcoin has similar congestion difficulties, which its developers are attempting to address by adding apps like Lightning to the mix, which offers speedier transaction speeds.
The second issue with ethereum is that as it has grown in popularity, the amount of computing power utilised by validators has increased dramatically. It’s the same issue that has caused bitcoin to receive a lot of bad press because to its high power consumption.
Bitcoin presently consumes as much energy as the Philippines, while proponents maintain that most of this energy would otherwise be squandered — for example, oil rigs burning natural gas since selling it is unprofitable. Proponents also point out that the network is gradually transitioning to use a lot more renewable energy.
In any case, creating an ethereum 2.0 will overcome these issues by switching the platform’s validation method from “proof of work” to “proof of stake.” Without going into too much detail, proof of work is a protocol in which all validators attempt to solve difficult equations in order to establish the validity of each proposed transaction. Because the system picks one validator at random to confirm each transaction, there’s no need for all validators to conduct this power-hungry task with proof of stake.
Many in the bitcoin community oppose proof of stake because it gives the most authority to the largest validators, allowing them to possibly corrupt the validation system if they obtain control of more than 50% of the network. Supporters of Ethereum argue that proof of stake includes built-in checks and balances that would prevent this from happening.
In any case, ethereum 2.0 is expected to cut the platform’s power consumption by 99.9%, making it far more sustainable. It should also address the issue of gas prices by increasing the platform’s processing capacity from 30 to possibly 100,000 transactions per second, as well as allowing for more sophisticated smart contracts than previously.
How’s it going?
The shift to ethereum 2.0 has been painfully delayed, plagued by technical challenges that have dragged on for more than two years. The new proof-of-stake blockchain has been running in a test configuration alongside the current system for the past several months, allowing the engineers to prepare it for a merger in 2022.
The next update will serve as a warm-up for the upcoming merger. Altair is a new version of the system that makes a number of technological enhancements aimed at keeping validators honest and making the system more decentralised. All eyes will be on the merger if all goes according to plan, and then on a subsequent upgrade known as “sharding,” which would considerably boost the system’s processing capabilities.
The price of ether has certainly been high in the run-up to the Altair upgrade. The recent rise in bitcoin to all-time highs has aided the overall cryptocurrency sector. However, part of the price rise in ether is likely due to individuals betting on the upgrade’s success, while the rest is due to speculators switching from bitcoin and fresh money entering the market.
Ether vs the ‘eth killers’ by total value
It will be fascinating to observe how all of this impacts the price of ether in respect to the so-called “eth killers” in the run-up to the unification of ethereum’s two blockchains. Rival platforms such as Cardano and Solana have grown in popularity in recent months, owing in part to ethereum’s cost concerns.
But, at the end of the day, the question is what this means for bitcoin. Bitcoiners would claim that their protocol is more decentralised than proof of stake and that they have the benefit of being the crypto brand with which investors are most comfortable risking their money.
The issue is whether these benefits are balanced by the fact that ethereum 2.0 has better environmental credentials and can process more transactions. Bitcoin is presently valued around twice as much as ether, although there has been discussion of a “flippening” in which ether overtakes bitcoin. Is it possible that it will happen in 2022? It will be intriguing to see what happens now that bitcoin’s hegemony is on the line.
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