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. Also, drop a like if you learned something
new about Ethereum today. And of course, consider joining our discord
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