Ethereum vs Bitcoin: the battle of the Titans, or different paths and goals?

Ethereum and Bitcoin are fundamentally different from each other. Ethereum aims to become a global supercomputer that will become the foundation of a decentralized and tokenized world. On the other hand, Bitcoin aims to become the most decentralized, censorship-resistant and neutral asset that humanity has ever seen.

Which vision seems more plausible, everyone decides for himself. However, from the point of view of a crypto trader, decentralization and resistance to censorship by themselves do not mean that an asset promises the greatest profit.

On the contrary, Bitcoin code updates can only be carried out very slowly, and BTC as an asset does not have a direct increase in value through burning mechanisms, protocol revenues or the like. Moreover, the Proof-of-Work (PoW) consensus mechanism of the BTC blockchain is extremely energy-intensive and costly, which means that miners must constantly sell BTC to cover their costs. But…

You won’t find a crypto asset more secure than Bitcoin.

It is possible to talk about the idea that the market capitalization of Ethereum will one day surpass the capitalization of Bitcoin, but everything is not so simple. It means replacing Bitcoin with Ethereum on top of cryptocurrencies, if the market capitalization of Ethereum exceeds the capitalization of Bitcoin, the coup will be completed.

But, this is more of a dream than a possible reality. Next, we will explain why we are convinced of this, and not vice versa.

The trap of moving from stocks to flow

In the crypto community, you can hear different things. Fans of Shiba Inu say that the time will come, and their dog coins will cost a fortune. Cardano supporters in general, pray for their asset. But the Ethereum community will tell you a bunch of “good” reasons why one day ETH will surpass Bitcoin. And so, let’s reflect on this.

Supporters of the ETH superiority, in particular, say the following:

Updating the Bitcoin code is very slow, and BTC as an asset does not have a direct assessment from the mechanisms of burning, income from magazines and the like.

It is too short-sighted to deduce an increase in value from its inherent gorenje mechanism. Indeed, the supply of Ether (ETH), the native token of the Ethereum blockchain, tends to decline. The ultrasound.money website shows the growth of the ETH supply to date, and displays a possible curve of the future supply based on the current transaction activity. The problem with such forecasts is that no one can say for sure how the growth of the Ether supply will develop, because it depends on how actively the blockchain is used.

After all, starting with the Ethereum Improvement Proposal (EIP) 1559, the blockchain automatically burns part of the transaction fees paid in gas. In other words, the more people make transactions in Ethereum, the higher the commission level and the higher the combustion coefficient.

ETH Supply Growth Unclear

 Two problems can be seen here: firstly, it is completely unclear how much Ethereum will be used in the future. Secondly, a reduction in supply does not mean an increase in prices. This can only happen as a result of interaction with growing demand – an unsuccessful “stocks -flows” model sends its greetings.

Therefore, the term “ultrasonic money” that the ETH community has created in relation to Bitcoin is erroneous. Unlike Ethereum, the future supply of Bitcoin can be predicted with mathematical accuracy. In the end, reasonable money does not mean that the offer is as compressed as possible, but that the supply curve is transparent.

This applies to Bitcoin, but not to Ethereum, which leads us to my second argument: decentralization.

Ethereum is No More Decentralized than Bitcoin

Many adherents of Ether eventually cite the last and probably the most controversial argument for many Bitcoin supporters. It lies in the fact that Ethereum is more decentralized than Bitcoin.

Decentralization is a matter of its degree. Just look at the projects listed on Coinmarketrate.com to understand that pure decentralization cannot exist, there will always be network participants with more or less power. But for cryptocurrencies like Bitcoin or Ethereum, the degree of decentralization is crucial. In the end, it determines whether the relevant project will be able to fulfill the main promises of technology: resistance to censorship, lack of will and independence from leaders. If there are block validators, be they miners or staking nodes that have too much market power, transactions can be censored or even double spending is a disaster for the blockchain.

Bitcoin and Ethereum can still be fairly decentralized. But what will happen in ten years? Both cryptocurrencies are still young, their baptism of fire is still ahead. When the political and economic pressure on the projects increases, we will see which currency will be able to withstand it. Many in the crypto space are betting on Bitcoin.

After all, Bitcoin’s use of energy to validate blocks is not a bug, but a feature. It is a kind of firewall against external influence, so the capture of the blockchain is completely impossible.

The use of energy costs also prevents the simple expansion of dominant positions. On the other hand, in Ethereum, a one-time investment is enough to create a large staking node, which then passively expands its position again. In the end, the one who puts the most Ether has the greatest chance to check the block and get rewarded for it. As a result, a kind of negative spiral of centralization may arise.

Full nodes verify every transaction

 But mining nodes are not the only nodes that make Bitcoin decentralized. It is tens of thousands of full nodes that verify each transaction with a set of UTXOs and monitor compliance with the consensus rules by miners. It costs less than $150 to create a full node, so every bitcoiner can contribute to maintaining decentralization.

A look at the so-called fork wars shows that this is not just a matter of art. In 2017, a consortium of various representatives of the Bitcoin industry, including large mining pools, wanted to double the block size. Since this would harm decentralization, bitcoiners opposed the “New York Agreement” and successfully prevented an increase in the block size. Instead, they introduced SegWit and thereby paved the way for Lightning.

And if you want to become a validator on Ethereum, then you first need to scrape together 32 ETH – this is not for the faint of heart and the poor.

Mining does not harm the environment

 The number one marketing argument in favor of cryptocurrencies with proof of stake is their supposed energy efficiency. Provoked by the political debate about the ecological footprint, cryptocurrencies worthy of mention, except Bitcoin, no longer rely on Proof of Work (Proof of Work, PoW). After the merger, Ethereum became the penultimate major representative to switch from PoW to Proof of Stake (PoS).

Perhaps Ethereum has satisfied a political request with this. But, as we have already said, this is due to decentralization, which means, ultimately, at the expense of security. Moreover, most of the energy used for Bitcoin comes from renewable energy sources, and this trend is growing.

Wall Street got carried away with Bitcoin

Perhaps a regulatory screw is being twisted around the PoW currencies. But, the fact that the market is still hungry for a cryptocurrency backed by the use of energy is evidenced by the constant institutional demand.

808,688 BTC worth 16 billion US dollars are on the cash accounts of the ETF. Another 258,531 BTC, or 1.2 percent of the available supply, are in the hands of listed companies such as MicroStrategy. This follows from the site data bitcointreasuries.org . Apart from securitized products like Grayscale Ethereum Trust, there really isn’t a single ETH-based financial product worth mentioning.

While Ethereum ranks 60th in the world with a market capitalization of 162 billion US dollars, Bitcoin regularly enters the second ten. With a market capitalization of 373 billion US dollars, digital gold ranks twelfth. In other words, Bitcoin is a world-class asset, but Ethereum is not.

Bitcoin is a finished product

Perhaps the idea of ESG (Environmental, Social and Corporate Governance) is forcing many institutional investors to reconsider their views. However, it is unlikely that Wall Street will now exit Bitcoin.

Even before the merger, there were a number of Proof-of-Stake coins, none of which aroused significant interest from institutional investors. And what’s more: while Ethereum as a proof-of-stake platform has a number of competitors in only the top ten cryptocurrencies, BTC now has a completely unique point of sale with PoW. In other words, after the merger, Bitcoin is the only pure cryptocurrency with Byzantine fault tolerance in the original design of Satoshi Nakamoto, and therefore has virtually no equal.

Thus, the supposed flexibility of Ethereum could eventually be its undoing. Bitcoin can be conservative in its further development. But unlike Ethereum, its value proposition is clear: to be a decentralized, censorship-resistant alternative to gold. Ethereum, on the other hand, is sometimes a world computer, sometimes a platform for smart contracts, and now suddenly Ultrasound Money. Well, which one of them is he now?

Summarizing

In the end, the dispute about the first place on Coinmarketcap is still a mirage. Ethereum and Bitcoin are two completely different assets, and they use different technologies to meet different needs in the future. Even in the hypothetical case of flipping, Bitcoin does not lose its value. They will still remain the most transparent and solid money in the history of mankind, which means, first of all, one thing: a good hedge.