Does Ethereum have the characteristics to one day surpass Bitcoin and become the number one cryptocurrency in terms of market capitalization and user adoption? Let’s do a check in !
Bitcoin was the first cryptocurrency to emerge, and it is still number 1 in the market. However, Ethereum is starting to gain traction, and many experts believe it might overtake Bitcoin in the coming years. In this article, we are going to see why Ethereum has so much potential and how it might dethrone Bitcoin.
Bitcoin (BTC) ushered in a new era of decentralized technology and modern cryptography. However, the king of cryptocurrency seems to be lagging behind as technology advances rapidly.
Bitcoin and Ethereum are both major players in the blockchain spacebut they each focus on different aspects.
ETH2 Status: The Ethereum Network Update
Fusion (Ethereum The Merge) is the end result of a process that began on December 1, 2020 with the introduction of the Beacon Chain. The Beacon Chain is part of Ethereum 2.0 (Eth2), and its initial goal was to increase the number of transactions per second from 15 to potentially tens of thousands.
From the beginning, the Beacon Chain had an interesting function: instead of being validated by the Proof-of-work system – which uses cryptographic solutions – it is verified by the Proof-of-stake method, in which a limited number of people who own a certain amount of ETH confirm transactions.
The Merge update took place in two stages and the date of execution of each stage depends on reaching a certain hash difficulty called Total Terminal Difficulty (TTD). The first stage of this big update, codenamed Bellatrix, took place on September 5, 2022.
Paris, codenamed the final stage, was to be launched when the TTD reached 58 quadrillion – which would take place between September 10 and 20, 2022 according to the Ethereum blog. However, the update actually took place on Thursday, September 15 at 8:42:42 a.m.
From The Merge, Ethereum price has lost more than 30% of its value. The rest of the market is also in the red. Since the activation of proof-of-stake on the Ethereum network with the merger, the price of ETH has fallen by more than 30% and is currently trading around $1150, its lowest level since July.
Effects of migration: new technology
The merger comes with several changes. Most important is the implementation of a new technology called Sharding, which will be used to process transactions faster and more efficiently. It works by dividing the Ethereum blockchain into several shards connected to each other, like pieces of a puzzle. This will enable faster transaction processing, better scalability, and increased security.
Ethereum requires less energy than Bitcoin to operate, which is a significant advantage!
Additionally, Ethereum’s move from a proof-of-work to a proof-of-stake system makes it much more energy efficient than Bitcoin. In fact, the Ethereum network currently uses around one-sixth the energy used by Bitcoin on average. This might lead to lower transaction fees in the future and reduce its ecological footprint as well.
Interest of institutional and retail traders
Institutional investors may be attracted by the high staking rewards, which might reach up to 15% per year. By comparison, US Treasuries offer investors a lower yield of 3.5%.
The report noted that institutional investors – portfolios investing more than $1 million in ETH – grew more than 5x in the past year. According to the report, institutional investors grew to 1,100 in August 2022 from less than 250 in January 2021.
When a blockchain uses proof-of-work consensus, as does with bitcoin, the block validation process becomes much more complex. The “stake” of the validator refers to the computing power and energy expended to perform these calculations. The new way blocks of information are validated and confirmed for inclusion in the shared proof-of-stake ledger adopted by Ethereum relies on “validators.” Validators must have a minimum of 32 ether staked ( blocked or staked) on the blockchain.
When a validator blocks this amount of ether, it shows that it is interested in keeping the network running smoothly. In exchange for their help in validating the blocks, they earn ethers each time they contribute (in proportion to the number of ethers involved). Validators are randomly selected for each validation. If a validator behaves dishonestly, the blocked amount can be seized. In this system, an honest validator who exposed another dishonest behavior also earns ethers. The objective is to avoid the formation of cartels.
Users who come together to pool their ethers are called “staking pools”, in order to reach the threshold of 32 ethers required to validate the blocks, or to exceed it to increase their chances of being selected. If successful, they then share the rewards. With $30 billion worth of ether stored on the new blockchain, these gains will remain inaccessible for 6-12 months according to updates from the Ethereum Foundation.
With the merger designed to reduce Ethereum’s power consumption by 99%, Chainalysis said institutional investors with sustainability commitments will become more comfortable with the asset.
Benefits for institutional and retail traders include the ability to subscribe to and support securely stored digital assets. This is an attractive option for institutional investors who want access to a wide range of digital assets without having to worry regarding security or liquidity issues. Traders will benefit from lower transaction fees, high liquidity and better scalability.
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Current and ongoing use cases
Current and on-going use cases for Ethereum range from financial applications to predictive markets, gaming, digital asset collection, and more. The network is also used for its distributed computing capabilities, allowing users to host decentralized applications (DApps). Ethereum’s flexibility makes it well suited for a variety of other uses. Developers are actively working on new ideas and applications for this technology.
DeFi :
Decentralized financial applications, dubbed “DeFi,” are among the most potential real-world uses for Ethereum.
DeFi includes lending backed by smart contracts, stablecoin production, and decentralized exchanges. One project that stands out in this group is “MakerDAO,” which uses complex Ethereum smart contracts to enable the development of a stablecoin (DAI) that is backed by Ether and has a fixed value of $1.
NFTs :
The non-fungible tokens (NFT) are digital assets that are not interchangeable and therefore have unique properties. These include collectibles, artwork, concert tickets, and in-game items such as weapons or characters. Ethereum provides infrastructure for creating token standards such as ERC-721, which allows developers to create their own custom NFTs on the platform.
Data storage :
Large amounts of data are stored in so-called server farms by companies such as Dropbox and Microsoft. An information storage facility with hundreds of servers is known as a server farm. The problem with server farms is that they concentrate a significant portion of a company’s storage capacity in one place. Therefore, if it is destroyed by a natural disaster or a terrorist attack, society might suffer significant damage.
The solution is a decentralized storage facility. In this case, the information is not stored in a few server farms in the United States, but in hundreds (or even thousands!) of data centers around the world. So far, this has not been possible because it is a great technological challenge to build a network that securely connects all these servers and allows fast data transfer.
Ethereum is, however, extremely likely to be the solution to this problem, as its Blockchain technology can be used to quickly and securely transport data between millions of servers while encrypting it.
Conclusion
Data shows that Ethereum will likely overtake Bitcoin in the near future!
Indeed Ethereum has come a long way since its inception in 2015. From an experimental project to one of the most popular cryptocurrencies, Ethereum looks set to revolutionize the financial world as we know it. With its flexibility and scalability, it gives developers an unprecedented level of freedom when it comes to creating applications and use cases. Additionally, its low power consumption might potentially further boost institutional adoption. Whether or not Ethereum will manage to overtake Bitcoin remains to be seen, but given its current trajectory, it may well be possible in the coming years.