Ethereum surpassing Bitcoin is arguably one of the most controversial topics in the cryptocurrency industry. Calculated by market value, Bitcoin has occupied the throne of the most valuable crypto asset for more than a decade. The idea that Ethereum or any other competitor will surpass the first place naturally sparked controversy in the crypto industry. It is often boasted that BTC is the most complex and most stable money in the world. This is probably true. Conceptually, digital assets can be said to have strict, programmed monetary policies executed by robust social contracts and cannot be replicated to increase money. However, many people in the Ethereum community objected to this. Some people believe that it is inevitable that Ethereum "surpasses" Bitcoin. Ethereum is a general-purpose, programmable settlement layer that can handle anything of value, and its extension extends far beyond the core functions of Bitcoin. Ethereum's upcoming Eth2 upgrade and EIP 1559 deployment will convert ETH into a productive asset with potential deflationary monetary policy. Although there are still considerable execution risks in this transition, the combination of scalability and economical upgrade should not be underestimated. Although it seems impossible for some people to imagine Bitcoin giving up the throne, the truth is that Ethereum can already be said to have surpassed Bitcoin in terms of the three most important fundamental on-chain indicators of any public chain. The three indicators are: Value settlement: how much value is settled on the blockchain. Transaction fees paid: How much people are willing to pay to make that value settle on the blockchain. Settlement guarantee: How safe is the value after settlement on the blockchain? These three indicators essentially contain the core purpose of any blockchain: to provide a secure (preferably public) distributed ledger to facilitate peer-to-peer value transfer. 1. Value settlement Blockchain is the settlement layer. The total value settled on a blockchain represents whether the network fulfills its core purpose: to promote economic activity. Generally, the more value settled on the blockchain, the better the effect. It shows that people are willing to trust and use the network to accurately record and protect their value (ETH, BTC, USD, etc.) The value of Ethereum's daily settlement has now surpassed Bitcoin, and the growth rate gap is getting wider (Source: Money Movers) In this indicator, Ethereum leads Bitcoin across the board. According to Money Movers, the daily settlement value of Ethereum is more than 52 billion U.S. dollars, while the daily settlement value of Bitcoin is approximately 14 billion U.S. dollars. However, the Bitcoin community may quickly point out that this compares apples and oranges (both are fruits) because the settlement layer of Ethereum can handle any value. At the same time, Bitcoin only supports BTC, which inherently changes. The economic bandwidth available on the network is limited to one asset, not thousands. However, even if we look at this strictly regarding the value transfer between BTC and ETH, Ethereum is already in a leading position as of early May. Bitcoin is valued at 13.9 billion U.S. dollars per day, while Ethereum still settles more than 20 billion U.S. dollars per day in ETH. Although the economic bandwidth of Ethereum exceeds US$400 billion, Ethereum still has a higher value than Bitcoin settlement in terms of their native assets. Ethereum now has more trustless value than Bitcoin that is settled every day. Does this mean that ETH is used more as currency while BTC is used more as a store of value? The argument against this view is obviously that BTC is not used every day. It means storing value over time (it has done an excellent job historically)... 2. Transaction fees paid The public chain is engaged in the business of selling block space. A good blockchain is full of activities that people are willing to pay for. For me, this is one of the core indicators for determining the value of the blockchain because literally, the blockchain can be interpreted as the fees people are willing to pay for using the ledger. Under this indicator, Ethereum is once again crushing Bitcoin. Currently, the average cost of Ethereum for seven days is 32 million USD per day. In comparison, Bitcoin is $4 million. At this point, they are not even a problem of closeness—the difference in transaction fees between Ethereum and Bitcoin is about eight times. Why is it like this? In short, Ethereum provides an attractive ecosystem, which is full of economic and social opportunities worth paying for. If the user can participate in that 100,000 US dollars and earn 20% of APY, then he may be willing to pay a considerable fee to make the transaction happen. If a user wants to buy a crypto punk for millions of dollars to show off in Metaverse, he may be willing to pay a hefty fee to ensure that the transaction goes smoothly. If a user makes a new Uniswap and he thinks the price will be ten times, then he may not care how much the gas fee is. On the other hand, the foremost profit opportunity for Bitcoin is to send it from one address to another. Maybe start earning interest from the BlockFi account. But in any case, there are fewer opportunities for economic profit on the Bitcoin network, so it is less desirable to pay higher transaction fees. More and more people are scrambling to enter the block space of Ethereum, waving their gwei, telling the miners to shut up, take their money, and pack the transaction into the next block. The numbers speak for themselves: People are willing to use Ethereum instead of Bitcoin. 3. Settlement guarantee The last indicator we want to study is settlement guarantees. Nic Carter published a detailed article on this in 2019. He believes that this is one of the main issues to be considered when evaluating any public chain. This is because the settlement guarantee directly translates to the security of the blockchain. Once the user's transaction is verified on the chain, it will not be restored, making it full of confidence. This is important, especially for those who cherish the ideals of crypto punk! People want an economic system that can resist rollbacks and reversals. One way to measure settlement guarantees is to calculate the number of block confirmations required to make the transaction settle as if it were on Bitcoin. Once the user's transaction is verified on the chain, it will not be restored, making it full of confidence. This is important, especially for those who cherish the ideals of crypto punk! People want an economic system that can resist rollbacks and reversals. One way to measure settlement guarantees is to calculate the number of block confirmations required to make the transaction settle as if it were on Bitcoin. But we can go further. In Nic's post, he mentioned that the cost of the general ledger is one of the quantifiable measures of settlement guarantee. How to measure the cost of the ledger?
In short, it is equal to the amount paid to the verifier/transaction selector per unit of time. This means that the more fees users pay to miners each year (the sum of miner fees and block rewards), the less likely they are to attack the network. In other words, distributed ledgers are more secure because miners are more motivated to become honest participants. After some quick mathematical operations, we can calculate the annual fee paid to the miners: Bitcoin pays approximately US$14.25 billion to miners every year (based on a daily transfer fee of 900 BTC + US$3.8 million per day, BTC is calculated at US$40,000) Ethereum pays approximately $18.5 billion to miners each year (based on these block rewards and block time indicators) Yes, that's right. Ethereum currently pays more to miners per unit of time than Bitcoin. Ethereum has a higher ledger cost than Bitcoin. This means that under this measurement, Ethereum has a higher settlement guarantee. What is preventing Ethereum from surpassing Bitcoin? Ethereum settles more value, people are willing to pay more for this value, and Ethereum is more secure than Bitcoin (under specific metrics). So, what prevents Ethereum from surpassing Bitcoin? For me, it can be boiled down to two words: currency premium. Today, BTC is more widely known than ETH, a crucial part of Bitcoin's currency premium. After all, decentralized currencies like BTC are based on collective beliefs! People know more about Bitcoin. It has a straightforward narrative like digital gold. Retail investors understand this. Institutions are beginning to understand this. Like what we used to talk about, the most bullish reason for cryptocurrency is understanding it. People understand Bitcoin. They don't understand Ethereum... Investors have more than ten years to learn about Bitcoin. They have half the time to understand Ethereum (Ethereum is more complicated). But please don't get me wrong: if Eth2 and EIP 1559 are implemented, the narrative of ETH can be stabilized. All value generated on Ethereum will be directly credited to ETH. Its appeal to institutional investors will increase sharply, and they only need time to learn this new industry. Once this is done, the narrative of ETH will enter mainstream society. Ethereum settles more value, the value is more secure, and people are willing to pay more for that value than Bitcoin. The numbers on the chain will not lie. Ethereum is becoming a better settlement layer for realizing all the values in the world. When you look at it this way, it seems inevitable that Ethereum surpasses Bitcoin. This article is only a personal elaboration and does not make any investment advice. Thank you.
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