Here, we breakdown Ethereum’s strengthens and weaknesses and ask whether it can ever overtake Bitcoin.
Goldman Sachs analysts recently proclaimed that Ethereum is poised to overtake bitcoin at the top of the crypto food chain.
Bitcoin was the first cryptocurrency breakthrough. It is the largest by value and is the most traded, but, as a system is was comparatively ‘early’ and rudimentary versus Ethereum which remains the most popular of the so-called second-generation cryptos.
It remains to be seen whether Ethereum can overtake Bitcoin, or, how it might do so.
Why Ethereum can win
More than a digital currency
A big advantage Ethereum has over bitcoin is that besides being used as a digital currency, it can also be used to process other types of financial transactions and systems.
The Ethereum network can be used to execute smart contracts and store data for third-party applications. It provides a common basis for scores of emerging decentralised financial technologies, albeit not all will survive the Darwinian tests of the marketplace.
Smart contracts are popular
According to Goldman, Ethereum has the potential to overtake Bitcoin mainly due to the popularity of the blockchain platform for developers – its the most popular platform used for smart contract applications.
DeFi ecosystem
As per a Reuters report, at the heart of Ethereum’s ascendancy is ‘DeFi’, which refers to peer-to-peer cryptocurrency platforms that facilitate lending outside traditional banking institutions.
Many sites run on the Ethereum network, using an open-source code with algorithms that set rates in real time based on supply and demand.
Upgrades may drive institutional interest
Ethereum popularity could be set to soar in future as more and more institutional investors are showing interest in the cryptocurrency, that’s according to Bloomberg.
Key upgrades to the blockchain tech is making Ethereum more efficient and this makes it more attractive in the eyes of investors. Bitcoin on the other hand is much harder to change or improve.
EIP-1559
Ethereum is also likely to get a boost from the technical adjustment called EIP (Ethereum improvement proposal) 1559, expected to go live in July and is seen reducing the supply of Ethereum, which could lift the value of the digital currency.
EIP-1559 aims to reduce the volatility of Ethereum’s fees by introducing a mechanism to burn some of those transaction fees, which should slow the token’s issuance.
Why Ethereum might lose
Despite having certain advantages, Ethereum is also plagued by some inherent disadvantages which could prevent it from replacing bitcoin as the most popular cryptocurrency.
Higher transaction cost
Ethereum’s growing popularity has pushed the transaction cost up and could potentially hamper the growth.
Transaction fees, referred to as ‘gas’, hit a record $23 per transaction in February 2021, which benefits its miner and hurts the people using it for a transaction.
Unlike Bitcoin, where the network itself rewards transaction verifiers, Ethereum requires those participating in the transaction to cover the fee.
Limited upside
The annual releasing limit of Ethereum is limited to 18 million Ether per year, and there is no lifetime limit on the potential number of coins.
This could mean as an investment in Ethereum will be more in permanent and stable like the US dollar and the appreciation in its prices will happen at a much slower speed as compared to Bitcoin, which has a strict lifetime limit on the number of coins.
Evolving uncertainty
Another major problem associated with Ethereum is uncertainty.
Ethereum continues to evolve and improve, and the ongoing development of Ethereum 2.0 holds out the promise of new functions and greater efficiency.
This major update to the network, however, is creating uncertainty for apps and deals currently in use and this can result in people preferring Bitcoin more.
Greater investor interest
Bitcoin attracts the most attention from institutional investors, and with good reason: a growing number of businesses have begun to accept Bitcoins as a form of payment.
According to industry experts, Ethereum is a more utility-based cryptocurrency having qualities to support smart contracts.
Experts predict that Ethereum will see more development in future but its usage as a popular cryptocurrency will be capped.
More recognised for payments
Bitcoin has first mover advantage and is more recognised as a peer-to-payment system. It was developed as a substitute for national currencies and thus strives to be a medium of exchange.
While Ethereum was created as a ledger technology platform using open source platform which is technologically advanced but at the same time is more prone to cyberattack and hacking, and is also a reason why investors have more faith in Bitcoin.