Imagine the year is 2021 and you open your Coinmarketcap just to find out that Bitcoin is no longer number 1. For the first time in history the very first cryptocurrency no longer represents the most valuable network. Instead Ethereum has replaced Bitcoin.
Doesn’t sound credible to you? In the following we present you three reasons why this hypothetical scenario could become a reality already in 2021.
Let’s first take a look at the Ethereum timeline to understand Ethereum’s new value proposition. Very significant milestones are scheduled to occur already this year. The dates presented in the following are taken from the “best guess” estimations by Justin Drake, the leading Ethereum 2.0 researcher.
|July 14, 2021||EIP-1559 activation date|
|December 1, 2021||Merge Date & End of Proof of Work for Ethereum|
These are the two key dates to keep in mind when going through the three reasons why Ethereum could overtake Bitcoin as the leading blockchain network.
Reason Number 1: EIP-1559
EIP-1559 is scheduled to be pushed to the Ethereum blockchain with the London upgrade and will change the dynamics of Ethereum forever:
Currently transaction fees on Ethereum are collected by miners. However, after the EIP-1559 network upgrade a part of the transaction fees (base fee) will be burned. Justin Drake estimates that 70% of transaction fees will be burned. Through a decreasing Ethereum inflation rate all $ETH token holders will be rewarded as their $ETH becomes more valuable.
It is obvious for anyone that this is good from a supply and demand perspective. However, it also makes a huge difference from a psychological point of view which matters even more in an emotionally driven bull market.
Currently, if you spend your money on Ethereum gas fees it sucks because you are paying for the beer and burgers of a random miner that is most likely sitting somewhere in China. However, under EIP-1559 when you are an Ethereum investor or staker and you spend your ETH it will feel like you are spending money on your own company. On one hand you will spend money and on the other hand the money spent goes directly back into your business. It will hurt much less to spend money since you yourself will ultimately be the beneficiary from spending the money. This will cause the community to stop complaining about high transaction fees and make peace with the fact that Ethereum will probably continue to be expensive to use despite several improvements and layer 2 scaling.
Reason Number 2: Reduction of Issuance after the Migration to Proof of Stake
While the implementation of EIP-1559 will certainly remove the issuance considerably an even larger issuance reduction will occur through the migration from Proof of Work to Proof of Stake. Justin Drake estimates that the migration will occur in December this year and that thereafter the issuance of Ethereum will be deflationary.
While the number of gold, dollars or Bitcoin is increasing the number of $ETH will be decreasing from that moment onwards.
The world has never seen before a commodity or precious metals that was highly in demand and deflationary. For this very reason Justin Drake calls Ethereum after Proof of Stake “ultrasound money”.
The reduction of issuance through the migration to Proof of Stake and the implementation of EIP-1559 will be the equivalent of 3 Bitcoin Halving cycles.
The value proposition of $ETH will be fantastic:
- $ETH as a deflationary asset
- $ETH as an asset that generates yield (through staking or depositing into DeFi protocols)
- $ETH as collateral in DeFI
- $ETH as a commodity required to pay for gas fees
Reason Number 3: Environmentalism
The third reason why Ethereum will overtake Bitcoin is a cultural phenomenon: Environmentalism. Across the globe people are going on the streets to protest for climate change. Consumers are more and more concerned about the environment and so are investors. Green parties are winning elections across the world. And Bitcoin is criticized for its heavy energy consumption.
Proof of Stake will remove the requirement of energy intensive mining from the Ethereum network. Suddenly a decentralized blockchain that has all the features of Bitcoin and more (in exchange more vulnerability though) will be available as an alternative. That will become a fact that the world won’t sleep on and the Ethereum community will push the environmental narrative to the masses. Many people will be driven to sell their Bitcoin for Ethereum. This could be the final push for Ethereum to replace Bitcoin as the leading cryptocurrency by market capitalization. It might eventually only happen in 2022, but chances are it will happen this cycle.
How realistic is it that this scenario will materialize?
First of all you need to remember that bull markets are crazy and outcomes occur that few people would have considered possible. That said a flippening almost occurred already back in 2017.
It is a statistical fact that Ethereum and Altcoins are outperforming BTC in the year of the bull market. While it is best to consolidate into Bitcoin during the bear market or consolidation phases it is best to allocate towards $ETH and altcoins during bull market episodes.
Advocates of Bitcoin who at the beginning of this cycle were very vocal about investing in Bitcoin have already shifted their bags towards Ethereum:
Currently the Ethereum network is valued at 36% of the Bitcoin network. If the price of Bitcoin would stay static $ETH would need to reach 9,200$ to surpass Bitcoin.
However, it is highly unrealistic that Bitcoin won’t move during a bull market. Let’s assume that Bitcoin goes to 115,000 $ in the course of this cycle then $ETH would need to reach almost 20,000$ to take over the leadership. Certainly not an easy task. But as John F. Kennedy said “We choose to go to the Moon […] not because it is easy, but because it is hard.” 🌕 🚀