As the world’s first and second most valuable cryptocurrencies by market cap, bitcoin and ethereum are accustomed to rubbing shoulders. Save for a fleeting foray from XRP, which bifurcated the pair in late 2018, ETH and BTC have ranked as the world’s leading cryptocurrencies for the better pair of two years, and bitcoin has occupied the top spot since day one.
Although the value of these cryptocurrencies is easy to determine, the value of their underlying networks is harder to quantify. The statistics are readily available, from hashrate to daily average users and network fees, but incorporating them into a side-by-side comparison isn’t as straightforward as it seems.
On the surface, Bitcoin and Ethereum bear obvious similarities: both are decentralized crypto networks secured by Proof of Work algorithms, with coins released in the form of mining rewards. Both chains can be used to transfer value in a permissionless manner, and form the base layer for an array of second layer products and services.
On closer inspection, however, it becomes evident that Bitcoin and Ethereum might as well be basketball and baseball. Despite their incongruity, however, there are certain areas where the two blockchains overlap. Focusing on these facets provides an insight into how Ethereum and Bitcoin currently stack up, and where they’re headed next.
Bitcoin can be many things to many people, but broadly speaking it is understood to be a form of sound digital money. Its fixed supply, versus Ethereum’s yet-to-be-determined final issuance, makes BTC more suitable as a long-term store of value. As with all things Bitcoin, not everyone agrees that BTC is a good store of value at this stage, but at the very least, it is less volatile than the rest of the 2,000-odd digital assets out there, ETH included.
Bitcoin’s censorship-resistance and high cost of attack, thanks to a network hashrate that has surpassed 100 EH/s during 2019, is unmatched. Successfully attacking the Bitcoin network – assuming you could even muster enough hardware to launch an assault – would cost in excess of $10 million a day.
In addition to its high security and transaction finality, bitcoin’s accessibility to the unbanked and the hard to bank has made it a choice for many living in inflation-hit developing nations. That’s the beauty of bitcoin: it can be a play thing for institutional investors on high leverage, while being a lifesaver for people earning less than $10 a day.
Ethereum’s architects, meanwhile, are still trying to figure out the network’s best use case, but whatever it may be, it’s closely tied to its smart contracting capabilities that the Bitcoin protocol can’t match. Oracles, lending, decentralized synthetic assets, sub-token creation, prediction markets, stablecoins and staking are just a few of the ways in which the Ethereum network can be leveraged using smart contracts. Basically, if Bitcoin lets you use its native cryptocurrency any way you like, Ethereum allows you to build anything you like.
The blessing and curse of Tether
It would be impossible to discuss the state of play between Bitcoin and Ethereum without broaching the matter of Tether (USDT). The controversial stablecoin, the fourth to sixth largest cryptocurrency by market cap on any given day, regularly commands more trading volume than any other digital asset.
Tellingly, the most transacted asset on the Ethereum chain these days isn’t ETH – it’s USDT. At the start of 2018, ETH’s volume stood at 24x that of tether. Today, tether’s volume is twice as large as ETH’s – and most of that activity is now taking place on the Ethereum network. Since migrating USDT to the ERC20 standard, Tether has cannibalized the Ethereum network, dominating the trading volume of all Ethereum-based assets and contributing to rising network fees.
When Ethereum’s gas usage hit an all-time high in September 2019, 20% of that was USDT-related, with Glassnode reporting more than 25% of Ethereum transactions involved tether, up from less than 1% in June. On the one hand, Ethereum has solidified its position at the hub around which the cryptosphere revolves, but at what cost? If the network’s ongoing scaling problems weren’t bad enough, it’s now had a spanner thrust in the works courtesy of Tether.
Shifting use cases and competing narratives
As the market tries to figure out a fair value for bitcoin and ethereum, developers are trying to work out the best way to utilize the respective protocols. Ethereum began life as the “world computer” before morphing into an ICO launchpad in 2017.
When that narrative died in last year’s prolonged bear market, a new use case was born: decentralized finance (defi). Whether it’s a case of a network in need of a narrative, or an organic explosion of decentralized financial products is a matter of debate. What can be said with confidence, however, is that the value of assets locked into defi protocols, almost entirely Ethereum-based, has rocketed over the past 12 months.
Nine of the top 10 defi projects according to DefiPulse are on Ethereum, with the only Bitcoin candidate being second layer payment system Lightning Network in ninth place. Defi is big business for Ethereum projects right now; in September 2019, ConsenSys boss and Ethereum co-founder Joseph Lubin launched Codefi with the goal of creating a suite of open finance applications.
Bitcoin proponents argue that anything Ethereum can do, BTC has been doing for years, decentralized finance included. Open source tools like BTC PayServer, for instance, enable anyone to set up their own permissionless payment service. As Marty of Bitcoin newsletter Marty’s Bent opined, “I think a lot of people in "crypto" are missing the forest for the trees by focusing on crazy "DeFi" schemes and novel applications of "blockchain technology". To me, most of these opportunists are trying to engineer synthetic assets to line their pockets.”
While Bitcoin and Ethereum maximalists vie for supremacy of crypto Twitter, the markets march on in their familiar one-step-forwards-two-back fashion. In the medium to long term, there’s good reason for bullishness on both blockchains, with BTC’s halvening event occurring early next year, prefaced by CME’s launch of bitcoin options, and the long-awaited implementation of ETH’s scaling roadmap. In the meantime, the two networks remain locked in the number one and two spots for most network metrics that matter. It would take a brave soul to bet against that state of affairs changing.
Do you agree? Will Bitcoin and Ethereum continue to reign supreme? Tweet us @Cloudbet with your thoughts on the evolving crypto landscape today.