Flippening (the Great Reversal), where ETH overtakes BTC as the crypto industry leader, is arguably one of the most controversial events in cryptocurrencies. Bitcoin has held the throne as the most valuable cryptocurrency asset by market cap for over a decade. And the idea that Ether or any other contender will overtake the number one spot naturally stirs up controversy in the cryptocurrency community.
It is often touted that BTC is by far the soundest currency in the world, and that the digital asset has a perfect concept that can arguably never be replicated if supplemented by strict, programmed monetary policies (enforced by a strong social contract).
However, many in the ethereum community think otherwise. In fact, some believe that the “Great Reversal” is inevitable.
Ether is a universal, programmable settlement layer for anything of value that goes far beyond the core capabilities of Bitcoin. Ether’s upcoming Eth2 upgrade and EIP 1559 implementation will transform ETH into a productive asset with a potentially deflationary monetary policy. While there is still considerable execution risk associated with this transition, this combination of scalability + economic upgrades should not be underestimated.
While it may seem impossible for some to envision a scenario in which Bitcoin gives up the throne, the fact remains that Ether has surpassed Bitcoin in the three most important fundamental on-chain metrics of any public blockchain.
These 3 metrics are
Value settled: how much economic value is settled on the blockchain.
Transaction fees paid: how much people are willing to pay to settle that value on the blockchain.
Settlement Assurance: How secure that value is once it is settled on the blockchain.
These three concepts largely encapsulate the core purpose of any blockchain: to provide a secure (and preferably public) ledger that facilitates peer-to-peer value transfer.
- Value Settlement
The blockchain is the settlement layer. The amount of value settled on a blockchain indicates whether the network is actually fulfilling its core purpose, which is to facilitate economic activity. In general, the more value that is settled on the blockchain, the better. This is because it shows that people are actually willing to trust and use the network to accurately record and protect their value (whether it is ETH, BTC, USD, etc.).
Ether has now surpassed Bitcoin in daily settlement value by a wide margin (source: Money Movers)
And Ether dominates this metric in every way. According to Money Movers, Ether is settling at a daily value of over ~$52 billion, compared to Bitcoin’s daily settlement value of ~$14 billion.
However, the Bitcoin community may be quick to point out and emphasize that this is an “apples” to “oranges” comparison (but both are fruits!) Because ethereum’s settlement layer can handle any value, while bitcoin’s essentially only supports BTC, essentially limiting the available economic bandwidth of the network to one asset, not thousands.
However, even if we look strictly at the amount of value transferred between BTC and ETH, as of early May, Ether has taken the lead. Bitcoin settles ~$13.9 billion in BTC per day, while Ether still settles more than $20 billion in ETH-denominated value per day.
Despite having over ~$400 billion in economic bandwidth, Ether still settles more value than Bitcoin in terms of its respective native assets. Ether now settles more daily de-trusted value than Bitcoin.
So does this mean that ETH is used more as a currency and BTC is used more as a store of value (as Carl Ichan said yesterday)? (Note: Carl Icahn, the “Wolf of Wall Street,” said in an interview with Bloomberg that Bitcoin and Ether are different in that Bitcoin is only used as a store of value, while Ether is the underlying blockchain and can be used as a payment system as well as a store of value.)
The obvious argument against this is that BTC is not meant to be used on a daily basis. It is for long-term storage of value (which it has historically done very well.) Both BTC and ETH have their own purposes.
- paying fees
Public blockchains are in the business of selling block space. Each block of a good blockchain should be filled with all kinds of activity and people willing to pay for it. To me, this is one of the core metrics for determining how valuable a blockchain is, because it actually translates into how much people are willing to pay to use that ledger.
And, by that measure, ethereum is crushing bitcoin. The current 7-day average fee for Bitcoin is $4 million per day. Compare that to $32 million per day for ethereum, which at this point is not even close to competitive, and ethereum dwarfs bitcoin in terms of transaction fees paid by about 8x, but here’s why.
Simply put, ethereum offers an attractive ecosystem full of economic and social opportunities that are worth paying for.
If you can earn 20% APR on your dollars and have $100,000 to deploy, then you may be willing to pay a significant fee to make this deal happen. If you want to buy a crypto-punk for a few million dollars so you can show off in the Metaverse, you might also be willing to pay a sizable fee to make sure your deal goes through. If you have a new Uniswap gem that you think will grow 10x, you also probably won’t care what the gas fee is. You get the idea.
On the other hand, the main opportunity for bitcoin is to simply send it to another address. Maybe it’s to your BlockFi account and start earning interest. But in any case, there are fewer economic opportunities on the Bitcoin network, so paying higher transaction fees is less desirable.
More and more people are eager to fill up block space on Ether, waving their Gwei, telling miners to shut up, take their money, and include their transactions in the next block.
The numbers speak for themselves: people are willing to pay more to use Ether than Bitcoin.
- settlement guarantees
The final metric we’re going to dig into is settlement guarantees. nic Carter wrote an article about this back in 2019. He argues that this is one of the main things to consider when evaluating any public blockchain. This is because settlement assurance translates directly into blockchain security.
This is the confidence you have that your transactions will not be reversed once they are verified on the chain. This is important, especially for those who align with Cypherpunk’s ideals! Because people want an economic system in place that can withstand rollbacks, reversals, and other issues.
One way to measure settlement guarantees is to calculate the number of block confirmations required for a transaction to settle the same way as a transaction on Bitcoin.
Note: For Bitcoin, it has historically been a 6 block confirmation. Meaning that once a BTC transaction reaches 6 block confirmations, it is considered final and the transaction is unlikely to be recovered.
In terms of the number of block confirmations (as calculated by howmanyconfs), ethereum is currently no safer than bitcoin. However, this was not the case a few weeks ago. There was a moment when ethereum was actually safer than bitcoin! This was a turning point in the crypto ecosystem, because for the first time in crypto history (as far as I can surmise) another network had greater settlement guarantees than Bitcoin in this metric.
But we can go even further. In Nic’s article, he mentions the ledger cost rate as one of the quantifiable measures of settlement assurance. So how do you measure the cost effectiveness of a ledger?
In simple terms, it equals the amount paid to the verifier/transaction selector per unit of time
This means that the more you pay miners per year – a combination of fees plus block rewards – the less likely they are to attack the network. In other words, the ledger is more secure because miners have more incentive to be honest actors.
After some quick and simple calculations, we can figure out how much is paid to miners each year.
Bitcoin pays about $14.25 billion per year to miners (based on 900 BTC per day + $3.8 million in daily transaction fees at $40,000 per BTC).
Ether pays miners about $18.5 billion per year (based on those block rewards and block time metrics).
Yup. Ether currently pays more money per unit of time to miners than Bitcoin. Ether has a higher ledger cost than Bitcoin, which means it has a higher settlement guarantee by this measure.
What stops the big reversal?
Ether can settle more value, people are willing to pay more to settle that value, and Ether is more secure (under certain measurements) than Bitcoin.
So what’s stopping ethereum from outperforming bitcoin?
For me, it comes down to one word: currency premium.
Today, BTC is more widely known than ETH, and this is a key factor in accruing a cryptocurrency premium. Decentralized currencies like BTC are, after all, built on a collective belief! There is also more understanding of Bitcoin. It’s known as “digital gold”. Retail investors understand this, and institutions are starting to understand it too. As we can’t say enough, the best thing for cryptocurrencies is to be understood.
People understand bitcoin, but they don’t understand ethereum yet. Investors have had over a decade to understand Bitcoin, but only half that time to understand Ether (and it’s significantly more complex).
But make no mistake: if Eth2 and EIP 1559 are implemented, ETH can be stabilized. All the value generated on Ether will go directly to ETH. For institutional investors, the attractiveness of this asset will come into play – and they will only have to give their time to learn about this new industry. Once they do, ETH will be able to enter the mainstream.
Ether can settle more value and is more secure, and people are willing to pay more for that value settlement than Bitcoin.
The numbers on the chain don’t lie. Ether is becoming a better settlement layer for all the value in the world.
When you look at it that way, a “big reversal” is probably inevitable.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/the-great-reversal-unstoppable-ether-has-overtaken-bitcoin-on-the-3-necklaces-metric/
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