Ethereum, currently in second place in the ranking of the most important cryptocurrencies, can overtake Bitcoin in a period of about ten years. Crypto analyst Ryan Watkins is convinced of this. He bases his steep thesis on various indications of varying importance.
The entire argument is based on the ongoing progress of the Ethereum network. As is known, the project is working on version 2.0 of its blockchain. It is supposed to fix various problems.
The move from the consensus proof-of-work model to proof-of-stake, he said, reduces energy consumption, speeds up operations, and leads to value-preserving scarcity by burning Ether as part of transaction processing. Moreover, the protocol upgrade would ultimately make the network even more secure than Bitcoin.
Watkins sees a massive value driver in the service portfolio around the defi sector, which Bitcoin does not have to offer at all. Applications of the decentralized financial sector (Dapps), especially the rapidly growing NFT sector, increase the Ethereum network’s importance in modern everyday life.
Dapps, in particular, is forcing Ethereum to work on performance. In small steps, the network is moving in the right direction. For example, Ethereum Improvement Proposal (EIP) 1559 is set to be implemented in July. This aims to make the Ethereum network cheaper and faster by restructuring transaction fees.
Instead of transaction fees set by miners on their own responsibility, the so-called gas fees, there will be an algorithmically determined base fee in the future, i.e., a base fee that does not have to be re-auctioned for each transaction. The base fee will be burned in the course of the transaction, i.e., destroyed by the protocol.
No one benefits from these payments, which will always remain fixed to Ether under the new regime, stabilizing the currency’s value. This pleases everyone involved, except the miners. They are losing massive amounts of revenue and now want to fight back with a so-called 51 percent attack.
Ethereum inventor Vitalik Buterin relies on the Level 1 scaling solution of the rollups to increase the speed in the short term. Behind this is a technology in which transactions are first stored on a secondary blockchain and then written back to the mainnet in batches.
Buterin, like other experts, expects Level 1 scaling to deliver a 100-fold increase in performance. With Ethereum 2.0, Level 2 scaling is added, which will bring another factor of ten. Together, L1 and L2 solutions can thus scale Ethereum by a factor of 1,000.
Watkins predicts that the Ethereum network will create up to 100,000 transactions per second after the protocol update, while Bitcoin will remain limited to two to six transactions per second.
In addition to the technical data, however, the social aspects also play a crucial role. The more users that use a blockchain, the higher its utility will be, and the more users will use the blockchain.
Watkin’s forecast seems steep at the current time, of course. The technical prospects, however, make it seem quite plausible. However, the road seems long.
After all, Bitcoin has already reached a market capitalization of over one trillion dollars. Ether is still a good $800 billion short of that. However, Watkins has probably not chosen a perspective of ten years for nothing. That is an eternity for cryptocurrencies…