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Ethereum: The crypto world turned upside down

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Who is the king of crypto assets? There may be no answer. They all have different missions.

Now Ethereum is getting louder. In its Ethereum research report, Goldman Sachs said that the rapidly developing DEFI and NFT sectors in the Ethereum ecosystem have opened up unlimited imagination space for ETH. BitMex CEO Arthur also predicted that there is a 30% chance that Ethereum will surpass Bitcoin in market capitalization in the future.

There is a surge of institutional enthusiasm for Ethereum, but no one knows what is behind it, whether they have caught on to it or are simply calling for it.

Many people are comparing Ethereum to Bitcoin, and the central question is: Who will be the future king, Bitcoin or Ethereum?

Bitcoin, like the immortal gold, is heavy, hard to carry, and highly resistant to transaction (rigid technical framework, long validation time, low processing performance...). ", but gold's beautiful sheen, like the halo of Bitcoin's "first application of blockchain technology", is still irresistible. The accumulation of time and the precipitation of consensus make gold on the altar of the king of hard currency, while what Bitcoin brings is more a more secure value storage network.

Ethereum, World Computer, Cryptographic Application Ecosystem Master Clearing Layer. In the mainstream crypto world, if the Ethereum protocol is the global central bank, then ETH is the global primary fiat currency, the master protocol coordinates the production relationship among the protocols in the domain, and ETH promotes the flow of value. Infinite ETH inflation is a problem, but healthy growth requires inflation of 2% plus or minus 1%.

So are Bitcoin and Ethereum really comparable? If you look at certain dimensions, you can actually make a comparison. But who is the king of crypto assets? There may be no answer. They all have different missions.

This article is from Bankless analyst Lucas Campbell, who compares the Bitcoin network with the Ethereum network from three dimensions: network settlement volume, transaction fees paid, and network settlement guarantee. This article is translated by Rhythm Blockbeats:

The inevitable big reversal

Whether Ethereum can take on Bitcoin is one of the most controversial topics in the crypto world. For more than a decade, Bitcoin has held its crown as the king of crypto assets by market capitalization. Naturally, the debate in the crypto industry over whether Ethereum, or any other rival, can surpass Bitcoin.

Bitcoin is often touted as the "strongest" and "most robust" currency in the world to date. That may be true, since digital assets are inherently unreplicable, strictly codified by monetary policy, and underpinned by a social contract.

However, many in the Ethereum community are opposed to this. Some even believe that Ethereum's "reverse attack" is inevitable.

Ethereum is a universal, programmable settlement layer for handling any carrier of value, with processing power far beyond Bitcoin. Ethereum's upcoming ETH2.0 upgrade and EIP 1559 could turn ETH into a productive asset with potentially deflationary properties. Although there are considerable execution risks associated with this transition, the combination of scalability and economic model upgrades cannot be underestimated.

While it may be hard for some to imagine bitcoin ceding its throne, Ethereum has actually surpassed Bitcoin in many key public chain metrics.

The three indicators are:

Total Settlement: The total economic value of settlement on the chain.

Transaction fees paid: The transaction fees paid by people willing to settle on the chain.

Settlement Guarantee: Security of value settlement in the chain.

These three concepts largely encapsulate the core purpose of any blockchain: to provide secure (and preferably public) accounts that facilitate the peer-to-peer exchange of value.

1. Total settlement amount

Blockchain is the settlement layer. The total settlement value on the chain is an indication of whether the network is fulfilling its core mission: promoting economic activity. In general, the higher the value settled on the chain, the better. This shows that people are willing to trust and use the network to accurately record and protect their assets (be it ETH, BTC, USD, etc.).

Ethereum's daily settlement value now exceeds Bitcoin's, with a healthy marginal growth rate. (source:Money Movers)

Ethereum leads the pack on this metric. According to Money Movers, Ethereum is worth more than $52 billion in daily settlement, while Bitcoin is worth about $14 billion.

COINS community could quickly, however, emphasize the two networks is not to compare, because the etheric fang settled layer can handle any value of assets, and the currency network basically only supports the BTC, this means that the currency of the loan "economy" is naturally limits only clearing an asset, rather than the tens of thousands of kinds of assets.

But even if we just look at the value transfer of BTC and ETH, Ethereum was already leading the way in early May. Bitcoin clears $13.9 billion of BTC per day, while Ethereum clears more than $20 billion of ETH per day.

Even though Ethereum's "economic loans" are $400 billion higher than the Bitcoin network, Ethereum still outperforms the Bitcoin network in terms of settling its native assets. Ethereum now has more "de-trust value" per day than Bitcoin clears.

So does this mean that ETH is being used more for money and BTC for value stores?

Obviously BTC is not used every day. It is supposed to store its value over time. Both are fulfilling their mission.

2. Transaction fees paid

The business model for public chain is to sell its block capacity. A good blockchain is strewn with economic activities that people are willing to pay for. To me, this is one of the core metrics that determines the value of blockchain, and it also means what people are willing to pay to use the ledger.

Ethereum has once again crushed Bitcoin on that metric. Ethereum's current seven-day average fee is $32 million a day. By comparison, $4 million is traded in Bitcoin every day, and the difference in transaction fees between Ethereum and Bitcoin is about eight times. Why?

In short, Ethereum offers an irresistible ecosystem full of opportunities for economic and social activity.

If you are able to earn 20% APY in dollars and have a principal of $100,000, you may be willing to pay a significant fee to make the deal happen. If you want to buy a Cryptopunk for millions of dollars and show off in the Metaverse, then you may also be willing to pay a hefty transaction fee to ensure that your deal executes smoothly. If you find a "treasure" coin in Uniswap and you think it's going to go up 10 times, then you probably don't care how much you pay for the transaction. Do you understand now?

Bitcoin, on the other hand, is simply sending bitcoins from one address to another, perhaps transferring your bitcoins to a BlockFi account to earn interest. In any case, there are fewer opportunities for economic activity on the Bitcoin network, so users don't want to pay higher transaction fees.

More and more people are scrambling to grab Ethereum block space, waving their bidding "gwei" and telling the miners: shut up, take your money and put my trade on the next block!

The numbers speak for themselves: people are willing to pay more to use the Ethereum network than the Bitcoin network.

3. Settlement guarantee

The last metric we'll look at is settlement guarantee. Nic Carter published a detailed paper on this in 2019. He believes this is one of the most important issues to consider when evaluating any public chain. Because settlement guarantee is directly related to the security of blockchain.

The settlement guarantee represents your confidence that a transaction will not be rolled back once it has been validated on the chain. This is really important, especially for cyberpunk idealists! They have an economic system that is roll-back resistant and irreversible...

One way to measure settlement guarantees is to count the number of block confirmations needed to allow transactions to be settled as they are on Bitcoin.

The author's note: For Bitcoin, 6 pieces of confirmation is a guarantee. This means that once a BTC transaction reaches six blocks confirmed, it is considered final and is unlikely to roll back the transaction.

According to thehowmanyconfsIn terms of the dimensions of confirming the number of blocks, the Ethereum network is not necessarily more secure than Bitcoin. But just a few weeks ago, that changed. For a while, Ethereum was actually more secure than the Bitcoin network! This is an inflection point in the crypto ecosystem, because for the first time in crypto history, there is another network that is more secure than Bitcoin in terms of settlement guarantees.

But we can take it a step further. In Nic Carter's post, he mentions that the cost of the general ledger is one of the quantifiable measures of billing assurance. So how do you measure general ledger costs?

In short, the general ledger cost is equal to the total amount of fees paid to the verification node/transfer selector per unit time.

This means that the more you pay miners each year (the sum of transaction fees and block rewards), the less likely miners are to attack the network. In other words, because the miners' incentives are in place, they can keep the books safe by not doing evil.

After doing some elementary school math, we can figure out how much we pay miners each year:

Bitcoin pays about $14.25 billion per year for miners (based on 900 BTC blocks per day reward + $3.8 million per day transaction fee when BTC price is $40,000)

Ethereum pays miners around $18.5 billion a year (based on this time)Block rewards and block time metrics)

Yes, Ethereum is currently paying miners more per hour than the Bitcoin network. The general ledger costs of the Ethereum network are higher than those of the Bitcoin network, which means Ethereum has higher settlement guarantees under this measurement dimension.

So what's stopping this reverse attack?

Ethereum is clearing more value, people are willing to pay more for it, and the Ethereum network is (by some measures) more secure than the Bitcoin network.

So what's stopping Ethereum from attacking Bitcoin?

For me, it boils down to one word: currency premium.

Today, BTC is better known and understood than ETH, and this is the key factor that generates the currency premium. Decentralized currencies like BTC are based on collective consensus! People know more about bitcoin. Its narrative is simple. It's digital gold. Retail investors understand this and institutions are starting to understand it. As the saying goes, the best thing for cryptocurrencies is to be known.

People understand bitcoin, but they don't understand Ethereum... Investors have had more than a decade to understand Bitcoin, but only half that time to understand Ethereum (and Ethereum is much more complex).

But make no mistake: when ETH2.0 and EIP 1559 are implemented, the ETH narrative will stabilize. All the value generated in the Ethereum network will be deposited directly on the ETH. Ethereum's appeal to institutional investors will explode, they just need time to learn the new industry. Once they do, the ETH narrative will seep into the mainstream.

Ethereum settles more value, and the value that is settled is more secure on Ethereum, and people are willing to pay for that value compared to the Bitcoin network.

On-chain data doesn't lie. Ethereum is a better clearing layer for the value of everything in the world.

Looked at in this light, it seems that this reversal was inevitable.