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Honest comparison? Ethereum growth will surpass Bitcoin in 2021

8 min reading

Here are proof that suggests that Ethereum will get ahead of bitcoin in 2021.

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2021 turned out to be a lucky year for the world's second largest cryptocurrency, Ether (ETH), which has quadrupled in value in the last 12 months. In this way, Ether surpassed the most important bitcoin appreciation and gained an increasing share of the entire cryptocurrency market through capitalization. While the broader cryptocurrency market enjoyed a year of relative gains, ETH's rise went hand in hand with the improvement of Ethereum's core protocol and laid the final pillar of the transition to a consensus protocol for 2022 consensus.

Several Ethereum Upgrade Proposals (EIPs) have become the focus of the wider Ethereum community and are key to the Beacon merger to prove their role in 2022. The London hard fork is the most anticipated upgrade to introduce multiple EIPs. EIP-1559 proved controversial due to changes in the cost structure of miners and consumers, and had both positive and negative aspects brought about by the increase.

Notable is the introduction of the built-in ETH burning mechanism, which destroys some of the ether used to pay transaction fees. While some miners are dissatisfied with cutting costs, the upside to the London hard fork is the deflationary effect of the ETH burning mechanism. It is believed that this EIP and its deflationary mechanism will help add value to ETH in the months and years to come. The Altair update follows London at the end of the year and serves as the first update to the Beacon chain since its launch in December 2020. It allows the various teams involved in advancing the Ethereum ecosystem to run The Merger dry cycle.

Another driving force behind Ether's strong performance in 2021 is the fast-growing decentralized finance (DeFi) sector, which has attracted significant capital. The Ethereum blockchain manages some of the largest DeFi platforms and this has a direct impact on the value of ETH and increased activity on the blockchain.

Harvest what you sow

Ethereum's popularity as a blockchain platform is a direct result of the smart contract functionality that underpins the ecosystem. Smart contracts allow you to create and run various applications on the blockchain, allowing users to create their own tokens, applications and platforms. While ETH is the proverbial elixir of the life of the Ethereum ecosystem, blockchain projects and applications are largely responsible for the extracted value. As the saying goes, you reap what you sow and the ecosystem will reap the benefits of a blockchain system that allows seeds to grow in valuable and popular DA applications and platforms.

Ben Caselin, Head of Research and Strategy at cryptocurrency exchange AAX, shared some insights on the main factors that made Ethereum's strong year even stronger. For the first time, Caselin highlights the multiple uses that have helped the cause of ETH throughout the years: "We mean stablecoins, DeFi, GameFi, irreplaceable tokens (NFTs), meme coins, digital bonds, central bank initiatives for digital currencies, Revenue Agriculture, Liquidity Pools, and the Metaverse.” He added: “Ethereum owns each of these sectors and their associated capital with a large market share. The value of Ethereum is determined differently depending on the activity it manages, while Bitcoin continues to grow as it sees adoption as a savings technology as a key layer for the new world economy. All move somewhat in unison, but they are mainly driven by different forces and conditions."

Matthias Nistrom, Community Manager at Ethereum payment platform Golem Network Level 2, shared his findings. Nistrom highlights his activity on the Ethereum network as a catalyst for its success this year: “While Bitcoin was created primarily for payments, Ethereum is unique because of its core technology, and this became important when Web 3.0 started its journey. for mass adoption." Matti Greenspan, crypto analyst and founder of Quantum Economics, said that the performance of Bitcoin (BTC) and Ether is difficult to compare given their many uses and different ecosystems. However, he admits that the latter has seen a clear upward trend over the past 12 months:

“Bitcoin and Ethereum are as different as any two assets, except that they are both digital currencies. They have many different functions in their respective networks, and each has unique buying and selling pressures.

Influential EIP

When investigation was conducted in November, Ethereum will be the last to transition from its energy-intensive Proof of Work (PoW) algorithm to the Ethereum 2.0 Proof of Bet (PoS) chain. The Beacon chain launched in December 2020 and started the creation of the Eth2 PoS chain, which already includes more than 8,600,000 ETH and nearly 270,000 online validators. This validator will basically do the work of the current miner on Eth2, process transactions and keep the blockchain working. To become a Full Node Validator, users must bet 32 ETH, while smaller amounts can be wagered in the pool.

One of the most anticipated proposals to upgrade Ethereum was released in mid-2021. The EIP-155 has been the subject of much debate in light of the changes introduced in the fee structure that miners earn and pay for by consumers. The pain point is the built-in ETH burnout mechanism, which destroys some of the ether used to pay transaction fees. The miners are not impressed because fees are part of their incentive to run the network.

The advantage of the London hard fork is the deflationary effect introduced by the ETH combustion mechanism. As a result, a percentage of ETH is destroyed with each transaction, leading to the gradual removal of more ETH from the ecosystem, a process designed to increase the scarcity and value of ETH as an asset. Caselin believes the implementation of the upgrade in London helped create positive investor sentiment, but also highlighted some of the key differentiators between Ethereum and Bitcoin:

“London Upgrade reaffirms that the Ethereum project is up and running and still in development – this is of interest to investors and speculators alike. This is better than some highly rated projects but lacking in real activity and service delivery. The burning mechanism speaks to the narrative of inflation and borrows from the logic on which Bitcoin is based. Greenspan, meanwhile, is more objective in his analysis, suggesting that the average Ethereum consumer will have little to no inkling of the recent EIP impact that is part of the impending merger between the current Ethereum blockchain and the Beacon chain in 2022. , "While the upgrade may have an impact on internal tokennomics, I don't think it has much of an impact on sentiment."

Nystrom believes that the technical improvements to the Ethereum ecosystem when he joined and the various applications running on its blockchain have proven its versatility, which is reflected in the increase in the value of ETH over the years: ETH is uniquely structured differently from BTC and has shown much greater technical progress in 2021. The crypto community knows for sure that Ethereum is a more flexible asset with an entire ecosystem behind it and more room to scale and create ambitious and worthwhile projects in longer period of time. "

Market is still fragile

December was tough for the global market, which reacted sharply to the discovery of the latest version of COVID-19 identified by South African researchers. The traditional market is shaken and this has affected the cryptocurrency market. BTC, ETH, and a number of major cryptocurrencies have suffered losses as that sentiment shifts to the crypto market and there is more bad news as inflation picks up in the United States. Caselin offers a measured perspective and highlights the typical market reaction to big news and economic events and how this can benefit BTC more than ETH in the medium term:

“Markets are always moving in time with key economic news and events, but longer trends tend to develop from the start. [...] We're not in a bear market yet, but there's every reason to believe that the growth over the last two years is just the beginning. Long-term owners are still buying." Greenspan cites developments in the United States as a sign of timing and the cause of the market's recent downturn, but admits that the medium-term plans for the cryptocurrency market are currently unclear:

“While the Fed was printing money, social media was buzzing with 'brrrr' memes, now that liquidity has dried up the noise is much less than a bean gallery. We'll probably see how deep this retreat actually goes by the end of the year. Or not."

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