Why Ethereum Can Continue To Outperform Bitcoin
Ethereum has a new upgrade on the way. The proposed EIP 1559 Upgrade, now called the London Fork, will both lower GAS fees and increase the scarcity of ETH which could lead to a higher price. Let's look at the details
Several analysts had concerns about inflation on the Ethereum network since the supply of ETH was theoretically infinite. Scarcity is the attribute that makes Bitcoin suitable as a store of value and hedge against inflation. We know that there will only ever be 21 million Bitcoin in existence. In fact, once all BTC has been mined, the token effectively becomes deflationary (as BTC are lost or left on old hard drives).
Blockchain developers on the Ethereum network have approved a proposed change to the network that would ‘burn’ a small amount of Ether (ETH) every time that the currency is used to pay ‘gas fees’ on a transaction. The EIP 1559 upgrade is expected to be bundled into an upgrade in July or August this year.
Increased scarcity on the Ethereum network could lead to even further price gains for ETH tokens, which have already seen massive growth over the past 12 months. A year ago, the price of ETH was roughly $200; today, that price has increased to $1789, which is an increase of 795%. By contrast, the price of Bitcoin has risen roughly 530% over the same period.
In addition, EIP 1559 is slated to take the guesswork out of Ethereum network transaction fees. Currently, fees on the Ethereum network are so inconsistent that users on the network rely on sites like ETHGasStation to help them determine what their transaction fees will be at any given time. To date, gas fees have been determined based on an inefficient auction process. The EIP 1559 should improve this by increasing visibility by incorporating an automated system that is similar to bitcoin’s – fees are adjusted based on network volume and usage.
The proposal also will change a loophole on the Ethereum network. Currently, users can pay an Ethereum miner to process their transaction with a credit card or another cryptocurrency, undermining Ether's role on its own network. The EIP 1559 upgrade makes Ether the only way to pay for transactions on the network.
Additional bullish news for ETH is the rumour that ETH may be being bought to hold on corporate balance sheets. So far we’ve seen the first movers (Micro Strategy, Tesla, etc.) jump into Bitcoin and be rewarded handsomely. The primary reasons for corporations to have crypto on their balance sheet are:
- The asymmetric risk returns
- As part of a future-first strategy
- In preparation for accepting as payment
- It is more likely to hold its value going forward than the dollar
It’s only a matter of time before we see similar adoption of ETH on balance sheets. But perhaps for different reasons. Rather than as corporate reserves, it's more likely to do so in working capital. ETH is the fuel for the Ethereum platform, and any company hoping to use the Ethereum platform for internal processes such as contract management, collateral allocation or yield optimization, or client-facing services such as trading, lending or insurance, will need a steady supply.
It is still early days, with few companies outside the crypto industry having integrated Ethereum-based applications. Signs are emerging that interest is awakening, however. This week, multinational insurance company Aon Mutual, whose origins go back more than 100 years, embarked on a decentralized insurance pilot. As Ethereum use cases begin to impact traditional businesses, and as even more crypto companies using decentralized applications grow to meaningful size, we will start to hear more mainstream conversations about Ether on balance sheets.
Greater focus on the asset’s role in powering digital processes will increase its value proposition. Just as it is a store of value, it is a technology play. ETH will also see growing recognition of its role as a consumable commodity.
“Digital silver,” if you will, to bitcoin’s “digital gold.”
The Ethereum platform truly has the potential to penetrate all industries. Raoul Pal clearly has a similar outlook for where the crypto space is going, writing on Twitter: