'Amazon of Information': Why Ethereum Will Overtake Bitcoin
Internet ecosystems are currently dominated by a small cluster of tech giants, household names such as Facebook, Google, and Amazon, that thrive on personal data. But this state of affairs, largely a result of the last seismic shift in internet architecture, is ripe for change. Blockchain technologies are driving that change.
While the driving forces of Web 2.0 are data and how online behaviors could be leveraged to influence offline consumption, Web 3.0, the next seismic shift, represents a reset – a fundamental change to massive global systems and industries.
Growing Blockchain Use Cases Drive Long-Term Value
The construction of genuinely competitive Web 3.0 decentralized environments that offer an alternative to traditional services is now becoming a reality, thanks to blockchain technologies. The biggest impact to date has been seen in the transfer of digital assets through nonfungible tokens (NFTs) and the growing adoption of decentralized finance (DeFi) solutions that address real-world problems.
The total market capitalization of DeFi was estimated at more than $128 billion in April, according to CoinGecko. This value spans a wide variety of decentralized blockchain tokens aimed at replicating and innovating on traditional financial services models and products. From smart contracts that can replicate derivative products to crypto lending, asset management tools, insurance, and more, DeFi is proving to be a credible narrative with substantive business use cases.
NFTs, which use blockchain technology to track the buying and selling of ownership in unique digital assets, have been making big headlines this year. Some are selling for millions and even tens of millions of dollars. Earlier this year, through a first-of-its-kind auction at famed auction house Christie’s, digital artist Beeple sold an NFT for $69 million. In March, Twitter founder Jack Dorsey sold his very first tweet as an NFT for $2.9 million. And in August, OpenSea, the leading NFT marketplace, did over $1b in transactions, even topping more than $100 million per day multiple times in the final week of the month.
The recent boom in NFTs has been driven by both the soaring wealth within the crypto ecosystem and celebrities seeking to join the latest trend. From artwork to music and nearly everything in between, artists, musicians, athletes, and rising stars are using NFTs to sell unique, non-replicable works to an eagerly growing market.
The New King of Crypto?
While Bitcoin has reigned supreme as the digital asset leader since its inception, Ethereum, the underlying blockchain supporting much of the activity in DeFi and NFTs today, is quickly gaining ground, as are Cardano and Polkadot, created by Ethereum co-founders Charles Hoskinson and Gavin Wood, respectively.
Over the past 12 months, Ethereum has gained more than 600% versus just a 300% gain for Bitcoin. At over $440 billion in total market capitalization as of early September, Ethereum is now worth nearly half of Bitcoin’s total market cap, and with growing real-world use cases rapidly expanding on Ethereum, this gap should continue to close moving forward.
There are many similarities between Ethereum and Bitcoin, but there are also key differences between the two leading digital assets. While both are blockchain-based digital currencies, Ethereum is unique in its ability to store computer code which can be used to power tamper-proof DeFi contracts and applications. This smart contract capability is the underlying technology that makes DeFi and NFTs possible.
Wall Street analysts at the venerable Goldman Sachs give Ethereum a “high chance” of overtaking Bitcoin, becoming the dominant store of value in crypto markets, according to Forbes, citing the importance of real uses in determining long-term value.
The analysts refer to Ethereum as the “Amazon of information,” noting the significant competitive advantage the Ethereum ecosystem’s support of smart contracts and the ability to create nearly endless new applications on its platform affords, compared to the limited real-use application of purely speculative digital assets, such as meme-fueled Dogecoin and others.
Bitcoin’s Challenge: Energy Consumption
Another key difference between the two leading cryptocurrencies is how transactions are verified.
Elon Musk spurred a rout across the entire crypto universe in mid-May when he expressed concern over the rapidly rising energy consumption of Bitcoin transaction verifications, announcing Tesla would no longer accept the cryptocurrency as payment.
Bitcoin relies on Proof-of-Work (PoW) consensus algorithms to verify transactions, an energy and computing-intensive process that now consumes more power than many nation-states and has wreaked havoc on the semiconductor market in recent months.
Ethereum, on the other hand, began transferring to a greener transaction verification process known as Proof-of-Stake (PoS) in December 2020. PoS consensus algorithms remove the need for massive amounts of computational power and provide the same level of security as PoW, but at a lower cost and with much less environmental impact.
Ethereum’s Maturing Ecosystem
According to CrunchBase nearly 350 tech companies and startups are focused on the Ethereum ecosystem which has collectively raised more than $1.3 billion to date. Popular crytpo newsletter Bankless forecasts “most Fortune 500 companies in finance and tech will run staking nodes by the end of this decade.”
BTCS and Ether Capital are two examples of publicly traded companies that have already begun staking operations on the Ethereum 2.0 blockchain. As CEO of BTCS, which I founded in 2014, I am confident our Ethereum staking program, which has grown to 240 nodes so far, will be viewed as another prescient move, just as our Bitcoin transaction verification services program was when it was first launched back in 2014.
Here’s the bottom line. While the masses follow the short-term volatility in digital asset prices, Ethereum and other disruptive PoS blockchains, including Cardano and Polkadot, are quickly becoming the actual backbone of Web 3.0 technologies, driven by the rising surge in NFTs and DeFi. Providing similar security compared to Bitcoin’s blockchain while requiring less energy, smart-contract PoS blockchains are the cornerstone of the transformative future of Web 3.0 technologies. With Ethereum being the undisputed smart-contract leader, it is only a matter of time before it takes complete leadership of the digital assets market.