With talk of the flippening – ether supplanting bitcoin as the leading cryptocurrency – becoming part of the daily crypto conversation, the question needs to be asked; what do the differences between ether and bitcoin potentially mean for the future development of blockchain and crypto applications?
Bitcoin has long been, ever since blockchain and crypto became part of the financial markets conversation, the market leader, conversation starter, and dominant force by any metric. With a market capitalization of over $1 trillion, major purchases by organizations that are household names such as Tesla TSLA , and crypto payments becoming enabled by major payment processors, it is logical to conclude that bitcoin supremacy is all but assured.
On the other hand, however, ether and the Ethereum blockchain have rapidly moved up in terms of crypto valuation and the other applications that are developed on this blockchain. Taking a step back, and setting aside the price watching that captivates market analysts and participants every single day, ether and Ethereum have really been the leading story during the back half of 2020 and 2021.
The current rally in ether prices aside, many of blockchain applications that have seized mass market attention and focus have been developed, and run on, the Ethereum blockchain.
While bitcoin has continuously (and deservedly) continued to lead the wider crypto conversation, there is a case to be made that – in terms of applications and use cases – that ether and Ethereum are going to lead the next stage of blockchain implementation. In other words, it is starting to look like there will be – for the first time in financial markets conversation – an open competition to determine which protocols and cryptocurrencies are going to lead the sector forward. Let’s break down what some of the fundamental items are that the market will have to assess moving forward.
Applications versus transactions. One of the most heated debates over the last several years is the back and forth about whether or not crypto can actually be used for transactions, versus simply being held as a speculative investment. In the United States, at least, it seems that the taxation treatment will remain that all crypto are treated as property for the time being; this has far ranging implications.
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On top of not truly reflecting the functionality or use cases of many crypto, especially stablecoins developed to serve as a medium of exchange, the reporting and potential tax liabilities continue to discourage crypto to be used as a transactional medium. In other words, every crypto transactions potentially incurs a tax liability – not great news for bitcoin maximalists forecasting the imminent replacement of fiat currencies.
The Ethereum blockchain, however, has proven time and again to be a solid foundation for new use cases such as decentralized finance (DeFi), and non-fungible tokens (NFTs).
Diversification and prices. The number of cryptocurrencies, coins, tokens, and the array of cryptoassets at large continues to expand on what seems like an almost daily basis. Granted there are many of these new iteration of crypto that lack many of the attributes that make the more commonly known crypto so interesting to investors, but the market is expanding all the same. How is this connected to the back and forth between bitcoin and ether?
The conversation around the growing number of cryptoassets goes far beyond simply acknowledging that there is an ever increasing number of investable options. Linking back to the first point there are any number of applications that run on the Ethereum blockchain; stablecoins, DeFi, NFTs are all connected to this non-bitcoin platform. As blockchain and crypto use cases continue to diversify, it does make sense that capital will flow to the platform that supports the plurality, if not majority, of these new applications.
Platform versus asset. An additional factor in the competition between bitcoin and ether is what will ultimately be more valued by the marketplace – the ecosystem versus a specific cryptoasset. Bringing this back to more concrete terms, what is the true value of an organization like Apple AAPL ; a specific product itself, or the network effects (and information) that those devices enable? There might be some disagreement over which is the proximate cause, but the consensus usually turns out to be that a major part in the success of firms like Apple are the network effects that serving as a robust platform provides.
Does it make logical sense that blockchain and crypto applications will turn out any differently?
There will surely be quite a bit of discussion and debate around what the recent bull run in ether means for the longer term maturation of the crypto and blockchain space. That said, and setting aside the price volatility that continues to exist across the crypto space, there are a few fundamental questions that are starting to drive the wider conversation forward. It is far too early to say what prices will finally settle at for various crypto, how new applications will develop, or which options will move to the forefront. Regardless, the breadth of creativity and innovation should be celebrated.
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Author: Sean Stein Smith, Contributor