Messari: ETH2 could knock bitcoin off its pedestal and overtake it in price

Bitcoin seems to have long since completed its transformation from digital cash to digital gold. But if Messari analyst Ryan Watkins has his way, Ethereum’s ETH2 could overtake BTC in the long run.

Can Ethereum’s ETH2 replace Bitcoin as a store of value? For Messari analyst Ryan Watkins, this is anything but an unrealistic scenario.

Bitcoin: From digital cash to digital gold

„Bitcoin: An electronic peer-to-peer cash system“, the title of the legendary Bitcoin white paper, sums up the original idea of BTC. BTC is supposed to be Crypto Code digital cash that can be transferred around the globe without the need for a middleman, first and foremost a (central) bank. While Bitcoin was used to pay for goods in its early days – initially on the darknet, later also by companies such as Overstock or (in the meantime) Steam – the Bitcoin narrative has increasingly shifted from electronic cash to a store of value.

If you look at the fundamentals of Bitcoin, you can see why: with an average of three to five transactions per second, the Bitcoin network is not able to compete with centralised providers like Visa and the like in terms of speed. The high exchange rate fluctuations also make traders reluctant to accept bitcoin directly. If a company offers the payment option Bitcoin, it is usually done through a middleman.

Ethereum 2.0: More secure than Bitcoin?

Thus, Bitcoin’s strength lies not in its speed but in its unsurpassed security, which is based not least on its transparent and predictable „monetary policy“ and its circulating quantity capped at 21 million units. Those who know how to manage their private keys will hardly find a safer place in the world for their money than the ever-growing Bitcoin network. At least so far. Because if Ryan Watkins of the crypto-analysis company Messari has his way, Ethereum’s ETH2 could overtake Bitcoin as the most sought-after store of value in the crypto-verse in the long term.

„The selling point of Bitcoin over Ethereum as a store of value boils down to the fact that monetary policy is very predictable and the Bitcoin blockchain is very secure. I think that with the move to Eth2 and to proof-of-stake, […] Ethereum may actually be more secure than Bitcoin.“
Ryan Watkins in an interview with Fintech Today

How Watkins comes up with the idea that Proof of Stake is actually more secure than Bitcoin’s Proof-of-Work mechanism is not explained by the Messari analyst. But Watikins has another argument up his sleeve for ETH2, the premise of which is easier to verify: the foreseeable deflation of ETH2.

Ethereum 2.0: deflation in sight?

Ethereum’s monetary policy will indeed change in ETH2, so that it will not only be less inflationary than Bitcoin, but actually deflationary. So there will actually be less and less Ether every year because it will be burned.

Watkins is alluding to Ethereum Improvement Proposal (EIP) No. 1559. EIP-1559 wants to overturn Ethereum’s fee model and introduce a base fee, the amount of which is destroyed („burnt“) with every transaction. In addition, EIP-1559 provides for a doubling of the gas limit of a block to 25 million gas. The gas limit limits the sum of network fees collected in a block. Thus, it also conditions the number of transactions that „fit“ into a block.

However, EIP-1559 aims for blocks to be utilised to an average of 50 per cent. This is done by varying the price of a gas unit – as well as the amount of the base fee – with the network utilisation. If a block is less than 50 per cent utilised, the gas price drops and vice versa. In this way, the network should be able to cope better with peak loads.

Meanwhile, it is becoming increasingly likely that EIP-1559 will come. At the beginning of March, a conference of Ethereum core developers suggested July 2021 as the date for the launch.