Supporters of Ethereum have been talking about Ether (ETH) flipping Bitcoin (BTC) almost since the inception of the cryptocurrency. In fact, this has led to the coining of the phrase “the flippening” to refer to Ethereum overtaking Bitcoin in terms of value.
Talks of the flippening have seen renewed interest as the price of ETH has soared over the past few weeks while the price of BTC has remained stagnant and even decreased, which breaks the historic trend of a decrease in bitcoin’s price causing the greater cryptocurrency market to collapse in price.
With that in mind, this article will explain why ETH flipping BTC may not be as far-fetched as many have previously thought. It may also occur much sooner than many have previously predicted.
The Current and Historic ETH-BTC Exchange Rate
Currently, 1 ETH is worth about 0.066 BTC, which is not that good of an exchange rate. In dollar terms, 1 ETH is worth ~$2500 and 1 BTC is worth ~$37,000.
Historically, this is still a ways off from the ETH-BTC all time high of about 0.11 ETH/BTC that was reached at the peak of the ICO frenzy in June 2017 and later at the end of the rally in January 2018. (source: InvestoTrend)
That said, the current trading value is still very good. Why?
It is based on something more sustainable than scammy ICOs that were easily shutdown by governments across the world – decentralized finance (DeFi). DeFi, unlike ICOs, are truly decentralized and regulators will struggle to shut them down the same way they shutdown ICOs.
The next section will explain how DeFi can help ETH overtake BTC.
DeFi Will Help the Flippening
Bitcoin is valuable because, well, it was the first blockchain to market and has seen the most mainstream adoption. It has also become a form of digital gold.
However, outside of being a digital store of value, bitcoin really does not have many actual uses. It does not make for a good currency because the price is deflationary – no one wants to spend it because they assume the price will rise in value.
Bitcoin also has a tendency to fluctuate in price, so it’s difficult to accept it as currency. Businesses do not want to have to deal with currency fluctuations when accepting payment as it’s far too unpredictable to run a business with that.
Despite this, it is still a reasonably good store of value as the price has increased dramatically since the release of the cryptocurrency in 2009.
Ethereum, on the other hand, has no intention of becoming a digital store of value. It would actually be a terrible store of value as the currency is inherently inflationary with an unlimited maximum supply.
Instead, Ethereum was created and released as a way to organize smart contracts, which are automatic contracts executed by code. The problem with Ethereum for most of its existence is that smart contracts and decentralized finance were pie in the sky ideas with not much in the form of execution.
This changed in 2017 with the ICO bubble, but at the end of the bubble, Ethereum was still mostly ideas and little execution.
The real change occurred in the summer of 2020 when DeFi on Ethereum finally took off due to the increased popularity of a decentralized exchange called Uniswap. Users had a way to exchange cryptocurrency without having to deal with exchanges. More importantly, they could earn rewards by providing liquidity to the swap pools in the exchange.
DeFi on Ethereum obviously requires transactions and since the transactions occur on Ethereum this means that Ether is required to pay the gas for the transactions.
As you might have guessed, the increased popularity has led to an increased demand for ETH to pay the transaction fees necessary to interact with the Ethereum blockchain and smart contracts.
To summarize, increased interest in DeFi has led to demand for Ether to pay transaction (gas) fees, which has helped drive the price of the cryptocurrency up to a new all-time high. This, however, is not the only factor that will help drive the price of ETH above BTC. The next section will explain another development in Ethereum that will increase the price.
EIP-1559 and ETH 2.0
Two of the most important developments on Ethereum are set to occur in the near future. The nearest improvement to Ethereum that should increase the price is the implementation of Ethereum Improvement Proposal 1559. The full breakdown of EIP-1559 is well beyond the scope of this article, but the basics are that gas fees will become much more predictable and transaction fees will be burned rather than being paid out to miners.
The burning of transaction fees is a huge development as this will reduce the supply of ETH in the market. This reduction in supply combined with the increasing popularity of DeFi will almost certainly lead to an increase in the price of Ether.
The other improvement that Ethereum will see, at some point, is something called Ethereum 2.0, which will see Ethereum move from a proof of work (PoW) validation protocol to a proof of stake (PoS) validation protocol, which will greatly reduce gas fees on the network.
For those that don’t know, gas fees are often cited as one of the major things holding Ethereum back from more mainstream adoption.
In conclusion, EIP-1559 reducing the total supply of ETH combined with the switching from Ethereum to PoS to reduce fees should lead to an increase in the value of ETH.
Overall, Ethereum is finally starting to develop into its own ecosystem (DeFi) independent of other cryptocurrencies, which means that it should become decoupled from fluctuations in the price of bitcoin. This decoupling combined with increased demand in price should eventually lead to Ethereum flipping Bitcoin.
Of course, the exact timeline of when this will occur is unknown, but the long term future of Ethereum looks great as the increased popularity of DeFi has shown that the blockchain, rather than just the token, is becoming popular.
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