Bitcoin vs. Ethereum - MONDAY ON-CHAIN
Hey DEFI TIMES community,
Bitcoin is KING! There’s no doubt about that. Already today, Bitcoin’s market capitalization is over one trillion dollars - and that’s pretty impressive for a payment network that launched only 12 years ago.
However, Ethereum has been catching up in many different ways. Ethereum is by far the most used blockchain out there. It generates the most fees, has the biggest variety of applications, and the largest developer ecosystem.
The battle Bitcoin vs. Ethereum is on - and it’s on fire! Even though the two blockchains fulfill completely different use-cases, BTC and ETH fight to be the best store of value in the world.
While BTC is sound money, many Ethereum people believe that ETH is ultrasound money.
Which one will turn out to be the ultimate store of value? Which blockchain is ahead?
Let’s compare the different metrics of the two giants in the crypto space: The number of transactions, hash rate, active addresses, transaction fees, inflation rate, are just a few examples that determine the value of the underlying coin!
The fight is on!
It’s Bitcoin vs. Ethereum
Or...
BTC vs. ETH
Let’s go!
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Bitcoin vs. Ethereum - The Comparison
Active Addresses
One of the most important metrics to compare is the number of active addresses on the blockchain. It’s very important to note that active addresses don’t measure the number of active users. Each user can have several different addresses and there’s no way to reliably derive the unique number of users from the active addresses.
As you can see, the active addresses of Bitcoin are twice as high as Ethereum’s active addresses. While Bitcoin currently has approximately one million active addresses, Ethereum only has half a million.
It’s hard to explain why this is the case. Ethereum has way more applications running on top of it.
In the end, Bitcoin is simply the biggest blockchain out there - no question about that. It is currently 12 years old and still growing, it has the most value and the biggest Lindy effect.
Transaction fees
Looking at active addresses is one thing, transaction fees are another. Transaction fees indicate how congested the blockchain is. In plain words, the higher the fees, the more demand for blockchain-related services.
The 7-day-moving-average of Ethereum transaction fees is approximately five times the fees paid on Bitcoin transactions. Pretty impressive right?
That’s remarkable, especially when you consider that there are twice as many active addresses on Bitcoin than on Ethereum.
Ethereum is the clear winner when it comes to transaction fees!
Number of transactions
Okay, Bitcoin has twice as many active addresses but why the hell are transaction fees higher on Ethereum? Certainly not because Bitcoin is more scalable.
Well, it could be that Ethereum’s users... use the network way more frequently.
And exactly this is the case: The seven-day-moving-average of Ethereum transactions is currently approximately 1.3 million while Bitcoin’s is not even 300,000.
Despite the fact that Bitcoin has way more active addresses, Ethereum processes a lot more transactions.
Hash Rate
Another crucial metric is the hash rate. At the moment, both Bitcoin and Ethereum are secured by Proof-of-Work. Bitcoin is not likely to switch its consensus mechanism any time soon - but Ethereum will!
As you can see, Bitcoin’s hash rate is almost 390,000 times higher than Ethereum’s hash rate.
For a good reason!
Ethereum will switch to Proof-of-Stake in the near future. After the London hard fork in July, Ethereum core developers will focus solely on merging the Beacon Chain with the current Proof-of-Work chain.
That’s why Ethereum could be secured by Proof-of-Stake as early as the end of this year. If that doesn’t work, we can expect the merger to happen in early 2022 at the latest.
That’s why we should take this metric with a grain of salt. Ethereum’s Proof-of-Stake will be gone soon and that’s why miners don’t really have incentives to keep mining Ethereum.
Why should miners keep building their infrastructure around Ethereum when their business will be gone in one year? There aren’t many reasons except short-term money.
As you can see, Ethereum’s hash rate dropped significantly during the bear market in 2018. It only recovered in mid-2020. But why? Well, that was exactly the time when gas fees started to spike. It was finally lucrative again to mine Ethereum. Until now, transaction fees make up the largest part of the block reward. That’s why Ethereum’s hash rate is starting to go up again.
But how long will it continue? Probably not very long. Ethereum’s Proof-of-Work will be gone very soon. And miners will need to find other ways to leverage their mining infrastructure.
Daily Issuance
Let’s compare the daily issuance of the two protocols. Bitcoin is supposed to be the hardest money on earth. Is this really true?
Well, probably!
While Ethereum emits over 13,000 ETH per day, Bitcoin only produces 900 new BTC every 24 hours. That’s an inflation rate of 1.76% per year for Bitcoin and 4.23% for Ethereum.
In fact, bitcoin is harder money than ETH! Can this change?
Yes, but only if EIP-1559 ships. EIP-1559 will essentially burn all transaction fees on Ethereum, reducing Ethereum’s inflation rate to an absolute minimum or even result in negative issuance!
Miner Revenue
The Miner Revenue is a metric that is a combination of Daily Issuance and Transaction fees.
Miner Revenue = Block Reward + Transaction Fees
As you can see, Bitcoin is leading the way - but not by far.
Ethereum is catching up fast. That’s mainly due to the rising gas fees. Since summer 2020, Ethereum gas fees have been spiking!
DeFi services are becoming more popular every day, and that’s exactly why block space is getting more and more valuable. During the last couple of months, transaction fees make up 50% or more of the whole block reward.
In my opinion, it’s only a matter of time until Ethereum leaves Bitcoin behind in Miner Revenue!
Conclusion
What can we derive from this? Bitcoin and Ether are fighting hard to become the ultimate store of value, but which one is ahead?
Well, there isn’t a definitive answer to this question. While we can compare different metrics of both networks, both blockchains go two completely different ways.
Ethereum is switching to PoS very soon - Bitcoin is likely to stay with PoW forever.
Both blockchains fulfill two completely different use-cases, and that’s a good thing!
The game is one!
It’s Bitcoin vs. Ethereum
It’s a neck to neck race without a winner!
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All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.
Two quick comments:
1. Bitcoin uses a NEW address for every single Bitcoin transaction while Ethereum uses the same address for every transaction. This is why the active address count is higher -- even though Ethereum is used a lot more.
2. Ethereum POW uses the KECCAK-256 hashing algorithm while Bitcoin uses the SHA-256 hashing algorithm -- so one can't compare the hash rates as they mean different things.
Looking forward to being on the show soon!!