Why Ethereum Will Overtake Bitcoin One Day

The question isn't whether, but when Ethereum will overtake Bitcoin as the number one in the crypto space.

The question isn’t if, but when Ethereum will overtake Bitcoin as the top dog in the crypto space. Commentary.

Ethereum and Bitcoin are fundamentally different. Ethereum aims to be a global computer that underpins a decentralized and pluralistic world. Bitcoin, on the other hand, seeks to be the most decentralized, censorship-resistant, and neutral asset humanity has ever seen.

Which vision sounds more credible? That’s for you to decide. From an investor’s perspective, decentralization and censorship resistance alone don’t guarantee the highest returns for any asset.

On the contrary, upgrades to the Bitcoin code can be implemented only very slowly, and BTC, as an asset, doesn’t benefit from burning mechanisms, on-chain revenue, and similar features. Plus, Bitcoin’s proof-of-work (PoW) consensus is extremely energy- and cost-intensive, meaning miners must continually sell BTC to cover their costs.

In crypto jargon, the term "flipping" refers to the idea that Ethereum’s market cap will someday surpass Bitcoin’s. Below I explain why I’m convinced this could happen.

1 Ethereum: a better bet than Bitcoin?

The Ethereum ecosystem has more developers, more transactions, more users, and more decentralized apps (dApps) than any other blockchain ecosystem in crypto. Moreover, Ethereum — the oldest and most decentralized smart-contract platform — is the blockchain for which users currently pay by far the most money.

Instead of the energy- and cost-intensive Proof of Work, ETH relies on Proof of Stake (PoS) to secure its blockchain. In plain language, validators, also known as stakers, deposit ETH as proof of stake in a smart contract to validate transactions on the Ethereum blockchain. In return, they earn a share of the network fees.

2 Ethereum is more energy-efficient

Bitcoin’s high energy use has long been criticized. The decentralized nature of mining makes it hard to quantify the exact CO2 footprint of Bitcoin mining. Still, regulators worldwide are stepping up action against PoW-based cryptos.

In China, mining is already banned, and in Europe — with the US following closely — authorities are scrutinizing energy-intensive methods. As someone who’s followed crypto since 2016, I know mining can happen with clean energy or even excess power that helps renewables be more viable.

Still, I doubt governments will act in time. In a world where energy is scarcer and climate concerns rise, PoW cryptos like Bitcoin don’t have a bright future ahead.

Ethereum, by contrast, cut its energy use by over 99% by switching to PoS. This is great news for institutional investors who must align with ESG guidelines, making ETH a strong growth bet for the future.

3 Institutions love staking

Another reason institutions may favor Ethereum over Bitcoin in the long run is staking. With an ETH investment, they get something akin to a dividend (staking rewards) and back the adoption of one of the most innovative, rapidly growing blockchain ecosystems.

Many funds avoided commodities like gold or silver because they didn’t pay dividends — the same logic applied to Bitcoin, but not Ethereum since the Merge.

The difference between staking rewards and dividends is that staking rewards are generated algorithmically and guaranteed as long as the network lives. This makes Ethereum’s fundamental value easier for institutions to estimate than BTC, thanks to staking and the EIP-1559 upgrade. Ethereum could be easier to fit into institutional portfolios in the future.

4 Ethereum’s inflation is lower than Bitcoin’s

Switching to PoS dropped ETH inflation from 3.8% to 0.21% — a drop of over 94 percentage points.

That’s because Ethereum no longer pays miners to validate transactions after the merge. The network effectively laid off its most expensive workers and replaced them with more efficient “staking officers” with much lower pay. It’s like three Bitcoin halving events in one move! What Bitcoin achieved in 12 years through halving, Ethereum achieved in one shot with the merge.

5 The EIP-1559 upgrade gave ETH wings

Another factor in Ethereum’s deflation is the EIP-1559 upgrade, which burns a portion of all ETH-denominated transaction fees. In plain terms, the supply of ETH declines with every transaction on the network.

Last year alone, EIP-1559 reduced new ETH issuance by more than 2,330,000 — about $3.2 billion worth.

Think of EIP-1559 as a stock buyback for ETH. In a bull market, higher network activity can boost ETH burning, reducing supply and potentially lifting prices faster than Bitcoin.

In bear markets, EIP-1559 has less impact since activity drops, but it still helps shrink ETH supply.

This mechanism is similar to stock buybacks that support prices in tough times and propel them in good times.

One of the main reasons the S&P 500 has outperformed other indices over the past two decades is stock buybacks. The same mechanism is at play with Ethereum.

ETH is like a tech stock with buybacks

Thanks to EIP-1559, Ethereum has the characteristics of a fast-growing tech stock with buybacks. ETH holders can invest in growing sectors like NFTs, DeFi, and blockchain gaming, while EIP-1559 can influence ETH’s price much like steady buybacks.

The catch is Ethereum can’t suddenly flood the market with new ETH like a company can issue new shares. Over time, the ETH market becomes a one-way street: more activity means more ETH burned, shrinking supply and potentially driving price higher as demand stays strong or grows.

6 Ethereum benefits from Layer 2 adoption

Another big factor is rising use of Ethereum Layer 2 networks (ETH-L2s) like Arbitrum and Optimism, which directly boosts ETH value. ETH’s value climbs as Layer 2s secure their networks using Ether for fees.

L2 transactions now account for more than 50 percent of all activity in the Ethereum ecosystem — and the trend is up. On Uniswap, the biggest ETH DEX, L2 volume was just 1-3% at the start of the year. View post on X of total volume.

User counts on Optimism and Arbitrum have climbed since early 2022. ETH users: 183M to 204M. Optimism: 150k to 1.4M. Arbitrum: 330k to 1.2M.

Unlike Bitcoin, Ethereum benefits from a fast-growing ecosystem in its early adoption phase. If demand for scalable, secure networks for DeFi, NFTs, and other use cases picks up in the next bull run, Ethereum could be a major beneficiary of blockchain projects.

7 Ethereum is the biggest Layer 1 blockchain

Ethereum remains the largest blockchain network in crypto. ETH’s smart contracts and Layer 2 TVL account for about 62% of the total capital across all smart-contract platforms. Ethereum contributes 31.4 billion USD of TVL, while other L2 networks together account for about 4.8 billion USD.

The Binance Smart Chain (BSC), the second-largest smart-contract platform by TVL, sits at just 5.31 billion, and the Bitcoin Lightning Network around 100 million. An often overlooked advantage for Ethereum is its huge developer army.

The ETH ecosystem has nearly as many weekly active developers as the next four largest blockchains combined. Ethereum’s dominance has risen to 10% from last year.

8 Ethereum is now more decentralized than Bitcoin

My final and arguably most controversial argument for many Bitcoin fans is that Ethereum is more decentralized than Bitcoin. The Merge dramatically lowered the barrier to participation for the average person who wants to help secure the Ethereum network. You no longer need thousands of dollars in hardware and energy costs — you just need a laptop and some ETH.

While you do need 32 ETH to run your own validator, liquid staking providers allow smaller investors to stake directly. In theory, any member of the Ethereum community can ensure that staking entities don’t become too powerful. You can read more here.

Today, the four largest staking providers control almost 60% of all staked ETH. 30.31% is held by the DeFi protocol Lido (LDO). Another 26.52% is attributed to the three centralized exchanges Binance (5.22%), Coinbase (12.68%), and Kraken (8.62%).

Lido Finance is more decentralized than a mining pool

At first glance, this distribution looks fairly centralized, and Lido’s 30.31% stake might bother decentralization purists. But most forget that liquid staking providers aren’t single entities like crypto exchanges. Providers like Lido act as a marketplace for staking, not a single operator, with about 30 different validators participating in Lido today.

Compared to Bitcoin mining pools, Lido can’t decide which blocks miners mine. And Lido can’t simply fire its validators or seize stake capital.

Providers like RocketPool or Lido Finance are thus far more decentralized than many realize. Claims that a majority of Ethereum transactions are validated by US-based validators don’t hold up. While Coinbase and Kraken have US headquarters, Lido and its validators are not concentrated there. Most Lido validators are in Germany, and no more than 13.1% of Lido’s ETH validators are in one country. The geographic spread of Lido validators is highly decentralized.

For these reasons, crypto commentators overestimate Lido’s control over node operators and underestimate ETH holders’ and the Ethereum community’s sway over the Lido protocol. If you want to read more about Lido Finance, check out this post.

Conclusion

Right now, no one can say when macroeconomics will improve. But if it does, I think Ethereum is highly likely to be a big beneficiary and could eventually overtake Bitcoin as the number one crypto space.

Despite the bear market, Ethereum remains the most dynamic blockchain ecosystem, with the most users, the most developers, and the broadest range of applications in crypto.

The successful shift to Proof of Stake has shown the ETH developer community can execute very complex upgrades. It’s a sign Ethereum will keep pushing its ambitious roadmap to stay the top dog among smart contract platforms.