Can ETH 2.0 Surpass BTC in Market Cap?
Ethereum, the second-largest cryptocurrency by market cap is fundamentally very different from Bitcoin. Bitcoin enables the anonymous transfer of value from one user to another without a central entity like a bank. On the other hand, Ethereum is a general-purpose blockchain. Its primary purpose is to support limitless functions using smart contracts. These programmable contracts enable the use of blockchain to create self-governed applications and are an integral part of the Ethereum ecosystem.
In short, what Bitcoin did to fiat, Ethereum is capable of doing that to the entire financial system. Ethereum is also inventing new ways to handle loans, transferring property, and more.
Despite all these technical advantages, Bitcoin always overshadowed Ethereum’s market cap. At the time of writing, Bitcoin’s market cap is at 43.5% while Ethereum covers 18.8%. However, something major is brewing around Ethereum that could flip the market standings.
Coming events are casting their shadows
One of the biggest and early signs of Bitcoin losing its throne to Ethereum appeared in June 2021. On June 29, Ethereum surpassed Bitcoin in terms of the total number of daily active addresses. This means more users were flocking to the Ethereum network in comparison to Bitcoin Network. This was a historic event as Ethereum was preparing for its transition to the advanced version of Ethereum 2.0.
What is ETH 2.0? How can it possibly lead to the market cap flipping?
A lot of things are happening around Ethereum to upgrade it to ETH 2.0. Here is the list:
Moving away from Proof-of-work consensus (PoW)
Ethereum 1.0, also known as Frontier launched with a PoW consensus mechanism in 2015. Since then, Ethereum underwent some more upgrades such as Homestead and Metropolis. The current phase known as Serenity initiated in 2020. Phase 0 of Serenity went live in December 2020.
Serenity is a multi-phased Ethereum upgrade and will transition the Ethereum blockchain from a PoW to Proof of Stake (PoS) consensus mechanism. It will also introduce sharding.
Both upgrades will prove to be groundbreaking for Ethereum, as these will increase the speed, security, scalability, and efficiency of the overall network. These upgrades will continue over the period of the next 10 years. That being said, it has already laid its groundwork for Beacon Chain, which is the core of Ethereum’s upcoming PoS blockchain.
Ethereum 1.0, also known as Frontier launched with a PoW consensus mechanism in 2015. Since then, Ethereum underwent some more upgrades such as Homestead and Metropolis. The current phase known as Serenity initiated in 2020. Phase 0 of Serenity went live in December 2020.
Serenity is a multi-phased Ethereum upgrade and will transition the Ethereum blockchain from a PoW to a Proof of Stake (PoS) consensus mechanism It will also introduce sharding.
Both upgrades will prove to be groundbreaking for Ethereum, as these will increase the speed, security, scalability, and efficiency of the overall network. These upgrades will continue for the next 10 years. That being said, it has already laid its groundwork for Beacon Chain, which is the core of Ethereum’s upcoming PoS blockchain.
Phase 0 delivered:
1) Beacon Chain — under testing since December 2020
As the Serenity upgrade processes, Beacon Chain will become the primary settlement layer. It will also coordinate the forthcoming shard chains.
The Current state of Beacon Chain
2) Casper — the Proof-of-Stake consensus mechanism
3) Validator nodes
Beacon Chain introduced protocol-staking for Ethereum investors. The number of Ethereum validators has been on rising since then.
Ethereum turned deflationary
While Bitcoin’s supply remains capped at 21 million, Ethereum is a platform with an unlimited ETH supply. However, the annual maximum supply of ETH remains capped at 18 million. This makes it less scarce compared to Bitcoin. This has now changed recently with the London Hard Fork update on August 5th. That is why even when Bitcoin is trading sideways, Ethereum prices are soaring.
The most significant change that happened in the London Hard fork is the new deflationary mechanism. Going forward, the ETH blockchain will burn the fee and will reduce the overall supply of ETH. According to Dune Analytics, over 5,000 ETH stands burned within 2 days of the London Hard Fork upgrade.
https://www.coindesk.com/ethereum-burns-5000-coins-in-2-days
This will create deflationary pressure on ETH. The supply will become limited while the demand will continue to grow with more upgrades. As a result, the price might move upward. All this could gradually lead to the Bitcoin and Ethereum market cap flipping of Bitcoin and Ethereum.
Fees change
Prior to the London Hard Fork, each Ethereum block had a fixed, associated fee. With Ethereum Improvement protocol 1559 (EIP 1559), a new transaction pricing mechanism implementation took place. Instead of creating a fixed base fee, the base fees will now change for every Ethereum block based on the demand.
Ethereum’s high gas fees have really been a deterrent in its mass adoption. With the fee issues getting resolved over the course, more users will come to Ethereum leading to a surge in the demand for ETH and will push ETH price to new highs.
Upcoming Sharding
Serenity Phase 1 is all about integrating the first set of shard chains. In this phase, the Ethereum blockchain will stand divided into 64 shard or parallel chains. This means the transaction throughput will become 64 times higher.
Sharding will not only increase the speed but will also increase the capacity of the Ethereum network. According to the Ethereum roadmap, shard chains will ship in 2022.
Off-chain Roll-ups
Roll-ups are also an important part of Serenity Phase 1. They will initiate the process of off-chain transaction aggregation. Roll-up will bunch the off-chain Ethereum transactions together before they move to the main chain for confirmation. Along with sharding, roll-ups will play a vital role in enhancing Ethereum’s transactional capabilities. Roll-ups will go live sooner than sharding to alleviate the existing network congestion.
Phase 0 and Phase 1 bridging
Phase 1 of Serenity will start somewhere in the second half of 2021. Till the completion, both Ethereum 1.0 and 2.0 will work independently. Phase 1.5 will be completely about bridging the Ethereum 1.0 and 2.0 and the merging will be known as docking.
Once the docking is complete, Ethereum 1.0 will actually become a shard chain of Ethereum 2.0. The new Ethereum Proof of stake algorithm will operate these shards and the Beacon Chain will manage the validators.
During Phase 1.5 of Serenity, another major upgrade might happen. Until now, Ethereum smart contracts coding is possible using an only native Solidity programming language which is native to Ethereum. In Phase 2, Ethereum 2.0 will support smart contract coding in any programming language.
Final Touches — Phase 3
It’s expected that Serenity will reach the final stage of implementation by 2023. The final phase will involve the addition of extra shard chains on a need basis and the implementation of increased privacy and security.
Can all these upgrades lead to the Ethereum market cap surpassing the Bitcoin market cap?
Business applications of smart contracts on Ethereum are just beginning to grow. We have seen DeFi and NFTs explode in 2020 and 2021. While the current Ethereum network continues to be a major platform for DeFi and NFT development, it is not scalable and fast enough to sustain the growth of these two sectors.
Ethereum 2.0, which actually includes all the above-mentioned upgrades, will enhance Ethereum’s capabilities and will help meet the increasing demand of these sectors. Moreover, with Ethereum 2.0, more developers will start using the Ethereum network for DeFi and NFT development. That is because it will enable the writing of smart contracts in languages apart from Solidity.
In short, both the utility of ETH and the capability of the Ethereum network will grow in a synergy leading to a higher demand for ETH.
As all this will translate into higher demand for ETH and with the burn mechanism put in place with London Hard Fork, a supply squeeze will come into play. Rising demands and the squeezing supply of Ethereum could possibly lead to a price rally and market cap flipping.
