Seemingly since its launch in 2015, one of Ethereum’s primary goals was “The Flippening” — to take bitcoin’s place as the top cryptocurrency. It has long served as a faster and more flexible alternative to the top token, with some tradeoffs: ether is privately issued, and has no maximum cap on coins in circulation.
Over the past few years, ether managed to decouple itself from bitcoin’s price, no longer following BTC’s ups and downs in slavish parallel.
With bitcoin trading around $22,800 and ether around $1,600, the second-largest token still has less than half bitcoin’s market cap . But there is no shortage of enthusiasts who not only believe ETH could overtake Bitcoin, but that it could do so in the near future.
Ethereum’s upcoming Merge and “The Flippening”
Yes, sometimes the crypto world loves its silly names and inside jokes. This is serious, though. Thanks to the upcoming merge, we’re looking fundamental change in the way the Ethereum network mints new ether and rewards network participants.
In a broader sense, the merge might be compared to bitcoin’s halvings: events that make miners’ rewards scarcer or more difficult to obtain, obviously boosting BTC’s price in return. But it’s different, too. Instead of lessening miners’ rewards, Ethereum will do away with them altogether by switching from a proof-of-work (PoW)The first-used consensus mechanism on blockchain networks in which miners have to exert considerable computing power to solve complex mathematical equations to add new data blocks and verify transactions. This computing power, called hashrate, represents the amount of energy being used on the network. system to proof-of-stake (PoS)Blockchains use “staked” tokens to validate transactions. Validators stake their own cryptocurrency to the network and are awarded the opportunity to verify transactions. If validators act in bad faith, their staked tokens are lost forever, giving them an economic incentive to act in the network’s best interest..
Such a major change hasn’t escaped skepticism, with many quick to point out that it could cause centralization issues, among other things. But when it comes to valuations, it seems hard to deny the positive impact. Ethereum gained 50% over the past month, outperforming bitcoin by 32%.
Experts like Henry Elder, Wave Financial‘s head of decentralized finance, feel that the short-term impact of The Merge’s PoS switch could be overstated. According to Elder, it might take months or years for the September-scheduled change to meaningfully impact prices. (He doesn’t doubt that prices will be affected, just when.)
With expectations that the new supply of ether could be reduced by 90% in the aftermath of the change, however, it’s hard to overlook a bullish case for ETH.
Ethereum is the backbone of blockchain
Consider the vast utility the Ethereum network provides. Ethereum’s role in the cryptocurrency ecosystem is hard to overstate. It’s analogous to a utility in the physical world, like the electric company, that serves millions of corporate and individual users’ needs equally. Or the network of interstate highways that crisscross the U.S., vastly improving transportation from coast to coast.
- MakerDAO, Uniswap, Chainlink and Aave are just a handful of the top-tier decentralized finance (DeFi) platforms built on top of the Ethereum network.
- Virtually the entire non-fungible token (NFT) ecosystem runs on Ethereum.
- Decentralized autonomous organizations (DAOs) and even decentralized science are beholden to the Ethereum network’s underlying technology.
For all the utility its network provides, liquidity is crucial. Ether has no hard cap or limit on the total number of coins issued. Its relative lack of scarcity and potential for inflation (especially compared to finite bitcoin) has always been one of the main factors keeping ETH from shouldering its way past BTC. The Flippening, in other words, is difficult by design.
In other news, the collapse of the Terra ecosystem has also benefited Ethereum over the past months, as many cryptocurrency owners switched their staking to the more popular and battle-tested token. The Terra-to-Polygon merge has already had its delays, and it’s not yet clear if the mid-September date is finalized.
Why mention it? As you might’ve guessed, Polygon is an ERC-20An Ethereum-based technical standard for creating digital assets. Smart contracts can then be used to issue ERC-20 tokens, such as Chainlink (LINK), Tether (USDT), Dai (DAI), etc. Like all standards, ERC-20 allows for compatibility between a wide variety of blockchain-based services. cryptocurrency running on Ethereum.
As The Merge approaches, traders’ and analysts’ eyes are obviously keeping a close watch on the price action. Ethereum has seen lots of back-and-forth over the past months from speculators, who are seemingly unable to decide on where the token is headed.
Ethereum purists view the token as a better alternative to bitcoin. Ethereum does things, they argue, it serves a purpose beyond store-of-value.
As you’d expect, bitcoin maximalists argue the opposite. How can we trust any cryptocurrency that has an unlimited inflationary potential? How is Ethereum any better than the U.S. dollar?
Recently, Ethereum has seen massive inflows of funds from venture capitalists, all of whom will benefit from the implementation of the PoS system. Ethereum has undeniably seen explosive price action over the past years, some might argue even more so than Bitcoin. If supply of new tokens dwindles by 90% while large-cap HODLers continue accumulating, bitcoin might indeed find itself facing a true market cap rival somewhere down the line.
Regardless of which cryptocurrency holds the #1 market cap position, both Ethereum and bitcoin are very different tokens with completely different use cases. Those who understand the difference, and the long-term prospects for each, may pick a favorite. We’d respectfully suggest we don’t have to choose between them – rather, we can own both, and buy, sell and trade them tax-free with a digital IRA. Obviously, a digital IRA isn’t for everyone. Only those who’ve watched cryptocurrencies boom over the last few years and take a place in the global financial system, and who want to personally benefit from crypto’s massive growth potential, should consider a digital IRA.