The general definition of “great reversal” is the point in time when the market value of ETH exceeds the market value of BTC.
Some people think that this reversal will not happen.
Some people think it is possible.
Others think this is inevitable.
The “Great Reversal” can be said to be one of the most controversial events in the encryption field. Bitcoin has been the throne of the crypto asset with the highest market value in the past ten years. The idea of Ethereum or any other competitor who wants to surpass the first place naturally sparked controversy in the field of encryption.
People often tout Bitcoin as the hardest and most robust currency in the world to date. This is probably true. The concept of digital assets is impeccable, and it can be said that it can never be replicated with a strict planned monetary policy (executed by a strong social contract).
However, many people in the Ethereum community objected to this. In fact, some people think that the “Great Reversal” is inevitable.
Ethereum is a general-purpose, programmable settlement layer that can handle anything of value, and its extension extends far beyond the core functions of Bitcoin. The upcoming Eth2 upgrade of Ethereum and the implementation of EIP-1559 will convert ETH into a productive asset with potential deflationary monetary policy. Although this transition still involves considerable execution risks, the combination of this scalability and economic upgrade should not be underestimated.
Although it seems impossible for some people to imagine the scenario of Bitcoin giving up the throne, the fact is that Ethereum has subverted Bitcoin on the three most important basic on-chain indicators of any public chain.
The three indicators are:
1. Value settlement: How much economic value is being settled on the blockchain.
2. Transaction fees paid: how much people are willing to pay to make the value settle on the blockchain.
3. Settlement guarantee: How safe is the value after settlement on the blockchain?
These three concepts largely encapsulate the core purpose of any blockchain: to provide a secure (preferably public) ledger to facilitate peer-to-peer value transfer.
Blockchain is the settlement layer. The value of settlement on the blockchain indicates whether the network is truly its core purpose: to promote economic activity. Generally, the more value obtained on the blockchain, the better. It shows that people are actually willing to trust and use the network to accurately record and protect its value (whether it is ETH, BTC, USD, etc.).
The daily value of Ethereum has now surpassed that of Bitcoin, and it is settled at a considerable profit margin.
Ethereum is in a dominant position in all aspects of this indicator. According to Money Movers, the daily settlement value of Ethereum exceeds $52B, while the value of Bitcoin is approximately $14B.
However, the Bitcoin community may quickly emphasize that this is a comparison of apples and oranges (both are fruits), because the settlement layer of Ethereum can handle any value, while Bitcoin basically only supports BTC, which is inherently restrictive The available economic bandwidth of the network is only an asset, not thousands.
However, even if we look at this strictly in terms of the value transfer between BTC and ETH, Ethereum is already in a leading position as of early May. Bitcoin settles similar BTC$13.9B every day, while Ethereum still settles ETH denominated value exceeding $20B every day.
Although the economic bandwidth of Ethereum exceeds $400B in revenue, in terms of their respective local assets, the settlement value of Ethereum is still higher than that of Bitcoin. Ethereum now has more distrust value in daily settlements than Bitcoin.
Does this mean that ETH is used more as a currency, while BTC is used more as a store of value (this is what Carl Ichan said yesterday)?
The argument against this view is obviously that Bitcoin is not for daily use. It means storage value over time (historically, it does a good job). Both have their purpose.
The business of the public chain is to sell block space. A good blockchain contains activities that people are willing to pay for. For me, this is one of the core indicators that determine the value of the blockchain because it literally means how much people are willing to pay to use the ledger.
Similarly, Ethereum is surpassing Bitcoin under this measurement. The current average cost of Ethereum for 7 days is $32 million per day. Compared with Bitcoin’s daily transaction volume of 4 million US dollars, the difference between the transaction fees of Ethereum and Bitcoin is about 8 times, and the competition is not even over at this point. Why is this happening?
In short, Ethereum provides an attractive ecosystem, which is full of economic and social opportunities worth paying for.
If you can earn 20% of USD APY and have a deployment fee of 100,000 USD, then you may be willing to pay a substantial fee to make the transaction happen. If you want to spend millions of dollars to buy a cryptopunk to show off in Metaverse, you may be willing to pay a large fee to ensure that your transaction goes smoothly. If you have a new Uniswap gemstone and you think its price will be 10 times, then you may not care how much the gas fee is.
On the other hand, the main opportunity for Bitcoin is simply to send it to another address. Maybe start earning interest from your BlockFi account. But in any case, there are fewer economic opportunities on the Bitcoin network, so it is less desirable to pay higher transaction fees.
More and more people are scrambling to fill the block space of Ethereum, consuming their gwei, telling the miners to shut up, take their money, and include the transaction in the next block.
The numbers speak for themselves: People are willing to use Ethereum instead of Bitcoin.
The last indicator we want to study is settlement guarantees. Nic Carter published a detailed article on this in 2019. He believes that this is one of the main issues to be considered when evaluating any public chain. This is because the settlement guarantee is directly translated into the security of the blockchain.
Once your transaction is verified on the chain, it will not be restored, which gives you confidence. This is really important, especially for those who meet Cypherpunk’s ideals! People want an economic system that can resist the impact of rollbacks, restoration, etc.
One way to measure settlement guarantees is to calculate the number of block confirmations required to make the transaction settle as if it were on Bitcoin.
Judging from the number of block confirmations (calculated based on how many confs), Ethereum is currently not more secure than Bitcoin. However, this was not the case a few weeks ago. For a while, Ethereum was actually more secure than Bitcoin! This was a turning point in the crypto ecosystem, because for the first time in the history of cryptography (according to my guess) there was another network that was better than Bitcoin by this measure. Have greater settlement guarantees.
However, we can go further. In Nic’s post, he mentioned that the cost of the ledger is one of the quantifiable indicators of settlement guarantee. How do you measure the cost of the ledger?
In short, it is equal to the amount paid to the validator/transaction selector per unit time.
This means that the more fees you pay to miners each year (plus the sum of fees and block rewards), the less likely it is to attack the miners. In other words, the ledger is more secure because miners are more motivated to be honest participants.
After some simple calculations, we can calculate the annual fee paid to the miners:
Bitcoin pays about 14.25 billion U.S. dollars to miners every year (based on 900 Bitcoins per day + 3.8 million U.S. dollars in TX fees per day, Bitcoin is 40,000 U.S. dollars)
Ethereum pays approximately $18.5 billion to miners each year (based on these block rewards and block time indicators)
Yes, that’s right. Ethereum currently pays more to miners in unit time than Bitcoin. Ethereum’s ledger cost is higher than Bitcoin, which means that under this measurement, Ethereum has a higher settlement guarantee.
What prevented the Great Reversal?
The value of Ethereum settlement is higher, and people are willing to pay more to settle this value, and Ethereum is more secure than Bitcoin (under certain metrics).
So, what prevented Ethereum from reversing Bitcoin?
For me, it can be boiled down to two words: currency premium.
Today, BTC is more widely known than ETH, and ETH is a key component that generates currency premiums. After all, decentralized funds like BTC are based on collective beliefs! People know Bitcoin better. It has a simple narrative, such as digital gold. Retail investors understand this, and institutions are beginning to understand it. As we have already said, the most optimistic thing about cryptocurrency is to be understood.
People understand Bitcoin. They still don’t understand Ethereum…. Investors have learned about Bitcoin for more than ten years. They have half the time to learn about Ethereum (which is much more complicated).
But please don’t get me wrong: if Eth2 and EIP-1559 are implemented, the ETH narrative can be stabilized. All the value generated on Ethereum will be directly accumulated in ETH. The attractiveness of assets to institutional investors will come into play, and they only need time to understand this new industry. Once they do, ETH’s narrative can enter the mainstream.
Ethereum settles more value, the value is more secure, and people are willing to pay more for this value than Bitcoin.
The numbers on the chain will not lie. Ethereum is becoming a better settlement layer for world value.
When you look at it this way, it seems inevitable that it will be reversed.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.