Ethereum won’t flip Bitcoin anytime soon, but Ordinals could change that

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Bit­coin block space looks set to be the hottest com­mod­i­ty in crypto.

Bit­coin once again occu­pies more than half the entire cryp­to mar­ket, hav­ing out­per­formed ether by near­ly dou­ble so far in 2023. Now, the long-proph­e­sied “flip­pen­ing” of ether over bit­coin is even fur­ther in the future.

The mar­ket cur­rent­ly val­ues Bit­coin three times high­er than Ethereum. Bitcoin’s mar­ket cap, at $727 bil­lion, has swelled by $400 bil­lion in 2023 — a fig­ure big­ger than Mastercard’s entire stock val­u­a­tion and about twice that of Netflix’s.

Ethereum’s val­u­a­tion has grown by $100 bil­lion, jump­ing from under $145 bil­lion in Jan­u­ary to near­ly $245 bil­lion today. 

Some antic­i­pate that Ethereum’s mar­ket cap will one day eclipse Bitcoin’s, despite the latter’s half-decade head start. 

Things were look­ing good com­ing out of the 2019 bear mar­ket and into 2021’s explo­sive bull cycle. DeFi sum­mer and NFT mania boost­ed inter­est in Ethereum, at times dri­ving up fees for cer­tain actions beyond $250.

  • Bit­coin‘s mar­ket val­ue was 925% of Ethereum’s — $130 bil­lion to $14 bil­lion — at the end of 2019 (bot­tom of the bear market).
  • That fig­ure had shrunk to under 200% by the end of 2021 (peak bull market).
  • Bitcoin’s mar­ket val­ue is 300% of Ethereum’s.

The Bit­coin ral­ly has widened the gap

The case for flip­pen­ing has recent­ly tak­en a hit by a dif­fer­ent flip: The Bit­coin net­work now rakes in more fees than Ethereum for the first time since Decem­ber 2020.

Over the past four days, Bit­coin users have paid min­ers about $40 mil­lion to have their trans­ac­tions processed. 

Ethereum users, mean­while, forked out less than $27 mil­lion ether (most of those fees have been burned, slight­ly reduc­ing Ethereum’s over­all supply).

Layer‑2 Ethereum net­works Arbi­trum and Opti­mism haven’t bridged that gap as they each gen­er­ate less than $200,000 in fees per day right now.

The fee-flip­pen­ing (flee-pen­ing?) is awk­ward when you con­sid­er the sheer amount of use cas­es sup­port­ed by Ethereum. Decen­tral­ized exchanges, DAOs, meme­coins, NFTs, sta­ble­coins, DeFi and Game­Fi all run atop Ethereum.

Read more: Ethereum’s Justin Drake is uncon­cerned despite ether’s mid­dling year price­wise: Q&A

Bit­coin, on the oth­er hand, had for the longest time most­ly had one appli­ca­tion — bit­coin trans­ac­tions. But the rate of on-chain trans­ac­tions had until recent­ly sus­tained very lit­tle growth since 2015. Per­haps due to its “dig­i­tal gold” nar­ra­tive and the ris­ing ubiq­ui­ty of alter­na­tive cryptocurrencies. 

Over the past five years, Ethereum users have paid $17 bil­lion in fees, Bit­coin users just $2.9 billion

All that changed with Ordi­nals — a pro­to­col for inscrib­ing indi­vid­ual units of bit­coin (BTC) with unique data to cre­ate dig­i­tal col­lectibles, first launched in January.

Music, text, art, video and even code for brows­er-based DOOM clones have since been inscribed to Bit­coin, result­ing in an on-chain col­lectibles mar­ket worth thou­sands of BTC. Bit­coin users trade Ordi­nals as Ethereum or Solana users would trade NFTs.

Today, any­where from around a third to one half of Bit­coin trans­ac­tions con­tain Ordi­nals, dri­ving up demand for block­space as well as trans­ac­tion fees. At times today, “medi­um pri­or­i­ty” trans­ac­tions went for around $11 com­pared to around $2.30 for the same on Ethereum (more pri­or­i­ty gen­er­al­ly means faster pro­cess­ing), although those prices have since come down.

Tron comes in third over­all for month­ly fees, most­ly thanks to sta­ble­coin Tether

So is Bit­coin net­ting more fees than Ethereum good for Bit­coin? Maybe not. 

Some Bit­coin insid­ers wor­ry the net­work isn’t prop­er­ly equipped to han­dle Ordi­nals and poten­tial influx­es of inter­est in its orig­i­nal use case, BTC payments.

The Cryp­toKit­ties inci­dent in Decem­ber 2017 — dur­ing which a NFT game grew so pop­u­lar that it spec­tac­u­lar­ly clogged Ethereum — first showed that Ethereum prob­a­bly couldn’t han­dle serv­ing as the “World Com­put­er” just yet.

Then, the 2021 bull mar­ket saw NFT mint costs soar to $250 at times — a reminder of how nec­es­sary it was to port activ­i­ty to small­er chains, includ­ing rollups. Still, meme­coins and low qual­i­ty token projects ratch­eted up fees beyond $20 ear­li­er this year, dras­ti­cal­ly reduc­ing Ethereum’s use­ful­ness for non-crit­i­cal tasks.

The NFT craze of 2021 made Ethereum block space the hottest com­mod­i­ty in cryp­to. Even while tank­ing its utility. 

Ordi­nals may end up hav­ing the same effect on Bit­coin, espe­cial­ly if demand keeps up and the bull mar­ket tru­ly hits.

At that point, it would seem rea­son­able to val­ue Bit­coin and Ethereum more sim­i­lar­ly. It might just take anoth­er run.

Updat­ed Nov. 16, 2023 at 4:25 pm ET: Cor­rect­ed ref­er­ence to per­cent­ages in bul­let points.

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