A general criticism of Bitcoin (CRYPTO: BTC) is that it’s an outdated technology in the fast-paced world of cryptocurrency and it will eventually be replaced by something better. There are several versions of this theory, with some saying that another decentralized cryptocurrency will overtake Bitcoin as the best cryptocurrency, and others say that Bitcoin will at some point be made obsolete by central bank digital currencies (CBDCs).
Let’s focus on the former theory. The ether (CRYPTO: ETH) The network’s underlying ETH cryptocurrency has the most support. During the 2017 Initial Coin Offering (ICO) bubble, various commentators on the crypto market claimed that ETH would inevitably overtake BTC as the largest and most popular cryptocurrency. Although this did not happen at the time, the idea of ”flipping” has gained momentum again, as the ETH BTC-denominated price has almost tripled so far this year.
The argument for ETH over BTC
The main argument in favor of Ethereum over Bitcoin is that the latter of the two cryptocurrency networks is limited by a lack of technical functionality in the form of smart contracts. Smart contracts enable advanced crypto use cases such as non-fungible tokens (NFTs) and decentralized finance (DeFi). Mark Cuban has pointed on this type of use case as its rationale for preferring ETH over BTC.
DeFi in particular has been the main source of attention for Ethereum over the past year as various apps have opened up new opportunities for traditional financial activities such as asset issuance, trading, borrowing, lending and more. The argument is that because of these additional uses, ETH will overtake BTC as the most widely used cryptocurrency.
The argument for BTC versus ETH
A key argument against the idea that DeFi and other types of decentralized applications exist is that much of the activity on Ethereum today is likely to be unsustainable. Many of the Ethereum use cases popular today, such as stablecoins and trading these stablecoins against ETH, involve the reintroduction of third party risks, which questions whether it makes sense to build these applications on a decentralized blockchain.
Bitcoin itself also offers various solutions for implementing many of the use cases that have gained popularity with Ethereum. Sovryn is a relatively new DeFi application based on Bitcoin that combines many of Ethereum’s advertised use cases into a single interface. It has long been argued that Bitcoin can adopt any new technology developed by its competitors, and Sovryn is an example of this point happening right before our eyes.
If Bitcoin is able to adopt the characteristics of its competitors, then the real competition between cryptocurrencies has more to do with their monetary characteristics than anything else. And in this department, Bitcoin is still by far the most liquid, stable form of cryptocurrency with the most credible and unshakable monetary policy.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.