A fair comparison? Ethereum growth outpaces Bitcoin in 2021

2021
has
proven
to
be
a
fortuitous
year
for
the
world’s
second-biggest
cryptocurrency
Ether
(ETH),
which
has
seen
a
fourfold
increase
in
value
over
the
past
12
months.

In
doing
so,
Ether
has
outperformed
the
appreciation
of
the
preeminent
Bitcoin
and
has
gained
an
increased
percentage
of
the
overall
cryptocurrency
market
by
capitalization.
While
the
wider
cryptocurrency
markets
have
enjoyed
a
year
of
relative
gains,
ETH’s
increase
in
value
has
been
in
tandem
with
upgrades
to
Ethereum’s
core
protocol,
laying
down
the
final
pillars
for
its
transition
to
a
proof-of-stake
consensus
protocol
in
2022.

Certain
Ethereum
Improvement
Proposals
(EIP)
have
been
the
center
of
attention
for
the
wider
Ethereum
community
and
have
proved
to
be
pivotal
for
“The
Merge”
with
the
proof-of-stake
Beacon
Chain
set
to
take
place
in
2022.

The
London
hard
fork
was
the

most
anticipated
upgrade

that
introduced
a
handful
of
EIPs.
EIP-1559
proved
to
be
contentious
due
to
the
change
of
fee
structures
earned
by
miners
and
paid
by
users,
and
there
were
both

positive
and
negative
aspects
brought
about
by
the
upgrade
.

A
crucial
factor
was
the
built-in
ETH
burn
mechanism
introduced
that
destroys
a
portion
of
Ether
used
to
pay
a
transaction
fee.
While
some
miners
were
unhappy
to
see
a
reduction
in
fees,
the
upside
of
the
London
hard
fork
was
the
deflationary
action
of
the
ETH
burn
mechanism.
It
is
believed
that
this
EIP
and
its
deflationary
mechanism
will
help
increase
the
value
of
ETH
in
the
months
and
years
to
come.

The

Altair
upgrade

followed
London
toward
the
end
of
the
year,
serving
as
the
first
update
to
the
Beacon
Chain
since
its
launch
in
December
2020.
This
allowed
various
teams
involved
in
the
ongoing
development
of
the
Ethereum
ecosystem
to
carry
out
a
dry
run
of
“The
Merge.”

Another
driving
force
in
Ether’s
strong
performance
in
2021
has
been
the
burgeoning
decentralized
finance
(DeFi)
sector,
which
has
attracted
a
significant
amount
of
capital.
Ethereum’s
blockchain
runs
a
number
of
the
largest
DeFi
platforms
and
this
has
had
a
direct
effect
on
the
value
of
ETH
and
the
increased
activity
on
the
blockchain.

Reap
what
you
sow

Ethereum’s
popularity
as
a
blockchain
platform
is
a
direct
result
of
the
smart
contract
functionality
underpinning
the
ecosystem.
Smart
contracts
allow
for
a
variety
of
applications
to
be
created
and
run
on
the
blockchain,
allowing
users
to
create
their
tokens,
applications
and
platforms.

While
ETH
is
the
proverbial
lifeblood
of
the
Ethereum
ecosystem,
the
projects
and
applications
running
on
the
blockchain
are
largely
responsible
for
the
value
being
derived.
As
the
saying
goes,
you
reap
what
you
sow,
and
the
ecosystem
is
reaping
the
benefits
of
a
blockchain
system
that
has
allowed
seeds
to
blossom
into
valuable
and
popular
DApps
and
platforms.

Ben
Caselin,
head
of
research
&
strategy
at
cryptocurrency
exchange
AAX,
offered
some
insights
into
the
main
factors
that
have
amplified
Ethereum’s
strong
year.
Caselin
first
highlighted
the
variety
of
use
cases
that
have
helped
ETH’s
cause
throughout
the
year:
“We’re
referring
to
stablecoins,
DeFi,
GameFi,
nonfungible
tokens
(NFTs),
meme
coins,
digital
bonds,
central
bank
digital
currency
initiatives,
yield
farming,
liquidity
pools
and
the
metaverse.”
He
further
added:

“Ethereum
carries
each
of
these
sectors
and
the
associated
capital
with
outsized
market
share.
Ethereum’s
value
is
established
differently
based
on
the
activities
it
powers,
while
Bitcoin
grows
steadily
as
it
sees
adoption
as
a
base-layer
savings
technology
for
a
new
global
economy.
Each
moves
somewhat
in
unison
but
they
are
fundamentally
driven
by
different
forces
and
conditions.”

Mattias
Nystrom,
community
manager
at
Ethereum
layer-two
payments
platform
Golem
Network,
shared
his
insights
with
Cointelegraph.
Nystrom
highlighted
the
sum
of
activity
on
the
Ethereum
network
as
the
catalyst
for
its
success
this
year:
“While
Bitcoin
is
primarily
built
for
just
payments,
Ethereum
is
unique
because
of
its
underlying
technology
and
this
is
starting
to
catch
on
as
Web
3.0
begins
its
journey
to
mainstream
adoption.”

Mati
Greenspan,
crypto
analyst
and
founder
of
Quantum
Economics,
told
Cointelegraph
that
the
performance
of
Bitcoin
(BTC)
and
Ether
are
difficult
to
compare,
given
their
widely
differing
use
cases
and
ecosystems.
Nevertheless,
he
admitted
that
the
latter
has
seen
a
clear
uptrend
in
value
over
the
past
12
months:

“Bitcoin
and
Ethereum
are
about
as
different
as
any
two
assets
can
be,
aside
from
the
fact
that
they’re
both
digital
currencies.
They
have
vastly
different
functions
within
their
respective
networks
and
each
has
unique
buy
and
sell
pressures.”

Influential
EIPs

As
Cointelegraph

explored
in
November
,
Ethereum
is
on
the
final
road
to
its
move
away
from
the
energy-demanding
proof-of-work
(PoW)
consensys
algorithm
to
the
proof-of-stake
(PoS)
Ethereum
2.0
chain.

The
Beacon
Chain
went
live
in
December
2020,

initiating

the
creation
of
the
PoS
Eth2
chain,
which
now
has
over
8,600,000
ETH
staked
and
a
little
under
270,000
validators
online.
These
validators
will
essentially
take
over
the
work
of
current-day
miners
in
Eth2,
processing
transactions
and
maintaining
the
operation
of
the
blockchain.

Becoming

a
full
node
validator
requires
a
user
to
stake
32
ETH,
while
smaller
amounts
can
be
staked
in
pools.

One
of
the
most
anticipated
Ethereum
Improvement
Proposals
went
live
midway
through
2021.
EIP-155
was
the
subject
of
much
debate,
given
the
changes
it
introduced
to
the
fee
structures
earned
by
miners
and
paid
by
users.

A
sore
point
was
the
built-in
ETH
burn
mechanism
that
destroys
a
portion
of
Ether
used
to
pay
a
transaction
fee.
Miners
weren’t
impressed,
given
that
fees
form
a
part
of
their
incentive
to
maintain
the
network.



Related: Ether’s
growth
as
independent
asset
fuels
ETH-BTC
flippening
narrative

The
upside
of
the
London
hard
fork
was
the
deflationary
effect
introduced
by
the
ETH
burn
mechanism.
As
a
result,
every
transaction
sees
a
percentage
of
ETH
destroyed,
leading
to
more
ETH
being
gradually
removed
from
the
ecosystem,
a
process
that
is
envisaged
to
increase
the
scarcity
and
value
of
ETH
as
an
asset.

Caselin
believes
that
the
implementation
of
the
London
upgrade
has
played
its
part
in
attracting
positive
sentiment
from
investors,
but
also
highlights
some
key
distinguishing
factors
between
Ethereum
and
Bitcoin:

“The
London
Upgrade
reiterated
that
the
Ethereum
project
is
well
and
alive
and
continues
to
be
under
construction

this
is
attractive
to
investors
and
speculators.
It
is
better
than
some
projects
that
have
ranked
high
in
the
charts,
but
have
little
to
show
for
in
activity
and
providing
actual
services.
The
burn
mechanism
speaks
to
a
narrative
around
inflation
and
borrows
from
the
logic
Bitcoin
relies
on.”

Greenspan
meanwhile
was
more
objective
in
his
analysis,
suggesting
that
the
average
Ethereum
user
would
have
had
little
or
no
inkling
of
the
effect
of
recent
EIPs
that
have
formed
part
of
the
looming
merge
between
the
current
Ethereum
blockchain
and
the
Beacon
Chain
which
is
touted
to
happen
in
2022:
“Even
though
it’s
possible
the
upgrade
has
had
some
impacts
on
the
inner
tokenomics,
I
don’t
think
it
has
affected
sentiment
very
much.”

Nystrom
believes
that
the
technical
improvements
made
to
the
Ethereum
ecosystem
on
its
way
to
the
Merge
and
the
variety
of
applications
running
on
its
blockchain
have
proven
its
versatility,
which
was
echoed
in
the
value
increase
of
ETH
throughout
the
year:

“ETH
is
built
uniquely
different
from
BTC
and
has
shown
much
more
technical
progress
in
2021.
The
crypto
community
knows
for
a
fact
that
Ethereum
is
a
more
versatile
asset
with
an
entire
ecosystem
behind
it
and
more
room
to
scale
and
create
ambitious,
valuable
projects
over
a
longer
period
of
time.”

Markets
still
fragile

December
has
been
tough
on
global
markets,
which
reacted
sharply
to
the
discovery
of
the
latest
COVID-19
variant
identified
by
South
African
researchers.
Traditional
markets
shuddered
and
this
reverberated
into
the
cryptocurrencies
markets.

BTC,
ETH
and
a
swathe
of
major
cryptocurrencies
suffered
losses
as
this
sentiment
spilled
over
into
the
crypto
markets
and
there
was
more
bad
news
as

inflation
has
been
on
the
increase

in
the
United
States.
Caselin
offered
a
measured
outlook,
highlighting
characteristic
market
reactions
to
major
news
and
economic
events
and
how
this
might
benefit
BTC
more
than
ETH
in
the
medium
term:

“Markets
have
always
moved
to
the
tune
of
news
stories
and
events
of
economic
significance,
but
longer
trends
are
mostly
driven
by
the
fundamentals.
[…]
We
may
not
be
in
a
bear
market
just
yet,
but
there
is
every
reason
to
believe
that
the
growth
we
have
seen
over
the
past
two
years
marks
only
the
beginning.
Long-term
holders
are
still
buying.”

Greenspan
highlighted
events
in
the
United
States
as
a
sign
of
the
times
and
the
reason
for
the
recent
market
downturn,
while
admitting
that
the
midterm
for
the
cryptocurrency
markets
isn’t
clear
cut
at
this
point:

“While
the
Fed
was
printing
money,
social
media
was
buzzing
‘brrrrr’
memes,
now
that
liquidity
is
drying
up,
there’s
a
lot
less
noise
from
the
peanut
gallery.
Possibly
by
the
end
of
the
year,
we’ll
get
to
see
how
deep
this
pullback
actually
goes.
Or
not.”

read original article here