Ethereum Could Dethrone Bitcoin
According to a recent report prepared by members of various institutions, including Sydney and Macquarie, recent improvements in Ethereum monetary policy make it a superior store of value than bitcoin. The major cause of this is claimed to be the deflationary effect of the EIP-1559 plan on currency issuance.
A new report published last month by representatives of Australian universities shines a light on Ethereum and its potential future as a store of value. “Better than Bitcoin?” the paper asks. Can cryptocurrencies beat inflation?,” is written by Ester Félez-Vias of the University of Technology in Sydney and other researchers, and contrasts Bitcoin’s issuance with Ethereum‘s new issuance strategy, which makes the money deflationary.
According to the paper:
We show that following the recent change in its transactions protocol, the digital currency Ethereum displays a significantly lower net issuance rate of tokens than Bitcoin, achieved by destroying the fees
associated with each transaction.
This is due to the activation of EIP-1559, a proposal that burns ETH in proportion to network usage. While there was significant criticism to this plan when it was first offered, mostly from miners and mining pools, it is now contributing to the increased appreciation of the cryptocurrency as a potentially deflationary currency in the future.
The deployment of EIP-1559 has resulted in a considerable quantity of the cryptocurrency being burned in fees by the network. After only three months of being implemented on mainnet, this modification has resulted in the removal of almost one million ETH from circulation. In this regard, the report states:
In many cases the amount of Ethereum burned outpaces the network’s creation of new tokens, resulting in Ethereum potentially becoming the world’s first deflationary currency. We argue that this provides better inflationary hedging properties than Bitcoin, and Ether may therefore offer a superior long-term value storage than Bitcoin.
Other cryptocurrency projects are using similar burning systems in the hopes of replicating the same impact. Binance coin just triggered a network upgrade that included fee burning. However, Binance currency and Ethereum are fundamentally different: the latter has no issuance cap, but Binance coin does.