AMDAX House View

Peeling Back the Layers
Bitcoin versus Ether
2024 prediction: ether will outperform bitcoin
Bitcoin and Ethereum have established themselves as the largest blockchains by a wide margin and are likely
to continue doing so in the coming years. Both ecosystems and their respective tokens have defined and
shaped the world of cryptocurrencies. Bitcoin is usually considered the most decentralized and sound form of
digital money, and ether is the currency used in all decentralized applications built on the Ethereum network.
While these ideas are widely supported within the community, there are arguments to be made in favor of the
statement that ether may be able to fulfil both functions in the future.
Firstly, in terms of tokenomics, ether is a superior store
of value compared to bitcoin. With the implementation
of EIP-1559 in 2021, a small portion of ether is burned
every transaction. This causes downward pressure on
the supply and has resulted in a pivot from an inflationary
model to a slightly deflationary model. So unlike
Bitcoin, which has a capped supply and a predictable
issuance rate, Ethereum’s burning mechanism influences
supply and demand characteristics that in turn potentially
increase the value of ether over time.
Secondly, a case can be made that Ethereum’s approach to the ‘blockchain trilemma’ is qualitatively superior to
Bitcoin’s. The trilemma covers three pillars that are instrumental to any blockchain ecosystem, but are
exceptionally challenging to achieve: security, scalability and decentralization.
Security
Since The Merge in September of last year, Ethereum’s security is reliant on the Proof-of-Stake (PoS)
consensus protocol. Even though this mechanism is newer and less time-tested than Bitcoin’s
Proof-of-Work (PoW) algorithm, there has been no proof or indication that either consensus protocol is
less secure than the other. Moreover, the total dollar amount needed to attack the Ethereum blockchain
is multiples of that of Bitcoin.
Scalability
The scalability aspect of the trilemma is clearly dominated by Ethereum ecosystem. Like Bitcoin’s
lightning network, there are many layer-2 solutions that allow for more transactions per second and
lower costs. However, Ethereum rollups can require challenge periods or cryptographic proofs that
provide more security. Another very important case is that the Ethereum network enables a modular

blockchain design that greatly enhances other scalability factors such as data availability.
Decentralization
In terms of decentralization, many argue that Bitcoin is undefeated. This opinion often relies on the
presence of wealth concentration with a PoS consensus mechanism. Those with more ether have a
greater stake and thus more influence in the ecosystem. While this is a valid concern, the same can be
said for miners in a PoW network. Bitcoin’s mining industry experiences every-intensifying competition,
causing only the most energy-efficient and cost-effective miners to survive. In reality, distribution across
mining pools and staking pools are similar for both blockchains.
Lastly, Ethereum far exceeds the limited functionality of the Bitcoin blockchain. It has established itself as the
leading smart contract platform, enabling the network to host a vast ecosystem of decentralized applications.
The recent developments concerning inscriptions have made it theoretically possible to build such
applications on Bitcoin, but in a less efficient manner compared to smart contracts. Nevertheless, we take a
positive stance towards this new technology, as well as other solutions to add more utility to bitcoin, as it adds
other use cases to the network, which would possibly attract more developers and increase the miner revenue
share earned through transaction fees. The latter is despised by some in the community, as the additional data
congests the network and high fees make the blockchain practically unusable for small transactions. However,
considering the security budget problem, we argue that inscriptions are advantageous for Bitcoin miners and
thus contribute positively to the economic sustainability of Bitcoin in the long run.
Bitcoin has substantially outperformed ether in the past year. However, we expect that ether will catch up to
bitcoin in terms of performance, during which the abovementioned narratives will get more popular. We
believe that the different spot ether ETFs will receive approval, mirroring the approval process of spot bitcoin
ETFs. This is likely to have a positive impact on the valuation of ether relative to bitcoin, as the latter has already
realized significant upside potential due to ETF anticipations. We strongly believe that ‘The Flippening’, which is
the moment where ether surpasses bitcoin in terms of market capitalization, is bound to happen within a few
years.
From Layer-0’s to Layer-1’s: Oligopolistic Forces
2024 prediction: Ethereum will remain the largest smart contract platform
The journey of blockchain technology represents a pivotal chapter in the digital age. Ethereum, as a trailblazer,
introduced the world to smart contracts, paving the way for decentralized applications (DApps) and a new
realm of possibilities beyond Bitcoin’s initial promise. However, Ethereum’s growth spotlighted a core challenge
in blockchain technology, known as the ‘blockchain trilemma’. As mentioned previously, this trilemma posits
that achieving scalability, security, and decentralization simultaneously is exceptionally challenging. When
designing a smart contract blockchain, only two out of the three aspects can be optimally addressed at the
same time. This explains why Ethereum has scalability issues, as its initial focus was security and
decentralization.

AMDAX House View