In findings that may leave Bitcoiners choking on their coffee, academics at Australian universities argued that Ether's deflationary characteristics give it the upper hand.
A new academic paper claims that Ether could be a better store of value than Bitcoin.
In findings that may leave Bitcoiners choking on their coffee, academics at Australian universities argued that — while BTC has won plaudits for having anti-inflation characteristics like gold — recent updates to the Ethereum blockchain have gone one step further by making cryptocurrencies deflationary. The authors wrote:
"With up to half of the network's blocks destroying more Ethereum than is created, the notion that Bitcoin offers the best inflationary hedge among the cryptocurrencies is increasingly coming under threat. Such protocol improvements could pave the way for more cryptocurrencies to improve their anti-inflationary characteristics, becoming better stores of value than Bitcoin."
Their argument centers on the arrival of Ethereum Improvement Proposal 1559, which has significantly reduced the supply of new ETH hitting the market. Now, part of the transaction fees paid by users is burned — taking coins out of circulation forever.
In time, the authors expect the issuance rate of ETH to settle at 0.98%, while BTC's supply will increase by 2% over the same period. The paper continues:
"Ethereum's deflationary trajectory may help explain its recent outperformance of rival Bitcoin, and could in theory be adopted by any cryptocurrency."
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The World's First Deflationary Currency?
Since EIP-1559, there have been periods where the volume of ETH being burned exceeds what's created through block rewards.
A total of 1,095,029 ETH has been burned at the time of writing — and at present, it has a cash value of $4.2 billion. As ethburned.info notes: "The more Ethereum is used… the more ETH is burned."
While BTC's price has risen by approximately 94% since the start of 2021, ETH's value has rallied by more than 540% — continuing a theme that was seen in 2020.
Indeed, the likes of JPMorgan also believe that Ether could prove more attractive for investors than Bitcoin.
The investment bank says that, while the eventual normalization of monetary policy is putting downward pressure on Bitcoin as a form of digital gold, Ether may be more resistant to these headwinds because it derives its value from applications — including DeFi, gaming, non-fungible tokens and stablecoins.
