Last edited: Dec 7, 2021

An Australian academic research report empirically analyzed Ethereum and Bitcoin, and found out that Ethereum is a better store of value asset compared to Bitcoin.

This paper is co-authored by Ester Félez-Viñas, Lecturer In Finance at University of Technology Sydney, Sean Foley, Associate Professor in the Department of Applied Finance at Macquarie University, Jonathan R. Karlsen, Ph.D Student at University of Technology Sydney, and Jiri Svec, Senior Lecturer at University of Sydney.

In the introduction of the paper, authors mention that while Bitcoin’s hard supply of 21 million serves as a hedge against the inflationary practices taken by central banks around the world, Ethereum might be superior in terms of hedging against inflation through deflationary tokenomics.

The report is centered around Ethereum’s EIP-1599 upgrade, which tweaked Ethereum’s fee structure to burn a portion of transaction fees, permanently taking them out of circulation. These transaction mechanisms led to up to half of all Ethereum networks destroying more tokens than created, which means Ethereum’s total supply remains around the same level and could even be on the decline.

The measures the Ethereum network has taken means that Bitcoin’s bounding hard supply is no longer the only way a cryptocurrency could hedge against inflation; and since tweaks to fee structures is a lot more dynamic of a policy to adjust rather than a hard limit on total supply of coins, this means that Ethereum, and other blockchain networks that decide to implement similar strategies on deflationary policies on the networks, will have an edge compared to Bitcoin in terms of the effectiveness of hedging against inflation.

The report concludes that Ethereum displays stronger deflationary properties than Bitcoin, and will be a better long-term store of value asset than Bitcoin, by becoming the world’s first deflationary currency, once its burn rate exceeds that of its minting rate. According to watchtheburn.com, Ethereum has burned 1.1 billion ETH tokens since the rollout of EIP-1599.

While Ethereum’s market performance hasn’t been up to par, its long-term expectations have not flamed out. We expect Ethereum to continue to be a strong long-term play despite its struggles in prices in the last few weeks.

ETH price chart over the past 6 months (daily intervals)