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In communications and networks, one law has been quite important for its role in defining the value of a network and its importance outside connectivity. Metcalfe’s law might be relatively unknown to people outside the communication technology space. Still, it has found its way into cryptocurrencies as it is used to weigh the network value between bitcoin and Ethereum. Metcalfe’s law states a network’s value is directly proportional to the square of the number of nodes in the network. In simple terms, the bigger the number of users a network gets, the larger the network grows.
Ethereum vs. bitcoin has been more of a complimentary competition than a parasitic one. Both tokens have led the crypto market in market cap. Though Eth’s valuation has not hit the $1 trillion mark as bitcoin has, both tokens have gotten so important that it is impossible to think of widespread crypto adoption without putting the two tokens in mind. The two major crypto news of last year were between the two tokens; bitcoin’s tesla adoption and dump, china’s ultimate ban on crypto mining activities, and El Salvador’s acceptance of crypto as a legal tender. Ethereum, on the other hand, made the headlines for its move to the proof-of-stake consensus. The token migration project had some technical issues but overcame them to merge the beacon chain with the ethereum mainnet late in 2021. The details of the Ethereum 2.0 will be discussed later in the article, and the Ethereum explorer will give you a detailed insight into the wallets, transactions, and staked fees to keep the integrity of the network.
While both Ethereum and bitcoin have been popular, investors see both of them as the cryptocurrency equivalent of the big tech companies, and as such, are looking for which of the two would give them the best returns if invested in right now. Jurrien Timmer, who works as a macro strategist at Fidelity, is one of the investors looking to profit from both Bitcoin and Ethereum’s current price dips. Looking at both tokens from the Metcalfe’s law, he concluded that Ethereum is the better option to invest in between the two tokens. Oops!! The ‘bitcoin to $100,000″ group might not be comfortable wearing this. Let us see why the fidelity macroeconomist prefers Ethereum.
The methods of knowing a network’s value
There are many methods of seeing a token’s value. The cryptocurrency space might not need to have tokens under the ‘undervalued’ and ‘overvalued’ categories but valuing a token helps predict its future price and assist buying choices. Some of the commonly used metrics include:
Stock to flow method
The stock-to-flow method of viewing a token’s value involves comparing the current circulating supply of a token to how many new tokens are newly minted or mined each year. The higher a token’s stock-to-flow value, the scarcer the token and vice versa. While this prediction model is easy to follow, it has not always been accurate. The stability of commodities like gold and silver have made them good rivals that can be calculated via the metric. The same is not the case for volatile assets like Ethereum vs. Bitcoin.
Network value-to-transaction ratio
The Network Value to Transaction ratio is used to value a token by using its transfer volume and market capitalization. It works like the P.E ratio of traditional investing. When the network value is more than the daily transaction value, the NVT value will be high. The reverse is true when the daily transaction value surpasses the network value.
Number of users
The number of users has been a largely underrated way to know a network’s value. This method takes the price and number of network users into consideration. While bitcoin is seeing a lot of users due to its fixed supply, the price-to-network value is lower on Ethereum compared to bitcoin. This is seen by Ethereum’s fast-paced growth, which, although has not reflected in its token price, gives traders a huge discount price at sub-5000. The only hope with this metric is for Ethereum to continue its upward trajectory, and looking at the ETH 2.0, it is feasible the protocol keeps the upward trajectory intact.
Ethereum’s growth to the proof-of-stake
The ETH 2.0 is Ethereum’s claim to be a proof-of-stake consensus. When completed, this will make Ethereum the largest Proof-of-stake consensus and help reduce the scalability issues plaguing the network. Network congestion has been one of the major issues with the Ethereum network, with fees going as high as $61 per transaction at some point in 2021. The ETH valuation has been gravely affected by this, but it would delight crypto investors to hear that Ethereum would be taking direct steps at solving this issue. Ethereum. The London upgrade made Ethereum a deflationary asset, and the launch of the new upgrade made for Ethereum staking before the merger went live. A minimum of 32ETH is needed if validators would like to stake their ETH tokens, and so far, there are over 276,000 validators and 8.7 million staked Ethereum. To partake in the staking, you can go to https://redot.com/eth2/ and begin staking. Redot also gives the privilege of staking with as low as 0.01 ETH via staking pools, and these funds can be changed from ETH 2 to ETH any time the staker wants to opt out.
Perhaps this is what many economists see for saying Ethereum is selling at a discount. Most analysis points to a bullish Ethereum after the merger goes live. This is the best time to shout “to the moon.”
