The Bitcoin Fee Flippening Is Upon Us

Step aside Ethereum, there may be a new dominant protocol for NFTs and meme coins in 2024, SunnySide's Taras Kulyk writes.

AccessTimeIconDec 19, 2023 at 7:53 p.m. UTC
Updated Mar 8, 2024 at 6:57 p.m. UTC
AccessTimeIconDec 19, 2023 at 7:53 p.m. UTCUpdated Mar 8, 2024 at 6:57 p.m. UTC
AccessTimeIconDec 19, 2023 at 7:53 p.m. UTCUpdated Mar 8, 2024 at 6:57 p.m. UTC

When people hear the two words “smart contract” they tend to think immediately of DAOs, DEX’s, and NFTs largely found on Ethereum. But that's about to change. In 2024, we can expect Bitcoin to take the lead in drawing developers to build on the network due to superior security founded in its proof-of-work consensus method and a fee model that is designed to effectively incentivize network contributors now through eternity.

This post is part of CoinDesk's "Crypto 2024" predictions package. Taras Kulyk is the founder and CEO of SunnySide Digital.

In contrast, Ethereum zealots have been predicting that ether (ETH) will overtake bitcoin (BTC) in market cap for years, but it's now apparent these forecasts are not coming true. ETH is now down almost 30% in relative market cap versus BTC. Ironically, the only flippening likely to happen is a migration of Ethereum use cases transitioning to the Bitcoin protocol. (Even with puritanical Maxi Bitcoiners like Luke Dashjr up in arms about it.)

Proof-of-stake: The death knell for Ethereum

When Ethereum switched to proof-of-stake (PoS), it set the course for its gradual and inevitable obsolescence. In contrast to proof-of-work (PoW), which takes into account the physics and engineering of energy consumption, staking implements a sort of “voting” system to approve the next correct state of the chain. The more crypto you have, the greater weight your votes have.

Essentially, PoS is a replication of everything that’s wrong with our current financial system where the "haves" obtain greater power over the "have nots" or "have littles" — except it’s on a blockchain.

What’s more, if measured under the same 51% attack threat model as PoW, PoS is fundamentally, and fatally, insecure. This is anathema to the cypherpunk vision and it should be condemned. A system built on constant hard forks is bound to make network participants weary of the potential unforeseen implications of each upgrade.

See also: Casey Rodarmor: The Bitcoin Artist | Most Influential 2023

You could say Ethereum was misguided from the beginning, ever since the Ethereum Foundation created a 70% premine to pay themselves. This move set the course for the powerful to control the network, and it becomes blatantly obvious that Ethereum is destined to fail, even from a regulatory standpoint if it comes down to that. It’s quipped that if the Securities and Exchange Commisson (SEC) calls and someone is on the other end to answer, it's centralized.

It’s also true that Ethereum has had a certain level of past success in fee generation and more expressive use cases like non-fungible tokens (NFTs) and meme coins. Yet when we compare the slow and steady march of Bitcoin in these categories, it is also clear that Ethereum is losing the battle. And, of course, the markets don't lie.

Fee fi fo FUD

One key topic of FUD [fear, uncertainty and doubt] regarding Bitcoin is its long term security model. Mainly, that there won’t be sufficient fees to incentivize miners to continue mining blocks over time as the block subsidy reduces asymptotically until some time in the 2100s. This argument went out the door this year. Multiple times, we have seen transaction fee rewards outperform mining subsidies and just this past week, we saw fees double the block reward. And we’re still early in the overall halving schedule of BTC as a protocol.

Inscriptions, whether you hate them or love them, have helped jumpstart a fee war, comprising 21% of all fees year to date.

While it’s true that inscriptions have helped ignite a competitive transaction fee environment (the peak of the Inscription craze in May was $18M), regular daily transaction fees have amounted to $13 million. Even the meme coin mania previously seen on Ethereum has migrated over to Bitcoin. Back in May, BRC-20 — a new token standard using the Ordinals protocol — brought bitcoin transaction fees to its highest level in two years at the time.

It must be again mentioned that some purists of the “transaction purpose” Bitcoin network view this activity as spam on the network as its only “true” utility is in propagating only BTC transaction data. As a mining sector participant, I think it’s naive to believe that the market won’t push a technology to the one that is supported and adopted by the most users. Providing a truly sustainable economic model to support the mining industry into perpetuity is the right outcome.

This year, Bitcoin was a gravitational force in bringing NFT enthusiasts over from Ethereum and other L1s thanks to Ordinals and BRC-20 tokens. Once heralded as one of the preeminent use cases for Ethereum and a competitive edge, NFTs on Ethereum have begun a slow descent. For instance, the largest NFT platform on Ethereum, OpenSea, is down 98.5% in volume since its highs. In comparison, Ordinals drove adoption of Bitcoin NFTs.

In fact, Galaxy Research estimates that the market size of Bitcoin NFTs will reach $4.5 billion by 2025. This research and the growth of usage of the Bitcoin protocol for new use cases have the potential to bring an end to the centralized network of Ethereum.

Bitcoin on the international, geopolitical stage

The real problem worth solving here is money, and Bitcoin is winning by most metrics, including institutional and nation state adoption.

El Salvador adopted bitcoin as legal tender and has been using it as a way to turn its country around into a prosperous nation. Just recently President Nayib Bukele received regulatory approval to launch his bitcoin-backed “volcano bond” in 2024. Javier Milei, the libertarian president of Argentina who was recently sworn in, is also a proponent of Bitcoin. He has previously stated that “bitcoin represents a return of money to its creator: the private sector,” and it is rumored that Argentina might be the next large nation to adopt a bitcoin standard. Bhutan has been quietly mining bitcoin. Oman made a $1.1 billion investment on bitcoin mining infrastructure, and other powerful countries are expressing interest/investment in Bitcoin.

In the West, we have even seen presidential candidates like Robert F. Kennedy Jr. and Vivek Ramaswamy implore the benefits of bitcoin as a solution to the loose money policies that have eroded the very fabric of society. With spot bitcoin ETFs right around the corner as well, it’s obvious that no matter what angle you look at Bitcoin from, it is clearly beginning to enter a new phase of global adoption.

Looking ahead to 2024

What people should think about more than anything is that Bitcoin is integral to a decentralized, prosperous and fair future for all, and anything else that claims to be a better alternative, like Ethereum, could be considered a DDOS attack. At the end of the day, a truly decentralized and sound monetary network will eat the lunch of a preminded, centralized alternative any day.

As the halving approaches and adoption increases, it will be increasingly clear in 2024 that as Michael Saylor often says: “there is no second best.”

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Taras Kulyk

Taras Kulyk is the founder and CEO of SunnySide Digital.

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