The bitcoin price has surged from under $10,000 this time last year to around $60,000 per bitcoin while ethereum has added 1,200%, climbing from just over $100 per ether token to almost $2,000.
However, despite bitcoin's recent success, some fear that central bank digital currencies (CBDCs) could be "kryptonite" for bitcoin and similar cryptocurrencies—while ethereum apps and upgrades help it to stay ahead.
"Bitcoin is the most talked about cryptocurrency but ethereum has more features, including being more flexible," Bank of America analysts wrote in a report this week, titled Bitcoin’s Dirty Little Secrets.
"Bitcoin has also become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism," the researchers wrote, adding there's "no good reason to own bitcoin unless you see prices going up."
The report went on to call CBDCs "kryptonite for crypto" but said the rise of decentralized finance (DeFi)—designed to replace the role of banks with blockchain-based protocols that are mostly built on top of ethereum's blockchain—is "intriguing."
The European Central Bank (ECB) is currently weighing whether to create a digital euro while U.S. Federal Reserve Chair Jerome Powell has said 2021 will be a pivotal year in consulting the public on a future digital dollar.
DeFi is "potentially more disruptive than bitcoin," according to Bank of America analysts, who found the growth of DeFi "shows the strength of ethereum; its computational ability is vital to DeFi applications."
With many of the biggest DeFi projects built on top of ethereum's blockchain, an influx of users over the last year has pushed up the ethereum price as users flood the network.
Meanwhile, Ryan Watkins, an analyst at cryptocurrency research firm Messari, this week said he thinks ethereum could eventually surpass bitcoin—if not in price then in network security.
"I think that the shift to ethereum 2.0 and proof-of-stake [means] ethereum may actually be more secure than bitcoin," Watkins said in an interview with Fintech Today.
Bitcoin's proof-of-work algorithm, which requires so-called miners to solve complex computations in order to unlock new bitcoin and secure the network, has been criticised as too energy intensive. Some think proof-of-stake algorithms, which allow holders of a cryptocurrency to help secure a blockchain, could improve this but it's not yet known if proof-of-stake algorithms will scale sufficiently.
As part of a move to ethereum 2.0 that began late last year, a July update will see some ether tokens destroyed (or "burned"), with users sending a fee to the network itself instead of the miners that maintain the network.
"The way ethereum becomes money is not actually by being adopted by countries as a currency; the way it becomes money is actually by building his own economy," Watkins added, pointing to the growing DeFi space.