I explored the potential of two blockchain ecosystems to compare the price of DOT and ETH and their use in networks.
The bullish trend of the Polkadot blockchain token (DOT) has been gaining momentum lately. The asset has risen to fourth place in terms of market capitalization, but is this growth justified, and will the project be able to compete with ETH?
Is Polkadot really the Ethereum killer?
Smart contract platforms have been regularly launched since 2017. The projects promise to increase the speed of transactions and reduce transaction costs. They also hope to topple Ethereum as a monopoly in the smart contract industry.
These goals continue to beckon startups. Platforms such as Polkadot and Cardano continue to rise in value and increase the number of users. But how does the use of the platform affect the price of the token? Do these parameters correlate with each other?
Understanding metrics
Ethereum now ranks second in cryptocurrency market capitalization. Ethereum's capitalization is $141.2 billion, compared to $14.7 billion for Polkadot. However, Polkadot continues to climb the ranking list.
Cryptocurrency market capitalization aggregator CoinGecko shows that the Polkadot project has nearly quadrupled its market capitalization since mid-December 2020. However, what justifies the price when comparing the usability of the smart contract platform? Let's find out.
Reddit user Oxygenjacket links to data from the blockchain explorer Polkascan. According to Polkascan, Polkadot has peaked at around six transactions per minute during a surge in transaction volume over the past few days. On average, Polkadot processes less than six transactions per minute.
The Ethereum network, on the other hand, has processed more than 810 transactions per minute on average over the past month. This is 135 times more than the competitor's. However, to simplify the comparison, below we will look at the ratio of market caps to bandwidth.
Perhaps comparing the market capitalization of the two projects with their current transaction volume will clarify the situation. According to the aforementioned caps, Polkadot accounts for just over 11% of Ethereum's capitalization. However, the network only produces 0.7% of the Ethereum transaction volume. This large discrepancy leads to the conclusion that Polkadot is either overvalued or Ethereum undervalued. Here analysis leads to a dead end.
Hint from Pantera Capital
Pantera Capital, one of the most influential venture capital firms in the blockchain industry, stated in its latest newsletter that Ethereum is undervalued compared to Bitcoin. Thus, it is possible that investors are underestimating Ethereum compared to DOT, given that the project has risen on a wave of speculative growth.
Blockchain correspondent Colin Wu also claims Chinese community Polkadot is involved in a variety of scams. As Wu wrote on his Twitter page, influencers in the Chinese crypto community believe that Polkadot has only speculative value without investment support.
