When most people think about crypto and blockchain, the first thing that generally comes to mind is Bitcoin. For a long time, this was the only thing that would come to mind for the average person. After the most recent bull cycle in 2021, more people (and businesses) are becoming more aware of various crypto and blockchain endeavors.
Perhaps the most well-known outside of Bitcoin is Ethereum. However, the market cap for Ethereum (ETH) is currently less than 50% of that of Bitcoin (BTC). Even at the height of the 2021 bull market in early November, ETH could not pass this 50% threshold.
Even so, there is a lot of buzz around social media that in the coming bull markets we could expect to see the market cap of ETH not only catch up to BTC but surpass it. This event has become referred to as “the flippening”.
BTC and ETH fill vastly different roles in the crypto world, so in order to understand if “the flippening” is a valid possibility, we need to break down the benefits and drawbacks of each coin.
Reasons for BTC
Lets start with the biggest reason for BTC retaining its spot atop the crypto rankings. Compared to ETH, BTC has almost no competition from other projects as a store of value. BTC is by far and away the most secure payment protocol that exists today. The BTC blockchain has tens of thousands of nodes distributed all across the world and this number of nodes is consistently increasing.
Each of these nodes is constantly backing up the data in the blockchain and cross-checking the ledger against other nodes. In addition to these nodes, the network has millions of miners creating an algorithmic barrier to the network. Furthermore, BTC has no known creator or governing entity. This is a much bigger deal than you would think. BTC has been classified as a ‘currency’ as opposed to a ‘security’ by the SEC.
This is largely because of the fact that the success or failure of BTC has no association with any entity or person (well besides the still anonymous Satoshi Nakomoto – who may or may not be alive today, and who will almost definitely never reveal their true identity). To fully explore the topic of BTC competitors, we need to talk about proof of work. There is a lot of controversy around proof of work protocols (PoW), specifically around the environmental impact.To fully explore the topic of BTC competitors, we need to talk about proof of work. There is a lot of controversy around proof of work protocols (PoW), specifically around the environmental impact. Read more here: Click To Tweet
As a result, most up-and-coming protocols are going live using proof of stake (PoS) as opposed to PoW. Major established projects such as ETH are now migrating their protocols to PoS from PoW to deal with these environmental concerns (among other scaling concerns). While PoS requires less energy than PoW, it is not as secure of a consensus method and BTC will always be a highly secure PoW protocol. Like all things that are harmful to the environment, if it useful to humans, then those said humans will spend time and effort finding ways to make the technology sustainable.
The push to make BTC “greener” has already made great headway since the negative publicity received in 2021 from major corporations such as Tesla. As renewable sources of energy continue to become cheaper and cheaper, BTC miners will continue to shift towards these “greener” energy consumption methods1.
The key for PoW protocols like BTC is that large institutions love the security of the network. While these institutions don’t love the fact that the network has no chance of being changed to align with future agendas of the institution, they are able to overlook that due to the ease of onboarding to crypto through BTC from a regulatory perspective. These facts about institutions are important since only institutions will be able to provide enough capital to fuel “the flippening”.
It is very unlikely that retail investors and influence from social sentiment will drive a flippening scenario given where the current market caps of BTC and ETH sit today. Furthermore, institutions are anxiously awaiting for BTC spot ETF’s to invest in. While these same institutions are also looking for an ETH spot ETF, the fact that BTC already has futures ETF’s gives BTC a large lead here with the institutions.
Reasons for ETH
The main argument for ETH surpassing BTC revolves around the fact that the technology deployed on the ETH network is far more useful in our daily lives than the technology on the BTC network. ETH is at the heart of the Web 3.0 revolution and can essentially be thought of as the next generation of the “App Store”. Individuals or entities can release applications on the ETH network that anyone else on the network can interact with. From video games, to music and other forms of entertainment, to healthcare, all sorts of applications are currently being worked on in the ETH environment.
While it may seem like a no-brainer that ETH would eventually flip BTC, the problem here is that ETH is not the only protocol creating this type of Web 3.0 environment. ETH has had many set-backs trying to upgrade its protocol from PoW to PoS in order to improve its scaling abilities. While ETH struggled, competitors such as Solana and Cardano have risen in the standings due to the fact that they can allow far more transactions per second.
The Polygon network was a solution for ETH to improve its scaling capabilities and is currently live as a second layer of the ETH main network. Polygon has risen to roughly the same level of market cap as some of ETH’s main competitors, which is a good long term sign for ETH remaining ahead of the competition. Combine this with the fact that ETH’s market cap is currently 10X the market cap of the closest competitor and it seems that ETH will be able to maintain its standing atop the competition, so long as it manages to pull off the smooth transition to PoS.
Institutions are also eyeing ETH as a potential investment opportunity. These large institutions like that ETH has a founder who is very outspoken and can be persuaded to implement changes on the ETH network. They also like the fact that retailers will be pouring into these decentralized applications over the coming years, which will mean more users needing to hold ETH to pay for transaction fees in these apps.Institutions are also eyeing ETH as a potential investment opportunity. These large institutions like that ETH has a founder who is very outspoken and can be persuaded to implement changes on the ETH network. Read more here: Click To Tweet
These same transaction fees are also a drawback for the institutions, however. The transaction fees on the ETH network are many multiples greater than the transaction fees on the BTC network and can sometimes be as high as a few thousand dollars. By contrast, BTC transactions will rarely have fees over a few dollars but recently they have rarely been larger than a few cents.
Institutions are worried about the future of these fees and as a result are hedging their bets by investing in ETH competitors who support a cheaper fee structure and have better scaling abilities currently. This means that the money institutions are investing into Web 3.0 is generally allocated among many projects and not just ETH, whereas institutional investments in a store of value cryptocurrency are solely allocated to BTC.
Matt’s Hot Take
As the world continues to learn about and adopt cryptocurrencies, I don’t see any real way for ETH to flip BTC. We are currently at a point in time where governments are trying to find ways to understand and use blockchain technology. Some nations have already adopted BTC as legal tender and are ahead of the game here but large global institutions are still waiting to be onboarded.
It’s hard to imagine the largest players entering the crypto world without taking exposure to BTC. The security of the BTC network and ease of access is too nice for institutions to pass up. So over the next 5 to 10 years, I am picturing a scenario where BTC and ETH grow at similar levels, with BTC maintaining its dominance.
Farther down the road, I can see ETH making a run towards the top spot. Once the institutions have become comfortable working with cryptocurrencies from a general perspective, I can see more money start getting poured into ETH and Web 3.0 in general as some groundbreaking applications start to be released. Potential long-term applications include genome editing, self-driving car communication tools, and even tools to terraform other planets. While we don’t know how long these applications will take to build, we know that the framework for their creation is in place.
So, do I think we will see “the flippening” come to fruition? The answer is yes but I don’t think it will be for a very long time. All of these projects are still in their infancy and I think it will take a while for society on a global level to understand where the value of the underlying technologies truly lie.
For now, retailers continue to be persuaded by various forms of social sentiment and large institutions continue to wait for an entry point. I expect this process to continue for the next few years as we wait for the next-level applications that will come to Web 3.0.
Want to learn more about “The Flippining”? Check out a video from Coinbureau here.
More than 5 years of experience in the Data Science field. Expert in blockchain and crypto technologies with 2 years of experience.