Will Bitcoin lose its #1 market cap crown?

Will Bitcoin lose its #1 market cap crown?

Ethereum has just overtaken Bitcoin!

But, wait!

We’re not talking about market cap…

As you’ve probably seen reported elsewhere, ETH now (Jun/2018) has more unique active addresses than Bitcoin. Is this a sign of something different looming in the horizon? Will Bitcoin end its 9 year reign as king of cryptocurrencies? Are there other cryptocurrencies which could threaten Bitcoin’s crown with a flippening?

The answer to most these questions is : the community will decide. Cryptocurrencies are all about communities, it’s a fully decentralized democracy. If Bitcoin all of a sudden does not offer the reliability, stability and maturity that it has come to represent, then it may as well lose its place to Ethereum, Cardano or some other standalone blockchain.

Bitcoin is first generation, it uses the most common encryption algorithm, its blocks come in 10 minute intervals, it usually takes 30 to 60 minutes to fully confirm a transaction. How then is it still king of crypto? That’s a very good question and it’s exactly the question lots of investors are asking themselves right this moment: why isn’t Ethereum, for example, more valuable than Bitcoin? There’s more than one answer to this question.

The first obvious fact is that there is more demand and a bigger market for Bitcoin. It’s better known, has become a household name for many and is on the media all the time. This is important in order to conquer bigger mindshare – when average citizens are asked about cryptocurrencies, they immediately think of Bitcoin. Will this tendency last? Maybe, maybe not. There was a time when cell phones were synonymous with the Motorola brand. They were pioneers, built the coolest phones for a very long time and whenever cell phones were talked about everyone thought Motorola. Today a cell phone is a complete and powerful computer system with GPS, camera, audio and video capabilities – there’s even an actual cell phone circuit embedded in there somewhere. Motorola is still on the market, but today we refer to phones as iOS or Android : the software, which was often taken for granted by customers in the golden days of Motorola, has become the heart of the system today. Consumers are more aware of the underlying operating system – the hardware has been abstracted and today the software plays a bigger role in cell phones.

What do cell phones have to do with cryptocurrencies? Motorola is often mentioned as an example of a pioneer that no longer reigns in the cell phone market. We mention this fact because Bitcoin may also not be the #1 cryptocurrency in the future.

Time flies in the world cryptocurrencies. What used to take 20, 30 years may now happen in a matter of days. In fact, in mid November 2017 everyone was talking about “the flippening”. Would Bitcoin Cash (BCH) overtake Bitcoin for #1? Would all miners leave Bitcoin to mine BCH instead? Was Bitcoin doomed? The mempool was flooded with over 100k pending transactions, low fee transactions could take weeks to complete, many people feared they’d lost their transmitted funds, there was chaos on Twitter. But then the Bitcoin difficulty algorithm kicked in and everything was restored to normal. Bitcoin had protected itself and self regulated, without any human intervention. As a result of this amazing self recovery, Bitcoin soared in value, from U$ 7k to over U$ 21k by the end of the year. It had won yet another battle. Which doesn’t mean the BCH experiment wasn’t a success. Out of nowhere came a new cryptocurrency that is now worth ~U$ 20 billion. For all practical purposes, Bitcoin Cash is an immense success. It just didn’t overtake Bitcoin for #1.

At the time of this writing, Ethereum is the main contender for the coveted #1 crypto spot. As we mentioned early in this article, Ethereum now has more active addresses than Bitcoin. This is a significant statistic, because the norm with Ethereum addresses is to reuse addresses. A Bitcoin wallet makes it trivial to create more addresses using the same private key, while the official Ethereum wallet (Mist) usually loads a single address and calls it “an account”. So the number of ETH addresses overtaking Bitcoin is a very strong signal that this crypto is gaining users fast – remember Bitcoin has been out there for 9 years, Ethereum is less than half as old. Does it mean it’ll necessarily gain market value? Not necessarily. Ethereum is a second generation crypto, it has a complete programming language embedded into its core software and it powers some of the biggest ICO’s happening right now. It does have everything it would take for a crypto to be #1, but as with everything else in the cryptocurrency market, the crowds will decide. There is a very strong possibility that Ethereum could overtake Bitcoin soon, but there’s a lot more to crypto valuation than technical potential and wide adoption. There is, for example, something called reliability and it’s a big point in crypto investing.

Reliability: that’s one of the main cornerstones holding Bitcoin at #1. The Bitcoin software has been tested in brutal ways. There have been attacks performed against Bitcoin that cost hundreds of thousands of dollars and that no other software in history has withstood as gracefully as Bitcoin did. We mentioned the November 2017 attack, but there have been several others. Due to the value of Bitcoin, there are immense financial rewards for any successful hack against this technology. So far, in over 9 years getting bombarded by the world’s most elite hackers, nothing really critical has been found to be used against Bitcoin.

In fact, the biggest heists in Bitcoin history have not at all been related to Bitcoin! Badly implemented front-end systems, malicious projects, scams, Ponzi schemes, darknet operations such as Silk Road and others have given Bitcoin some fame as a wild west currency. But none of those were related to Bitcoin any more than drug cartel money is related to the US Dollar. Bitcoin is simply a versatile currency that can be used anywhere and for this reason it has been the target of scammers. Euros and the US Dollar are also used for illegal activities all over the world, in fact anything that carries value will end up being used in some illegal way somewhere. The fact remains that the underlying technology of Bitcoin remains solid.

This largely successful 9 year test period is a big part of what keeps Bitcoin at the helm. Not only has the technology itself been tested 24×7 for the past 9+ years, but the core development team has also been tested. The human factor is big in crypto development. In fact, it is big in any software project, but cryptocurrencies are a very demanding field for software developers. There is immense pressure, there are billions of U$ at stake and any little mistake can lead to catastrophe. The Bitcoin developers have been tested in more than one way. First, how they dealt with technical issues. Every single issue has been solved with mastery by the team. The source code is solid, well maintained and the discussions among the team are mostly mature and show deep knowledge of the underlying issues. Other coins which contend for the #1 don’t have anywhere near the same level of knowledge that the Bitcoin Core team possesses. Unless there’s a mass exodus away from Bitcoin development, for the foreseeable future Bitcoin will continue to have the most qualified developers behind it.

Another aspect of the Bitcoin developer team has been the strategic decisions they’ve made. A development team not only implements code, but decides on what code to implement. Bad design and architectural decisions can lead a project to collapse. During the past few years, the Bitcoin Core team stood strongly against increasing block size, to mention just one contentious issue. When Bitcoin Cash was released, everyone thought it’d be 8X more efficient than Bitcoin Core, but it wasn’t. There were low fees, as expected, but the improvements weren’t anywhere as massive as had been predicted. In fact, bigger blocks take more computing power to mine, require more computing power to be spent per block and have other trade-offs that offset the advantages of bigger blocks, to the point it is not anywhere a linear improvement. Increasing blocks 8X did not promote a 8X increase in transactions per second. This is just one example where the strategic decisions made by the Core team displayed maturity. An immature development team would be easily swayed to introduce features into the main source tree. Bitcoin developers know better – they understand that a strong cryptocurrency will require a lot of community involvement and intense discussion for any changes made to it. This is one of the big qualities of the Bitcoin team, they’re not keyboard-happy and ready to code anything into the Bitcoin tree. There’s due process and every BIP gets debated to exhaustion before deciding to include anything new into the main source tree. Those who wish to experiment are free to fork the core tree and run their own tests.

Ripple is currently #3 in market cap and presents itself as a strong contender for the crown. Who’s behind Ripple? Banks! Traditional ones. Ripple is a protocol for inter-bank transactions and aims to substitute all the other B2B systems that banks currently use for communications between different institutions or their own private branches. Ripple is not fully decentralized. It depends on the concept of a Unique Node List (UNL) in order to decide if a transaction is from a “trusted” node or not. The developers and banks behind Ripple decide who goes on this UNL and transactions from outside this list are rejected. Ripple is definitely not in the same niche as Bitcoin, it is a business-specific protocol that offers solutions for a specific kind of business, namely banks. While Ripple has potential to remain valuable and even gain value, its application will be more restricted than that of Bitcoin and will ultimately be controlled by banking institutions. Of course, these institutions are very powerful and have unlimited cash to spend (they just print more), it is not at all clear whether this centralized system will ultimately defeat the crowds behind Bitcoin. The Ripple developers are very knowledgeable and have been working with crypto assets for over a decade. The project is well managed and well marketed, as we’ve mentioned they have ample support from major institutions and it promises to remain among the top cryptos unless some Earth shattering crypto event happens in the near future. Whether Ripple will reach #1 ultimately depends on the banks’ strategy to get it out there to their clients. For the time being Ripple is seen as a corporate coin, not decentralized and not very popular among crypto Anarchists, libertarians and other grassroots ideological groups which believe in cryptocurrencies for their decentralized nature. Therefore Ripple’s mass adoption will likely depend on big marketing budgets and massive paid publicity.

EOS has enjoyed enormous success since its launch in 2017. It quickly reached top 10 market cap status and its ambitions surely point to it being a strong contender for #1. What is EOS? It’s an Ethereum-like virtual machine that attempts to provide lower fees and accept multiple programming languages instead of just one. Other than that the main ideas behind EOS are very similar to Ethereum and other second generation cryptocurrencies. The company behind EOS is called Block.one and is registered in the famous tax haven of Cayman Islands. Not much more can be said about this cryptocurrency, other than it appears very similar to several other ICO’s of the recent past. Because of its relatively recent introduction we’ll have to wait to make more precise predictions about it and whether their technical team will be capable of implementing its very ambitious roadmap in order to compete for the #1 spot.

Litecoin is a tried and tested Bitcoin fork. What Charlie Lee did was fork Bitcoin and change its hashing algorithm to scrypt instead of SHA256. There really isn’t much of anything else behind Litecoin and 99% of it is just verbatim Bitcoin source code. By changing some parameters on the Bitcoin configuration source files, Litecoin was meant an approximate 3:1 proportion to Bitcoin total circulating float. At the time of this writing there are ~56 million Litecoin available against ~17 million BTC. Its logo indicates the purpose of this coin: from the start it was supposed to symbolize silver, whereas the Bitcoin logo is golden. Litecoin wanted to be the silver of cryptocurrencies and for the past 5 years it has achieved this mission well. During a long time Litecoin was the #2 crypto, losing its spot to Ethereum and other second generation cryptos. It’s still touted as the silver of cryptocurrencies and as such we don’t think it’ll ever reach #1. It’s basically Bitcoin with bigger float and different mining algorithm.

Despite Ethereum’s more prominent rule currently, we believe Cardano ADA to be a very strong contender for #1 crypto in the coming years. It is the only 3rd generation cryptocurrency among the top 10, offers everything Ethereum does and already contains some of the improvements planned for Ethereum in the future. Cardano has been built from the start with governance, compliance, scalability and cross-chain compatibility built into its core components. The official Cardano wallet isn’t just meant for ADA, it aims to be a multi crypto wallet with all the modern bells and whistles of other cryptocurrencies built right in. The main challenges for Cardano at the time of this writing are to be able to effectively implement all these ambitious goals into its already massive source code base. Cardano uses the Haskell programming language, which makes it pretty unique among cryptocurrency projects. By using a purely functional programming language, they aim to make it easy to make the source code formally verifiable in the future, as proof systems are based in mathematical concepts, using a purely functional language gets them closer to this goal, which would be a lot more difficult if a mixed-paradigm language like C++ were employed. Cardano is led by former Ethereum team member Charles Hoskinson and has quite the development team behind it, with academic papers and lots of high quality code being committed all the time. It’s a very active group, well managed operation and we believe Cardano to be one of the top contenders for #1 in the near future, not only due to the core ideas behind it, but because it is being built by knowledgeable veterans from the cryptocurrency space, who understand the challenges and the mistakes made by previous projects.

There’s always the possibility that something completely new will appear and jump straight to the top 10 market caps. Ethereum is one such example. Back in 2014 nobody predicted that something like ETH would reach the top so fast. In fact, back in 2014 everyone was mining Litecoin, Dogecoin and other PoW cryptos that were simply Bitcoin forks. Ethereum represented a paradigm shift, a completely new idea, in fact it introduced a new generation of cryptocurrencies. What’s stopping something completely new from appearing in 2018 and beyond? Nothing. The cryptocurrency research field is attracting more and more academics, entrepreneurs, investors and now even the legacy financial system is getting on board. But, for the time being, Bitcoin remains #1 and will remain so until a catalyst propels Ethereum, Cardano or another yet to be project above it.

 

Disclosure: Crypto.BI authors, including a co-author of this article, hold positions in Cardano ADA.

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Illustration: Mohamed Hassan via Pixabay

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