New York skyline Wall Street blockchain and finance

Blockchain technology is often referred to as one of the most disruptive developments of the 21st century. From medical records to artificial intelligence, the list of potential use cases is endless. In particular, the finance sector is one of the best fits for this technology.

Blockchain has several key advantages. It is secure, transparent, and immutable (meaning it cannot be edited and transactions cannot be reversed). That makes it the perfect way to store data and funds, and open doors to the world of big money.

With the debut of smart contracts (contracts that execute automatically when certain criteria are met), the blockchain world got a massive step closer towards wider adoption. These features are sending ripples through the financial world in the following ways:

Blockchain and Banking

Banks have been working on blockchain technology for several years. In fact, there are various international blockchain consortia, consisting of institutions like HSBC and Santander. The groups are trying to advance the $17 trillion trade finance industry by adopting blockchain solutions. Meanwhile, J.P. Morgan is building its own blockchain services on the Ethereum network.

blockchain banks consortia - a list of all banks and logos involved in blockchain
Image credit: Business Insider

A decentralized, digital system has the potential to weaken fraud attempts, improve document turnaround times, and streamline accounting for businesses. Moreover, by working with smart contracts, the consortia aims to progress in cross-border trading and to enhance the supply chain industry.

At this point in time, the third-most-valuable cryptocurrency is Ripple’s XRP, which has announced more than 100 partnerships with major banking institutions around the world. Most of the banks are using Ripple’s blockchain solution called xCurrent. However, at least three companies are now using Ripple’s cryptocurrency service, xRapid, to settle cross-border payments.

Initial pilots reveal that blockchain solutions can reduce international payment times from days to minutes (and at a 40-70% discount in fees).

Blockchain and the Stock Market

Wall Street is one of the best places for the implementation of blockchain technology, and the conversation is ramping up around “security tokens.” Security tokens are issued by companies, much like stocks and bonds, but on a blockchain.

It has benefits for shareholders and the company itself.

Shareholders, for example, can take advantage of increased transparency and simplified stock market duties, like dividends and voting. Companies may also add extra features to their security tokens, which might be access to products, discounts or memberships.

For the company, issuing stock on a blockchain improves liquidity, distribution, control and investor relations. Companies that issue security tokens will also benefit from customizable trading settings, automated whitelisting processes and the tracking of their investors.

Wall Street stock exchange

Several big institutions have expressed interest in issuing tokenized securities. The most popular supporters are Overstock’s subsidiary tZero, cryptocurrency exchanges Coinbase, Binance, and OKEx, as well as the main stock exchanges in Switzerland and Malta.

Additionally, there has already been a successful attempt to issue corporate stock on the blockchain.

Blockchain and Real Estate

The real estate sector is one of the most profitable businesses in the world, but there are many ways it can be improved. Real estate agents, as well as private investors, usually face high costs for bureaucracy and notaries. They are also flooded with tremendous waves of paperwork. Blockchain and smart contracts would undoubtedly save time and wealth by cutting out intermediaries. It also provides a secure and reliable place to store data.

The tokenization of assets would drastically reduce the time needed to trade property. And it would allow us to easily divide the ownership of property among multiple investors. As a consequence, investing in property may become available to everyone around the globe, and not just wealthy individuals.

blockchain real estate

Blockchain adoption in real estate is already a real thing. In February this year, the US state Illinois announced an initiative for real estate transfers supported by blockchain technology. The government’s goal was to experiment with blockchain, which could potentially save millions of dollars and provide enormous value.

Blockchain and the Insurance Business

Insurance corporations represent another industry primed for the introduction of blockchain technology. On the one hand, there are lots of people in the world that can’t live without insurance for health or property. But dealing with insurance companies is extremely time-consuming, especially when trying to claim refunds.

Meanwhile, most businesses in this sector are confronted with several issues in terms of verifications, data collection, and auditing policies.

One of the world’s largest insurance companies, People’s Insurance Company of China (PICC), has teamed up with the blockchain startup VeChain to address these problems. According to VeChain, its native blockchain VeChainThor “provides enterprises with the tools, securities, and governance to properly control their assets while collaborating across multiple verticals, industries, and even countries.”

S&P 100 enterprise MetLife is also wading into the blockchain space. With their Singapore based innovation center LumenLab, the insurance company is actively experimenting with smart contracts on a private blockchain.

In their sandbox project Vitana, the customer connects electronic medical records with their smartphone to issue a policy in a matter of minutes. In addition, a smart contract triggers an automatic payout upon diagnosis, without the need to make a claim.

Blockchain and Cross-Border Payments

Everyone who has ever made an international wire transfer has experienced the huge effort and time it requires to do so. Cryptocurrencies and blockchain are perfectly poised to fix this issue. Projects like Ripple and Stellar are already building an ecosystem to transfer value across borders, yet these digital assets still face serious obstacles before a wide adoption is in sight.

cryptocurrency cross-border payments

To become a viable form of money, currencies need to store value fairly well. Most cryptocurrencies do not fulfill these requirements due to their extreme volatility. However, many people depend on a currency with a relatively stable value. Tether’s USDT is probably the most popular stable cryptocurrency at the moment. Unfortunately, this does not solve the problem of fiat currencies, as the token is pegged to the US dollar and controlled by a centralized power.

Consequently, many projects are working on an alternative, more suitable, method of creating a stable coin. One of the main ideas is to back a cryptocurrency with all kinds of assets, including precious metals, stocks, property, and other cryptocurrencies. Stable coins and tokens are still in a very early stage of development, but the potential to substitute all fiat currencies is real if a project eventually succeeds.

A handful of international governments, such as Russia and China, are currently exploring the potentials of having their own cryptocurrency. The South American nation Venezuela announced its official cryptocurrency petro, which was created after the hyperinflation of the bolivar this year. The petro is based on NEM’s blockchain and backed by the country’s oil and mineral reserves. However, many critics denounced the project for its lack of transparency and decentralization, which are originally the fundamentals of a blockchain currency.

Obstacles for Blockchain Adoption in Finance

There are still some hurdles standing in the way of worldwide acceptance. Not least the problems of scalability, speed, and decentralization. Applications that include micro-transactions or high-frequency trading, like decentralized exchanges, are particularly in need of a fast, scalable and secure blockchain architecture.

There are hopes for improvement. New concepts are being developed, like “proof-of-stake”, where block validations are conducted through owning stakes instead of computation power. Sharding is another alternative, where the blockchain history is split into multiple sections and computed in parallel.

A decentralized network is also required to maintain extraordinary security standards. A blockchain is generally referred to as a secure place to store funds and data. Yet, we occasionally observe serious security issues like 51% attacks, which happened at least half a dozen times to prominent cryptocurrencies in the last year.

In other cases, the chains of major cryptocurrencies face problems when consensus nodes go offline all of a sudden. The fear of quantum computer attacks is something every digital currency has to deal with.

Apart from the blockchain itself, there are also many incidents where smart contracts have been reported as wrong. In order to convince massive enterprises to adopt the technology, blockchain constructions are required to provide a predictable and trustless experience.

There’s one more problem. Blockchain and cryptocurrency communities are split as to whether the technology should offer full anonymity or explicit transparency. The dilemma is a stumbling block for convincing big institutions and governmental authorities. The vast majority of governments around the globe are not in high spirits about privacy coins. Tax bureaus and other regulatory entities demand insight into transaction histories.

However, most companies and institutions refuse to use cryptocurrencies as long as the histories of their accounts are public to everyone. In order to find a fitting solution, several international universities are collaborating in the “Accountable Privacy” initiative. With its project Abelian, the initiative is proposing a concept of privacy, where the user determines the transparency level of his transactions.

We are still in the experimental phase of blockchain in the financial world. But as we can see above, there is phenomenal scope for this technology to transform the way we do business. Just don’t expect it to happen overnight.

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A dollar bill on white background

As cryptocurrencies like bitcoin evolve, governments are finally waking up and taking notice. Some are even creating their own cryptocurrencies. A change is coming, but will cryptocurrencies replace fiat currency? Tony Nyarunda explores.

Money is dynamic; evolving from the primitive days of salt, seashells, gold to fiat currency and now, the cryptographic bits called cryptocurrencies.

Cryptocurrencies have introduced the concept of frictionless money, without the need for third-party trust in banks or governments.

Cryptos, with no intrinsic value, are threatening to make fiat money (traditional currency like dollars or euros) obsolete.

Cryptos Could Supplant 25% of Fiat by 2030

Venture capitalist and investor Tim Draper of Draper Associates knows about money. He entered the crypto game after purchasing 30,000 bitcoins (BTC) during a government auction in 2014. He paid $20 million but they are now worth $190 million. He said:

“In five years, if you try to use fiat currency they will laugh at you… bitcoin and other cryptocurrencies will be so relevant… there will be no reason to have the fiat currencies.”

Draper represents many opinion leaders who believe the fiat system is on the verge of being replaced by cryptocurrencies like bitcoin, dash, and others.

Author Thomas Frey shares a similar sentiment, saying cryptos will supplant at least 25% of national currencies by 2030.

“They’re just much more efficient, the way they run,” he said.

bitcoin wallet on a samsung smartphone

Governments See Cryptos as a Disruptive Influence

Governments around the world are all too aware of this shift.

The European Parliament released a report in July on the state of cryptocurrencies, dubbed Competition Issues in the Area of Financial Technology (FinTech).

The task force explored the challenges presented by digital currencies concluding that blockchain was a highly disruptive influence on the financial ecosystem. It added that the development of bank-backed cryptocurrencies would “reshape the current competition level.”

The report reads in part:

“In this environment, new agents, particularly tech start-ups, are generally able to offer financial services for lower costs and at a higher efficiency […] they can offer better user experiences, which poses significant challenges to other agents, especially traditional financial service providers.”

In other words, cryptocurrencies and blockchain are a threat to the traditional banking system, and the European Parliament knows it.

five flags on a white sky background

Governments Are Creating Their Own Cryptocurrency to Replace Fiat

In Venezuela, cryptocurrencies are already replacing fiat.

Here’s why. Fiat currencies, like the dollar, suffer from a huge problem: inflation.

Inflation occurs because governments have the unlimited power to “print money.” By creating money out of thin air, they can push down the value or purchasing power of fiat currency.

Sometimes we get hyperinflation, like in Venezuela. Venezuela’s national currency is on track for 1 million percent inflation by the end of the year, effectively making it worthless.

In response, the government created a cryptocurrency: the petro. The petro is “stable” in that its value is tied to the price of an oil barrel. Venezuela has ordered its banks and major companies to begin using the petro cryptocurrency.

Having said that, Venezuela’s citizens are flocking to bitcoin and dash instead.

Whichever way you look at it, Venezuela is switching fiat for cryptocurrency, fast.

venezuela petro

A Cashless Future

We are already headed towards a cashless future where banknotes and coins become obsolete. One country has already shown that we can become a cashless society: Sweden.

People in Sweden no longer use cash. Only about 1% of payments are made using notes or coins. This should sound alarm bells for central banks around the world; Sweden is leading the pack towards a cashless society.

Citizens of the Nordic country are mostly positive about their no-cash payment policy saying it is risk-free as they just have to swipe their cards and move on.

Sweden is laying the groundwork for an entirely digital financial system. The leap to cryptocurrency isn’t so much further.

A Future without Fiat

A future where all currency is crypto is bright. It’s a future where a currency’s value isn’t open to manipulation as easily as fiat currency. A future where the transaction for goods and services are handled digitally and prices are affordable since cryptocurrencies eliminate intermediaries who take a cut.

That future will disrupt the current global economy as cash will become obsolete; the losing party diminishes in value with nothing else to do.

Governments would be hardest hit as they lose control over currency and the ability to print more money in response to financial crises since cryptocurrencies are mined. Flipping from fiat to crypto is a real prospect in our time, and could “disrupt” the way we spend and save.

woman with bitcoins over her eyes

The Future of Cryptocurrency

Just like the internet was in the 1990s, digital currencies are still in their infancy, but as the technology develops, cryptos could follow a similar path to mass adoption.

There is abundant speculation that cryptocurrencies are in a bubble, and that the prospective threat of cryptocurrencies taking over the financial world is laughable.

It’s true, cryptocurrencies are still volatile, but that may change as governments slowly begin to regulate bitcoin and other cryptocurrencies.

As blockchain technology improves and new use cases are discovered, things could easily change in a microsecond. So prophets of doom can’t be too sure yet.

Conclusion

Cryptocurrency has a place, it is not yet taking control, but it’s headed there. The response of many countries is still erratic, so the effect is still different around the world, at least for now.

HiveEx.com founder and CEO Fred Schebesta, a renowned cryptocurrency enthusiast, summarizes it for us:

“Adoption isn’t wide enough for cryptocurrency to overtake fiat currencies just yet, but we will start to see incredible growth […] a lot of people don’t want to carry cash around and want to go from one country to another without changing money. Once we see more ways people can access and use cryptocurrency, adoption will be fast.”

We’re not there yet, but a future when cryptocurrency replaces fiat is coming.

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  • A hard fork occurs when one cryptocurrency (like bitcoin) breaks off to form a new currency (like bitcoin cash).
  • Hard forks take place when the community wants to make a significant upgrade or disagrees on how to move forward.
  • Examples include bitcoin cash, ethereum classic, and bitcoin gold.

Cryptocurrency Hard Forks: Explained

A hard fork is when one cryptocurrency spins off to create another. Think of it like a train track splitting in two. The new coin (and its blockchain) takes a new direction from the old, but they share the same history. It’s a simple fork in the road.

bitcoin hard fork diagram

Let’s take the example of Bitcoin Cash, which is a hard fork of Bitcoin.

In 2017, the Bitcoin community disagreed on how to make improvements to the network. One group wanted to stay true to the old rules and “protocol.” Another group wanted to make drastic changes to how transactions were processed.

Unable to reach an agreement, the second group “forked” off to create a new blockchain. Bitcoin Cash was born.

Bitcoin Cash shares the same blockchain as Bitcoin right up until the moment it forked. From that point onwards, Bitcoin Cash took its own path with its own rules.

bitcoin cash hard fork
Image credit

Bitcoin has forked countless times as the community seeks to improve the technology or disagrees on how to move forward. These forks are not always successful.

How Hard Forks Work

Every blockchain enterprise has its own rules. Those rules dictate how the system works. How large is each block? What rewards do miners get? How are fees calculated? And so forth. One day, the community disagrees on some tidbit, such as whether new code should be introduced or whether participating miners should receive a bonus.

A successful fork is where most of your users agree, collectively make the changes, and move over to the new blockchain. A contentious or experimental fork is where your users split. Some might stick with the present blockchain, some may migrate to the new blockchain, and some use both. Soon you have two versions of your cryptocurrency with different rules.

A failed fork occurs when too few users leap to the new blockchain. That new cryptocurrency quickly becomes worthless.

Hard forks also happen in the following cases:

  • To fix important security risks found in older versions – It took the dollar more than 300 variations to become today’s counterfeit-resilient currency. Blockchain developers aim to make their blockchains 100% breach-free.
  • To add new functionality – Windows 10 is enormously different from its very first version. Blockchain developers upgrade their versions from year to year, adding functions for improvement.
  • To reverse transactions – If website developers suspected a security breach, they could block the previous fork, declaring all previous transactions non-existent. Their new fork would herald a new start.

Hard Forks Can Mean Free Money

The new blockchain is a replica of the old, so all transactions barreling through blockchain A are replicated on blockchain B. If you’ve joined blockchain B, you receive those coins as well as new ones that are mined on your blockchain. Those new coins are known as an airdrop.

crypto airdrops falling

Image credit

When Bitcoin Cash forked, everyone holding bitcoin received the same number of bitcoin cash tokens, essentially for free.

There is a catch, though. You’ll want a secure, private wallet that supports the airdropped coins on the new fork. If you keep your cryptocurrency on an exchange like Coinbase or Binance, the exchange may keep them.

You’ll also want to check whether the forked coin has a future. The unfortunate truth is that most coins fail. Look at the reputation of the fork developers; what are their reviews? Also, see whether credible blockchain services have inspected and credited the open source code of this new coin.

Are Hard Forks a Good Thing?

Some people in the crypto community oppose forks fearing that the new coin will devalue their old. However, a successful fork usually means good news for traders.

When a new fork is announced, we often see a flurry of traders rushing to buy the coin hoping to get free airdrops. That naturally increases the price.

It’s true that the forked coins often become worthless, but some are successful and ultimately valuable, such as bitcoin cash. You’ll often see a profit from a successful airdrop.

Sometimes the hard fork is widely opposed by the majority of people. When that happens, it can strengthen support for the original coin, sending the price up.

Hard Fork Example: Bitcoin Cash

bitcoin cash logo

In August 2017, a group of Bitcoin stakeholders including investors, entrepreneurs, developers, and China-based miners quarreled over the size of the Bitcoin block. Some wanted to keep the one megabyte (MB) limit coded into Bitcoin by Satoshi Nakamoto himself. Others wanted to increase the size to two MB while other stakeholders fretted it should exceed 9,000!

The team eventually split. Bitcoin loyalists adhered to the old protocol, while critics created a new coin called bitcoin cash.

Bitcoin cash never became as popular as the original bitcoin. In December 2017, bitcoin cash was worth $4,355.62. August, 2018, bitcoin cash sold for $519.12. The research firm Chainanalysis noted that in May 2018, the 17 largest payment processing services processed bitcoin cash payments worth US$3.7 million, down from US$10.5 million two months before

To date, Bitcoin’s hard fork iterations include the following:

  • Bitcoin Platinum (BTP). December 1, 2017. A scam, invented by a South Korean teenager in an attempt to kill the price of bitcoin and profit by betting against it.
  • Super Bitcoin (SBTC). December 15, 2017. Among other changes, Super Bitcoin included smart contract functionality, taking a leaf out of the Ethereum blockchain.
  • Bitcoin God (GOD). December 25 2017. Chandler Guo proclaimed Bitcoin God a Christmas gift to bitcoin holders. Most called it bizarre
  • Bitcoin Uranium (BUM). December 31, 2017. BUM was an attempt to democratize Bitcoin, which critics said had become dominated by a small group of entities over-exerting their power over miners. BUM was created as Satoshi’s original vision. It bummed.
  • Bitcoin Cash Plus (BCP). January 2, 2018. Promised “low fees and reliable confirmations”. It flunked almost from the start.

Bitcoin also spawned Bitcoin Diamond (BCD), Bitcoin Gold (BTG), Bitcoin Atom (BCA), Bitcoin Core (BTX), Bitcoin Private (BTCP or ZCL) and Segwit, among others.

Segwit was a soft fork which is quite a different creature.

What is a Soft Fork?

Hard forks are unique in that the changes are incompatible with the previous protocol. Soft forks are different because the software or protocol changes are compatible with the previous versions.

Think of a hard fork being the difference between PlayStation 3 and PlayStation 4. You can’t play PS3 games on PS4 and you can’t play PS4 games on PS3.

A soft fork, on the other hand, is more like Microsoft Excel. You can use MS Excel 2015, even with MS Excel 2005 running in the background. The upgraded version is compatible with the old. At the same time, the updates in the newer version don’t appear in the old. MS Excel 2015 shows features that don’t appear in MS Excel 2005. The new soft fork has additional – or different – features to its older version.

In other words, soft forks have backward compatibility. The new chain contains the previous rules with additions, while the previous blockchain continues unchanged.

segwit soft fork diagram

Image credit: Reddit user u/k06a

As you can see in the diagram, the SegWit fork of Bitcoin is a “soft fork.” It doesn’t create its own blockchain. It simply upgrades and continues the previous chain. In contrast, the hard forks, like Bitcoin Cash and Bitcoin Gold actively split off.

With a hard fork, you need 90 to 95% of the stakeholders, or nodes, to accept your changes for the system to succeed. For a soft fork, you only need a majority of miners to upgrade and agree on the new version.

Soft Fork Example: The SegWit Solution

One of Bitcoin’s greatest frustrations is its slowness. Ten transactions take about a second to slip through compared to Visa’s 5,000-8,000 transactions per second. This is called the “scalability” problem.

In October 2016, Pieter Wuille, a Bitcoin Core developer, tried to treat this problem by modifying the appearance of the Bitcoin block.

Bitcoin blocks have two sections:

  1. The header with its cryptographic data.
  2. The body with transactions and sender/receiver data.

The bulkier the block, the slower traffic.

Wuille divided transactions from sender and receiver data. He gave each their own blocks, creating, in effect, a freeway where bitcoin transactions zoomed through, while so-called witness boxes (SegWit, short for Segregated Witnesses) with scripts and signatures used the parallel lane.

SegWit is called a “soft fork” since it was compatible with Bitcoin’s old code. All Bitcoin needed was 95% of its miners to accept the changes, which happened in less than a year. The platform didn’t need a separate blockchain and currency to make alterations work.

Update:

Critics complained that Segwit fell short of solving Bitcoin’s congestion problems and that the platform needed major changes to decongest its platform. Dissension led to the string of hard forks like the previously mentioned Bitcoin Cash (BCH). In 2017, Bitcoin developers also promoted hard fork SegWit 2x to magnify blocks from 1 MB to 2 MB. That fork died a week before it was scheduled to occur.

Bottom Line

A hard fork:

  • Results in two new blockchains, both of which share the same past.
  • Changes a fundamental aspect of the blockchain or the rules that govern it.
  • Is not compatible with previous versions.

A soft fork:

  • Does not create a new coin or split the blockchain.
  • Upgrades the system with new features that are compatible with the old version.

It’s as simple as that.

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arm wrestle bitcoin dominance
  • Bitcoin dominance nears 60%, the highest since December 2017.
  • Bitcoin is seen as a “safer” haven during a market decline.
  • Rival coin ethereum is getting flushed by ICOs.

If you’re tracking the cryptocurrency market decline, you’ve probably noticed something strange. Altcoins are falling much harder than bitcoin.

Bitcoin, for example, has fallen 67% from its high last December, but ethereum is currently 84% lower than its all-time high. Ripple XRP is 91% lower.

Bitcoin dominance, meanwhile, has increased rapidly since May, almost touching 60% last week.

As prices decline, traders are moving money out of altcoins into bitcoin. What’s going on here?

What is Bitcoin Dominance?

Bitcoin dominance is the term used to describe bitcoin’s market capitalization compared to other cryptocurrencies.

In early 2017, bitcoin made up 87% of the total cryptocurrency market. It was the most dominant cryptocurrency, by far.

Bitcoin’s dominance was challenged throughout 2017 as altcoins grew in popularity. Ethereum threatened to catch up and even overtake bitcoin. In June 2017, bitcoin’s dominance fell to just 38%. Ethereum was at 31%.

That balance has now shifted back towards bitcoin. It currently stands at 55%.

chart depicting bitcoin, etheruem and ripple market capitalization
Chart: CoinMarketCap

Bitcoin Is the “Safe Haven” of Crypto

Think about the stock market for a moment. Whenever the stock market declines, investors take their money out of risky, speculative stocks and put it in “safer” places. They move money to big, stable companies that aren’t likely to get wiped out. Some move their money into safe assets like gold or the dollar.

The crypto market is the same. When people get spooked, they move their money into something more stable. Bitcoin.

While the average investor might not consider bitcoin “stable,” it is compared to altcoins.

Bitcoin Isn’t Going to Disappear

When the cryptocurrency market declines, there’s a real chance that some altcoins will plunge to zero. Bitcoin, however, is unlikely to disappear.

Track record – Bitcoin has a nine-year history and hasn’t disappeared yet. Investors know that bitcoin has weathered storms before and will probably do so again.

Name-recognition – 71% of Americans have heard of bitcoin. It’s now a small, but important, part of our culture.

Ingrained in the wider economy – Wall Street has opened the doors to bitcoin with the launch of bitcoin futures trading. We will shortly see an exchange-traded fund (ETF) and the entrance of more institutional investors. As bitcoin becomes more ingrained in the wider economy, it’s much less likely to disappear.

Gateway cryptocurrency – If you’re just getting into cryptocurrency, you’re probably going to buy bitcoin. Not just because it’s the largest coin, but because many exchanges require you to purchase bitcoin before buying other cryptocurrencies.

Bitcoin has a stability that other coins don’t. So when the market moves lower, people move their money into something that isn’t going to disappear.

There’s also one more reason why bitcoin dominance is growing:

Ethereum Tokens Are Getting Flushed

Ethereum experienced a wild ride to catch up with bitcoin in 2017. Much of that hype was created by new currencies launching on the Ethereum system.

When new currencies launch on Ethereum, they typically raise money through Initial Coin Offerings (ICOs). Investors use ETH to crowdfund these projects, hence the price of ETH rose.

Now, with millions raised in capital, those ICOs are dumping ETH on the open market, forcing the price down.

So while bitcoin enjoys some stability, ethereum is shedding value fast.

Bitcoin Dominance Pattern

When the cryptocurrency market is stormy, investors flock to bitcoin for some element of safety. In other words, bitcoin dominance is high when prices are low.

However, there’s another interesting correlation. Bitcoin dominance also hit a peak when the currency reached an all-time high in December.

So bitcoin dominance surges at both ends of the spectrum: when prices are low and when they are high.

Why? Well, when prices are high, the mainstream floods into the market. Because of name-recognition, they’re buying bitcoin at a much faster rate than ethereum or ripple.

It seems that altcoins have their moment during the quiet growth periods, while bitcoin dominance occurs at the extreme ends of the market. For now, let’s see if bitcoin will tip past the 60% mark.

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bitcoin ethereum and ripple coins on a black background

The flippening is a hypothetical moment in the future when ethereum, ripple, or another cryptocurrency overtakes bitcoin.

Bitcoin is currently the largest cryptocurrency on the planet, but it’s not impossible to imagine ethereum or ripple catching up.

At the start of 2017, bitcoin had a true monopoly in the world of digital currency. It accounted for 87% of the total crypto market value. By January 2018, that figure had fallen to 33% with ethereum, ripple and others eating into bitcoin’s market share.

Some predict that one of these altcoins (alternative cryptocurrencies to bitcoin) will overtake bitcoin entirely. That future moment is the flippening.

The Rise of Altcoins

While bitcoin dominated the blockchain space for eight years, new cryptocurrency projects were stirring under the surface.

Vitalik Buterin launched Ethereum – a “world computer” which took the concept of blockchain way beyond money transfers. Ethereum became a platform for companies and developers to build anything on the blockchain.

Ripple emerged to revolutionize the way we transfer money between banks and across borders. Ripple’s native cryptocurrency XRP was the fastest growing token in 2017, briefly overtaking ethereum.

These altcoins gained huge media attention through 2017 and rose more than 1,000% in value. The momentum lead many to predict that ethereum and XRP could surpass bitcoin in the coming years.

The Flippening: A Measure of Market Capitalization

It’s worth pointing out that the flippening refers to market capitalization (or market cap), not the price per coin.

For example, XRP is worth just 27c per coin, compared to ethereum’s $195 and bitcoin’s $6,332.

Bitcoin is by far the most expensive coin because there are only 17 million in existence (there are 100 billion XRP tokens and more than 100 million ethers).

Bitcoin, Ethereum and Ripple: Where Do They Stand?

At the time of writing, the top three by market dominance looks like this:

1. Bitcoin – 56%
2. Ethereum -10%
3. Ripple – 6%

chart depicting bitcoin, etheruem and ripple market capitalization
Chart: CoinMarketCap

Through the course of 2018, “the flippening” has moved further away. Bitcoin has re-established its dominance, while altcoins like ethereum and ripple have fallen. This is perhaps because bitcoin is seen as a “safer” haven during the long market downturn.

Could the Flippening Really Happen?

Theoretically, yes. Bitcoin has a number of practical issues that hold it back, not least its transaction speed when compared to other blockchains. There are faster, more efficient projects out there that could, ultimately, become more valuable than bitcoin.

However, bitcoin has one major advantage: reputation. 71% of Americans have heard of it. Could the same be said for XRP?

For most people, bitcoin is the first cryptocurrency they buy. On many of the major exchanges, you have to purchase bitcoin before you can buy an altcoin like ethereum or ripple.

Not only that, but Wall Street is slowly embracing bitcoin. We’ll soon have a bitcoin exchange-traded fund (ETF) and institutional money pouring into the market. That money will go to bitcoin first.

In other words, it’s very difficult to knock bitcoin off the throne, because it’s engrained as the world’s first and largest cryptocurrency.

Ethereum or Ripple?

Let’s say the flippening did happen. Which coin is the most likely to overtake bitcoin?

Ethereum has tremendous practical application. The likes of JP Morgan, MasterCard and Microsoft are all experimenting with the Ethereum system. Others are building dapps, smart contracts and new cryptocurrencies. These projects each require ether as a payment token. As Ethereum grows and develops, the demand for (and the price of) ether may rise higher than bitcoin.

Ripple also has a practical application. Ripple aims to deploy its cryptocurrency, XRP, as a “bridge currency” for banks to transfer money abroad without fees or delays. If the world’s banks opt to use the XRP token, the market cap could soar beyond bitcoin’s. It’s worth pointing out, however, that no bank is yet using XRP beyond a pilot scheme.

Ultimately, Ethereum remains the best candidate if the flipping were to happen, simply because it is easier to buy than ripple. Only a handful of exchanges allow you to purchase ripple with fiat currency (like USD). You can’t buy ripple on Coinbase, for example. Instead, you would have to purchase bitcoin or ethereum before transferring it to another exchange to buy ripple.

The difficulty in buying it means it’s unlikely to overtake bitcoin anytime soon.

Does It Matter?

Ultimately, bitcoin, ethereum and ripple each exist for very different reasons. They are not direct competitors, so comparing them as such doesn’t get us very far.

However, it’s still an important (hypothetical) moment. If another coin overtook bitcoin, it means that particualr coin was being used in a meainstream, day-to-day, practical way. And that’s an exciting prospect for blockchain technology.