Are you ready for The Flippening?
Bitcoin Bitcoin Bitcoin. Crypto’s largest and best-known currency loves to suck up all the air in any digital asset conversation. It has greater name recognition, stronger security, and more popularity as payment for goods and services than nearly any other cryptocurrency. (Ether was never accepted as payment for a Tesla, for example, and Dogecoin isn’t a legal currency in El Salvador.) As of July 2021, Bitcoin had a market capitalization of $558 billion, 2.7 times that of its nearest competitor, Ether. If you’re talking to someone who is new to the world of digital assets, there’s a good chance Bitcoin is all they’ve ever heard of—and all that they think exists.
As with any Goliath, however, some people have begun to wonder how long it will be before a smaller coin starts slinging rocks, sending Bitcoin the way of AOL and Yahoo! The most likely David is Ether. As Bitcoin’s nearest competitor, Ether is faster, more adaptable, and more popular with developers working on new decentralized finance apps. Unlike Bitcoin, the system Ether is built upon, Ethereum, is designed for innovation. It’s more of a coding system that can perform financial transactions than the gold-like store of value that Bitcoin has become. People who want to create exchanges, savings or trading algorithms, or brand-new coins can build them on top of Ethereum, using Ether as the currency they run on. If that sounds more exciting than Bitcoin, that’s because it is. Ether’s flexibility is a large part of why it has been steadily gaining on Bitcoin since its launch in 2015. In just six years, it’s already overtaken Bitcoin in transaction count, transaction volume, and transaction fees. Those categories, however, won’t mean much if Ether can’t overtake Bitcoin in market cap. It’s the easiest marker of power and influence. Plus, it’s a reflection of price appreciation. Even if they aren’t excited by Ethereum’s versatility, investors in Ether would love to see its cap surpass that of Bitcoin. It would mean they were making money.
This hypothetical moment when Ether takes over Bitcoin has been talked about for years. It even has a name, although it’s one that sounds like a horror film or a really bad indie band: The Flippening. Some see The Flippening as a sign of maturation in cryptocurrencies—the first step to a future that uses blockchains and decentralization to their optimal effect. Whereas Bitcoin is most useful for buying, selling, and holding value, Ethereum functions as a design space for gaming, finance, and digital ownership apps, as well as technological tools. Many believe Ethereum will be the base of a new Web 3.0, in which users will own and be properly compensated for their time, posts, and data. (You can read more on Web 3.0 here, but in case you’d prefer a quick primer: Web 1.0 is the webpage-based ecosystem of the 1990s, and Web 2.0 is what we have now, in which social networks and mobile providers control an enormous stream of information created by millions of users.)
The Flippening has been predicted multiple times, most notably in early 2018, when Bitcoin dipped in price just as Ethereum’s value soared. Back then, with Bitcoin down about 20 or 30 percent from its high and Ethereum printing new all-time highs for three or four weeks straight, the narrative gained a lot of traction. But then, of course, a [bear market](https://www.cnbc.com/2018/11/26/bitcoin-nears-its-worst-ever-bear-market-down-more-than-80percent-from-the-high.html) started a month later and steamrolled any progress.
There are reasons to believe this time might really be it: Ethereum is in the process of launching an upgrade called [ETH2](https://makara.com/blog/arrival-of-eth2), which will be more scalable, more secure, and more sustainable than the current incarnation of Ethereum. Changes to the algorithms that run ETH2 will mean it can process thousands of transactions a second, more like a credit card company than the slow-moving behemoth of Bitcoin. ETH2 will also employ a different method of security than almost any cryptocurrency on the market, called proof of stake. Proof of stake uses far less computing power and energy than Bitcoin and Ether’s current security option, proof of work, and should have a much-improved [impact on the environment](https://makara.com/blog/worried-about-bitcoin-environmental-impact).
Another good sign for Ethereum is a proposal called EIP-1559, which will be adopted this month (July 2021). Currently, when a lot of people want to use Ethereum at the same time—which happens frequently—transaction fees can skyrocket. In an effort to reduce these fees and make them fairer, EIP-1559 will change Ethereum’s monetary policy. The specifics are complicated, but one important bit is that small amounts of Ethereum will be destroyed, or burned, to cover some of the fees. Burning Ethereum reduces supply and increases demand—and, of course, price. And if price goes up, market cap goes up.
One big challenge to an imminent Flippening is that Ethereum tends to be a little less than punctual in its rollout schedule. ETH2 is being built piecemeal by a collection of startups and volunteer coders. While Ethereum developers’ official position is that parts of ETH2 should be ready later this year, with more to come in 2022, many crypto experts, including the team at Makara, put their estimates two or three years later. With so many new and theoretical technical problems being solved by semi-coordinated groups of software engineers, you might be wise to wait a bit before you consider holding your breath.