The Flippening: Who Shall Dethrone Bitcoin?

What the Flippening Is

The term “flippening” came from the English word “flip” and denotes a situation in which the future leading place of Bitcoin will be taken by another cryptocurrency. Most often we are talking about Ether. In the market, there are even platforms such as Flippening Watch, which daily monitor the percentage of Ether to Bitcoin in terms of market capitalization, the number of transactions, the volume of trade operations, the size of the reward for mining, the number of nodes in the network, and even Google Trends data. So, according to today’s indicators, the capitalization of the Ether is 44.2% of the capitalization of Bitcoin. And in June 2017, the coup seemed inevitable as then the figure reached 80%.

Ethereum vs. Bitcoin

Unlike the Bitcoin network, which operates as a P2P payment system using the same name unit for accounting transactions and the ephemeral data transfer protocol, Ethereum was created from the very beginning as a platform for launching and implementing smart contracts and DApps. According to Miles Black, one of the founders of the community of crypto professionals, traders, and analysts Pure Investments, Ether will bypass the first cryptocurrency of the world for the following reasons:

  The creation of a block in the Ethereum network takes 15 to 17 seconds, compared to 10 minutes for the creation of new blocks in the Bitcoin network.

  Transactions in the Ethereum network are faster, and fees are lower than in that of Bitcoin.

  Most of the new cryptocurrencies are built on the ERC20 protocol and are compatible with the Ethereum blockchain.

  With the transition to the Casper protocol, which will allow the use of the hybrid PoW and PoS consensus mechanism to reach a consensus in the network, Ethereum will be able to solve scalability problems, improve security, and become less energy intensive than Bitcoin.

  The number of forks in the Ethereum network (Ethereum Classic) is much lower than in Bitcoin (Bitcoin Cash, Bitcoin Gold, Bitcoin Diamond, Super Bitcoin, Lightning Bitcoin, Bitcoin Uranium, Bitcoin Cash Plus, Bitcoin Silver).

The same opinion is held by the co-creator of Ethereum Stephen Nerayoff, who in an interview with CNBC suggested that the flippening in favor of Ether could happen this year:

“What you’re seeing with ethereum is exponential increase in the number of projects—there are billions of dollars being poured into the ecosystem right now—maybe 10 times more projects this year than last year, which could easily lead to a doubling, probably a tripling in price by the end of the year.”

As noted by Nerayoff, one of the key advantages ahead of Bitcoin is also the high transaction speed on the Ethereum blockchain, and its maintenance is cheaper:

“People are actually using it for currency, as well. Lower transactional costs are increasing usage of the entire network, and that’s increasing the network effects of it. There are more users, more projects being built on there, and more programmers.”

Another Meaning of the Flippening

Lou Kerner, a partner of CryptoOracle.io, is confident that the probability that the flippening will happen on the crypto market is very high; however, in his opinion, this will not happen at all as the crypto community suggests. Kerner is confident that the flippening will occur when the cost of security tokens exceeds the cost of utility tokens.

Security Tokens and Utility Tokens

Utility tokens give access to the services of the project, meaning they are used as the internal currency of the project, which makes it possible to finance it. Most of the ICOs implemented utility tokens.

Security tokens are an investment tool and give holders the right to own. Under certain conditions, these tokens may be subject to securities laws. So, in July 2017, the U.S. Securities and Exchange Commission concluded that The DAO tokens were securities, which means that in their case, the federal securities law applied.

Kerner believes that the future flippening will not be due to the collapse of the utility token market, as they play an important role in the development of the digital economy. Nevertheless, there are several factors according to which the flippening will occur in favor of security tokens.

A Huge Number of Private Assets That Can Be Tokenized

According to the investment company SAALT, the volume of global publicly traded assets is more than $116 trillion:

Private assets, however, hinder the growth of this figure. So, according to experts of Savills, only in real estate the size of non-investable assets exceeds $136 trillion. This is 17 times more than the amount of publicly traded real estate in the same sector. And when private assets start becoming tokenized, their value will grow, as investors will pay for their liquidity.

Moreover, the number of projects dealing with the tokenization of real estate is constantly growing. So, the market is working on projects such as Evareium, TokenLend, Slice, and PropertyCoin. And the number of ICOs related to real estate has already exceeded 80.

In Venezuela, in February this year, a cryptocurrency was launched that is backed by the oil and natural resources of the country, the El Petro. According to the U.S. Geological Survey, the world’s proven oil reserves exceed 2.3 trillion barrels. Accordingly, the volume of just this market, potentially ready for tokenization, is $135 trillion. The Carats company tokenizes diamonds in conjunction with the Israeli Diamond Exchange. And the 22X Fund is engaged in tokenizing the portfolio of venture capital. This portfolio is presented in the form of one token, which includes a 10% stake in the top 30 projects that participated in the 22nd class of the business accelerator 500 Startups.

The list of tokenizable real assets is constantly expanding. The number of stock exchanges and platforms targeting stock tokens is also growing. In particular, they include The Open Finance Network, tZERO, Polymath, and Harbor.

Tokenized Future

According to the Bank for International Settlements, at the end of 2017, the total value of OTC derivatives exceeded $500 trillion. This market consisted mainly of contracts on interest rates, which are excellent for tokenization using smart contracts.

One of the most influential authors covering the topic of tokenization of classical assets is Stephen McKeon, a finance professor at the University of Oregon, who also studies cryptocurrencies. He is confident that, along with the constant growth of liquidity of assets, the concept of ownership will evolve in ways that we cannot yet imagine.

When the Flippening Will Happen

As Kerner notes, we tend to overestimate the impact of technology in the short term and underestimate it in the long term. In this connection, according to the expert, it will take more time to tokenize assets and increase the market of token shares than many players of the crypto market may assume. But even given this trend, Kerner believes that the flippening in favor of share tokens may occur as early as 2019.

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