Can the Ethereum Upgrade Re-Activate the Flippening?
What is The Flippening? Can the upcoming Ethereum 2.0 upgrade re-ignite it? These are the questions we aim to answer in this week’s Progressive Investor post. It’s not just yes or no answers that are going to educate you as an investor. It’s a deeper understanding of the reasoning behind the upgrade and what the significance of a potential flipping may be that will truly add to your depth and breadth of knowledge about altcoins, decentralized finance and the broader impact of cryptocurrency adoption.
What Is the Ethereum Upgrade All About and What Is The Flippening?
The Ethereum upgrade has to do with finding a more efficient way to reward token holders and put new Ethereum tokens into circulation without wasting energy. Why is that important?
Well, cryptocurrencies are meant to live on decentralized networks by design. In order to ensure nobody is gaming the system by double spending a token, creating spamming attacks or counterfeiting money, there have to be checks and balances in place. One of these checks and balances is based around the idea of consensus.
Every truly decentralized and public blockchain that transmits cryptocurrencies from one user to another needs network participants that secure the blockchain to agree on the validity of transactions. There are many different ways to do this. The two most predominant methods are referred to as Proof-of-Work and Proof-of-Stake.
The Proof-of-Work Consensus Algorithm
Nodes reaching consensus on the Bitcoin network use a proof-of-work algorithm. In a proof-of-work system, participants invest in energy and equipment and they offer up those resources to the blockchain in trying to solve mathematical equations that validate transactions. On a large scale, this requires the consumption of an incredible amount of capital, energy and electricity.
It’s estimated that mining new bitcoins into existence requires the network to use more energy than 159 countries around the world, including most of Africa and Central America, several pockets around Asia and Europe, and all of Greenland. This algorithm proves to be effective in serving its purpose, but it also means if you don’t have resources, you can’t participate to the same degree that a wealthy entity or early adopter can. Enter proof-of-stake algorithms.
The Proof-Of-Stake Consensus Algorithm
The proof-of-stake consensus algorithm is Ethereum’s solution to Bitcoin’s inefficiencies. Many other second and third generation blockchains are now using similar mechanisms. Why is a proof-of-stake consensus algorithm more efficient?
Instead of using computing power and electricity to validate transactions and reward participants, proof-of-stake algorithms ask users to commit financial resources to the network in exchange for a given rate of interest. The financial resources participants give back to the network essentially act as collateral and create added incentive for those participants to be straight shooters and validate transactions in a fair and transparent manner.
The Ethereum blockchain randomly chooses validators who are staking coins to the network, so having more tokens to offer to the network doesn’t necessarily guarantee you get rewarded with Ethereum tokens for your validation activities over someone else. The selection is partly random in order to give every participant staking tokens to the network a fair chance at receiving rewards.
The fact that this kind of consensus algorithm relies on financial contribution rather than the contribution of electricity or energy is what makes it more efficient, yet equally reliable.
More on the Ethereum Upgrade A.K.A. Casper
Ethereum’s Casper upgrade is otherwise dubbed Ethereum 2.0. It’s necessary because Ethereum started out its existence using a proof-of-work algorithm. Since Ethereum uses a different programming language and developers are much more active on the Ethereum blockchain in creating decentralized applications, the founders and the surrounding Ethereum community decided to switch the network over to a proof-of-stake algorithm. The Casper upgrade is not only bringing that to fruition, it’s also enabling staking capabilities right from an Ethereum wallet without having to go to a third-party to participate.
At the present moment the Casper upgrade will require an Ethereum token holder to have a minimum of 32 ETH in their possession in order to stake tokens and earn an annual return (which is somewhere between 4% and 5%). Again, this ensures the future security and validity of Ethereum transactions, reduces the cost of participating in securing the network, and guarantees that validators have a fair opportunity to receive rewards in exchange for their contributions.
What Is The Flippening?
The Flippening is really just a meme-like hashtag. The word itself isn’t in the dictionary, but it’s definitely in the cryptocurrency vocabulary if you’ve been around the industry long enough. It basically refers to the point at which Ethereum flips with Bitcoin and becomes the most valuable cryptocurrency in the world according to market capitalization.
The term originally started trending on social media back in 2017 as Ethereum enthusiasts who subscribed to the idea that Ethereum would one day have more fundamental value than Bitcoin eyed the possibility of holding onto altcoin tokens that were almost certain to become more valuable than bitcoins.
Fast-forward to 2021 and that flipping event still hasn’t happened. Bitcoin continues to prove itself as the ultimate decentralized store of value. Despite the fact that thousands of other cryptocurrencies have flooded the market in the years since 2017, Ethereum still sits in the number two spot.
Here’s the thing. Offering participants staking rewards effectively locks up coins that might otherwise be in circulation. Each validator staking coins to the network and receiving interest in return is essentially locking up more and more coins over time. When there is a drop in supply, there is of course an increase in demand. That’s why many bullish Ethereum investors that still believe The Flippening is possible are hoping that the Casper upgrade is the catalyst that finally puts it in the number one spot above Bitcoin.
Will it actually happen? If you’re only looking at the Ethereum upgrade and the staking rewards, probably not in the short term. That said, if you look at the long term and other fundamental catalysts, it’s very possible that The Flippening investors have been waiting for is on the verge of happening sooner or later.
Other Catalysts for Ethereum’s Flipping
Back in 2017, there was really only one catalyst propelling Ethereum. That catalyst was the creation of decentralized applications. Ethereum has value because if you want to raise money for a decentralized application as a developer, you need to be willing to not only build your project on the Ethereum blockchain, but also accept Ethereum as payment for the funds you’d like to raise.
Today, virtually every other altcoin competitor that functions as its own blockchain (Tezos, EOS, Polkadot, NEO etc…), but Ethereum, once again still holds the first mover advantage. This time it’s because some 85% of all the decentralized finance projects that exist in the cryptocurrency world today live on the Ethereum blockchain. Cryptofees.info clearly shows that not only does the Ethereum blockchain collect more fees than Bitcoin and other projects, but most of those other projects are Ethereum compliant, which means they too feed the Ethereum ecosystem.
Institutional Investment in Ethereum
Much is being made about the fact that Tesla Motors now owns $1.5 billion in Bitcoin. It’s definitely big news because millennial investors love Elon Musk and he’s been pumping cryptocurrencies on social media a lot lately. Tesla isn’t the first large corporation to invest in Bitcoin. Far from it. There is a publicly available list of large companies that own hundreds of millions of dollars or even billions of dollars worth of Bitcoin.
That list is definitely going to grow in 2021 and beyond. It’s rumoured that Apple will be the next big company to jump in on Bitcoin. Here’s the thing. Billionaire investors who know more about cryptocurrency beyond Bitcoin understand that the world of decentralized finance lives on Ethereum for the most part. This means that 2021 might not just be the year of the second wave of institutional investment in Bitcoin, it’s likely going to mark the first wave of companies building Ethereum-based treasuries in their cash reserves. The price is already up 5x in just the last few months and as long as this current bull run continues there’s no reason to think that Ethereum’s price will slow down anytime soon.
Will The Flippening Happen in 2021?
At the time of this writing, Bitcoin’s market cap is a mind blowing $1.149 trillion Canadian. Ethereum’s is just $255.274 billion Canadian. That’s less than one quarter of Bitcoin’s value. By those measures if you consider how much of the decentralized finance world is dependent on Ethereum and how much institutional capital is still not pouring into the project, it’s not totally foolish to argue that Ethereum is severely undervalued.
That’s good news for the progressive investor even if The Flippening event never happens. But the question is, can it happen this year?
Sorry in advance for bursting your bubble by telling you that Bitcoin is probably still going to be vastly more valuable than Ethereum for the rest of this year and probably next year too. The reality is that The Flippening will likely be a much more monumental event than we think. It’s a few years away and it will likely steal the headlines not just in the crypto community, but across broader mass media.
That’s thanks in large part to the overall liquidity entering cryptocurrency and the fact that retail investors who were sitting on the sidelines four years ago are now actively engaged in the progress of investing.
The reality is, if The Flippening it is meant to happen sooner rather than later, there is only one thing you can do.
Buy Ethereum Tokens at Netcoins
Register for a free account at Netcoins. It’s one of the most trusted cryptocurrency exchanges in Canada and you’ll get a fair price for your purchase of Ethereum. Plus, it’s free to fund. You can then take those Ethereum tokens and invest them in decentralized finance projects that will earn you a return or follow what the big boys are doing and replace some of your own cash reserves with Ethereum tokens.
Just by doing those two things, you’re contributing to the momentum needed for The Flippening to happen.
Start HODLing now!
Writer, content marketing at Netcoins.