Is This Bitcoin – s Fatal Flaw, Zero Hedge

Is This Bitcoin's Fatal Flaw?

Bitcon has been rocketing higher lately, as it gains widespread official approval and more people figure out how to use it.

As the very first of its kind to emerge, bitcoin has become synonymous with “cryptocurrency”. But lately it’s been joined by a lot of others – which together now account for more than half of the cryptocurrency ecosystem:

For Very first Time, Bitcoin Accounts for Less Than Half Of Market Cap Of All Cryptocurrencies

(Forbes) – For the very first time, Bitcoin’s market capitalization as a percentage of all cryptocurrencies has dropped to below 50%.

It is a symbolic turning point for the very first cryptocurrency, which for a long time accounted for more than 90% of the value of all blockchain-based assets combined, particularly through a period when so-called alt-coins that were only minor tweaks to bitcoin proliferated.

Its market capitalization then comprised over 80% of all cryptocurrencies for years, a range that held true until two months ago when it dipped below 80% and not only did not recover but did a quick dive straight down.

Several factors are driving the drop from its status as the clear leader.

A more than two-year-long saga has left progress on its network stymied. With the various factions incapable to compromise and no clear method for moving beyond the impasse, the network has been stuck staring down the same question of how to expand the network to accommodate more transactions that it very first faced in early 2015. Meantime, as no decisions get made, transaction fees have risen from about eleven cents a year ago to $1.70 now, and the time to confirm a transaction has almost doubled to almost twenty minutes. Because the community has been incapable to resolve its divisions, some of the technological advances people were excited to see on bitcoin will be adopted on other tokens, such as Litecoin, which could emerge as the payment token, while bitcoin evolves more into a digital gold, because its software will only ever release twenty one million units.

Two. Ethereum resumes to grow.

Ethereum has, for a while, been the cryptocurrency with the second-largest market cap, but in latest months, its greater rise has further has eroded bitcoin’s dominance. While across 2016, its share of the market cap of all cryptocurrencies was in the single digits, it has, in the last duo months, inched closer to 20% as its price has risen from $8 in early January toward $100 in latest days.

Three. Fresh ICOs add value to the crypto space every day.

Third, a wave of fresh cryptocurrency launches in crowdsales called initial coin offerings has so far raised $380 million for fresh networks that have functions beyond just currency. For example, a few fresh storage coins aim to facilitate payments inbetween computers needing more storage space and computers with excess drive space to suggest in networks like Filecoin, Sia and Storj. Meantime, Golem Network Tokens are used for payments inbetween computers that need extra computing power to, say, train a machine-learning algorithm, and computers that have spare GPU and CPU cycles to suggest while its holder sleeps. So many fresh tokens with uses different from bitcoin’s are tied enhance the pie, but still narrow its dominance.

Four. Speculation is driving up the value of all tokens.

Because the ICOs are proving to be such an effortless way to crowd fund, they are also being used just as that — as an effortless way to raise money — for projects for which tokens don’t even particularly make sense, as well as scams. Speculation is also running rampant as investors who don’t understand the technology or what makes a token valuable snatch up both promising as well as poorly conceived tokens. One project that raised eyebrows recently was a crowdsale of Gnosis tokens, which, because of the way the ICO was designed, left Gnosis, which is only in beta and doesn’t yet have a product to suggest consumers, with a valuation of $300 million right after its ICO. Now, speculative trading has now multiplied its valuation to $1.Two billion.

Five. Ripple is witnessing a big spike.

While the other trends have been driving bitcoin’s share of all cryptocurrency market caps down broadly, what emerges to have eventually tipped bitcoin below the 50% mark is the 24% surge of XRP, the token of the Ripple network, in the last twenty four hours. Since Chinese regulators began enforcing basic know-your-customer, anti-money-laundering procedures earlier this year, Japan has overtaken China as the country with the highest crypto trading volume. XRP is popular in Japan, and one writer surmises it is because of the work Ripple does in Japan, such as through its joint venture, SBI Ripple Asia, with SBI Holdings.

Okay, so this last one might not have shoved bitcoin below the 50% threshold, but it is likely to help keep it below that threshold. Tezos may be one of the most anticipated ICOs, about to launch in June and stay open for two weeks. The code is written in OCaml, a language that has the capability to formally verify brainy contracts to ensure that they execute as the creators intended them to. Tezos is also generating excitement because the software has, built into it, a mechanism for resolving issues such as the scaling debate in bitcoin. Therefore, even if bitcoin exceeds 50% market share for now, it will likely again fall under that threshold once the Tezos ICO starts.

Those increasingly common predictions of bitcoin going to $20,000 or more are premised on the fact that its algorithm thresholds its supply. There are many more ounces of gold, for example, than there are bitcoins, which implies that bitcoin should ultimately trade at a (possibly substantial) numerous of gold’s price.

But if bitcoin is just one of many cryptocurrencies in circulation, it makes sense to consider their aggregate supply – and the growth rate of that supply. Which is where it gets scary.

The number of fresh “ICOs” now in the pipeline implies that barriers to entry in the cryptocurrency space are laughably low. Evidently anyone with relevant coding abilities can create and launch another Ethereum or Litecoin.

With both request and supply soaring, it’s possible that cryptocurrencies will go through a 1990s tech stock-style boom/crash cycle in which their usage rises but their average price falls.

This is a brand-new concept (it’s not clear, for example, how governments will react to bitcoin being the ransomware currency of choice), which means there’s no way to predict what share of the global currency market cryptocurrencies will eventually capture or which cryptocurrencies will end up predominant. So there’s no way at the moment to trace out a base case trend for bitcoin’s future value.

But low barriers to entry do create some very visible risks.

Is This Bitcoin – s Fatal Flaw, Zero Hedge

Is This Bitcoin's Fatal Flaw?

Bitcon has been rocketing higher lately, as it gains widespread official approval and more people figure out how to use it.

As the very first of its kind to emerge, bitcoin has become synonymous with “cryptocurrency”. But lately it’s been joined by a lot of others – which together now account for more than half of the cryptocurrency ecosystem:

For Very first Time, Bitcoin Accounts for Less Than Half Of Market Cap Of All Cryptocurrencies

(Forbes) – For the very first time, Bitcoin’s market capitalization as a percentage of all cryptocurrencies has dropped to below 50%.

It is a symbolic turning point for the very first cryptocurrency, which for a long time accounted for more than 90% of the value of all blockchain-based assets combined, particularly through a period when so-called alt-coins that were only minor tweaks to bitcoin proliferated.

Its market capitalization then comprised over 80% of all cryptocurrencies for years, a range that held true until two months ago when it dipped below 80% and not only did not recover but did a quick dive straight down.

Several factors are driving the drop from its status as the clear leader.

A more than two-year-long saga has left progress on its network stymied. With the various factions incapable to compromise and no clear method for moving beyond the impasse, the network has been stuck staring down the same question of how to expand the network to accommodate more transactions that it very first faced in early 2015. Meantime, as no decisions get made, transaction fees have risen from about eleven cents a year ago to $1.70 now, and the time to confirm a transaction has almost doubled to almost twenty minutes. Because the community has been incapable to resolve its divisions, some of the technological advances people were excited to see on bitcoin will be adopted on other tokens, such as Litecoin, which could emerge as the payment token, while bitcoin evolves more into a digital gold, because its software will only ever release twenty one million units.

Two. Ethereum proceeds to grow.

Ethereum has, for a while, been the cryptocurrency with the second-largest market cap, but in latest months, its greater rise has further has eroded bitcoin’s dominance. While across 2016, its share of the market cap of all cryptocurrencies was in the single digits, it has, in the last duo months, inched closer to 20% as its price has risen from $8 in early January toward $100 in latest days.

Three. Fresh ICOs add value to the crypto space every day.

Third, a wave of fresh cryptocurrency launches in crowdsales called initial coin offerings has so far raised $380 million for fresh networks that have functions beyond just currency. For example, a few fresh storage coins aim to facilitate payments inbetween computers needing more storage space and computers with excess drive space to suggest in networks like Filecoin, Sia and Storj. Meantime, Golem Network Tokens are used for payments inbetween computers that need extra computing power to, say, train a machine-learning algorithm, and computers that have spare GPU and CPU cycles to suggest while its holder sleeps. So many fresh tokens with uses different from bitcoin’s are trussed enhance the pie, but still narrow its dominance.

Four. Speculation is driving up the value of all tokens.

Because the ICOs are proving to be such an effortless way to crowd fund, they are also being used just as that — as an effortless way to raise money — for projects for which tokens don’t even particularly make sense, as well as scams. Speculation is also running rampant as investors who don’t understand the technology or what makes a token valuable snatch up both promising as well as poorly conceived tokens. One project that raised eyebrows recently was a crowdsale of Gnosis tokens, which, because of the way the ICO was designed, left Gnosis, which is only in beta and doesn’t yet have a product to suggest consumers, with a valuation of $300 million right after its ICO. Now, speculative trading has now multiplied its valuation to $1.Two billion.

Five. Ripple is observing a big spike.

While the other trends have been driving bitcoin’s share of all cryptocurrency market caps down broadly, what emerges to have ultimately tipped bitcoin below the 50% mark is the 24% surge of XRP, the token of the Ripple network, in the last twenty four hours. Since Chinese regulators began enforcing basic know-your-customer, anti-money-laundering procedures earlier this year, Japan has overtaken China as the country with the highest crypto trading volume. XRP is popular in Japan, and one writer surmises it is because of the work Ripple does in Japan, such as through its joint venture, SBI Ripple Asia, with SBI Holdings.

Okay, so this last one might not have shoved bitcoin below the 50% threshold, but it is likely to help keep it below that threshold. Tezos may be one of the most anticipated ICOs, about to launch in June and stay open for two weeks. The code is written in OCaml, a language that has the capability to formally verify wise contracts to ensure that they execute as the creators intended them to. Tezos is also generating excitement because the software has, built into it, a mechanism for resolving issues such as the scaling debate in bitcoin. Therefore, even if bitcoin exceeds 50% market share for now, it will likely again fall under that threshold once the Tezos ICO embarks.

Those increasingly common predictions of bitcoin going to $20,000 or more are premised on the fact that its algorithm boundaries its supply. There are many more ounces of gold, for example, than there are bitcoins, which implies that bitcoin should ultimately trade at a (possibly substantial) numerous of gold’s price.

But if bitcoin is just one of many cryptocurrencies in circulation, it makes sense to consider their aggregate supply – and the growth rate of that supply. Which is where it gets scary.

The number of fresh “ICOs” now in the pipeline implies that barriers to entry in the cryptocurrency space are laughably low. Evidently anyone with relevant coding abilities can create and launch another Ethereum or Litecoin.

With both request and supply soaring, it’s possible that cryptocurrencies will go through a 1990s tech stock-style boom/crash cycle in which their usage rises but their average price falls.

This is a brand-new concept (it’s not clear, for example, how governments will react to bitcoin being the ransomware currency of choice), which means there’s no way to predict what share of the global currency market cryptocurrencies will eventually capture or which cryptocurrencies will end up predominant. So there’s no way at the moment to trace out a base case trend for bitcoin’s future value.

But low barriers to entry do create some very evident risks.

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