Investors Start Showing Interest In Other Cryptocurrencies After Bitcoin And Ethereum's Volatility

Investors Start Showing Interest In Other Cryptocurrencies After Bitcoin And Ethereum’s Volatility

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Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) rallied, but their gains were eclipsed by those made by less well-known cryptocurrencies with much slower market caps.

What Happened: According to a recent Fortune report, many minor tokens rode the waves made by Bitcoin and Ethereum well enough to rake in higher gains than those behemoths.

Cardano (CRYPTO: ADA) doubled this month, Binance Coin (CRYPTO: BNB) also rallied significantly, while Avalanche (CRYPTO: AVAX) tripled in August.

Ethereum Blockchain Was Split Over Outdated Geth Software Nodes

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Ethereum has skirted through what could possibly be a catastrophic event, after the main Ethereum blockchain was forced to split due to the severity of a known bug. The bug was found in the Geth software - which is deployed by around 75% of all user on the Ethereum network. Geth is mostly used as a mining node for Ether, and enables the creation of software that runs atop the Ethereum blockchain.

The Ethereum Foundation security lead, Martin Swende, said that “A consensus bug hit #ethereum mainnet today, exploiting the consensus-bug that was fixed in geth v1.10.8. Fortunately, most miners were already updated, and the correct chain is also the longest (canon).” This means that the Ethereum network is safe - but that users making transactions in the outdated sidechain might see them being reversed when they finally update Geth and are brought back into the main chain and its different history of transactions.

The bug was already known for the developers, which prompted them to push an update to Geth. Version v1.10.8 had already been launched before the bug was ever exploited - the developers released the update absent of any documentation, indicating only that it fixed a critical security flaw. However, as is always the case in these matters, the mere indication that a severe security flaw was available in previous versions of Geth could motivate bad actors to pore over the code update so as to determine where and how the bug could be exploited. Despite the developers' best efforts, and calls for users to update Geth to the latest version, around 73% of Geth-powered nodes still haven’t been updated today - which means its users are left in an Ethereum side-chain that will eventually lead to nowhere.

A chain split is one of the most devastating attacks a blockchain can suffer - and throws the security and impervious block history down the proverbial drain. Controlling over 51% of Ethereum’s nodes would allow an attacker to overwrite transactions already written to the blockchain, claiming that their version was the correct one over those already inscribed. This would allow them to revert transactions or even change the destination address of existing ones - to a wallet or series of wallets controlled by the attacker, for instance. Of course, when the grandfather blockchain, Ethereum, is vulnerable, that means that all other chains sitting atop it - such as Binance or Polygon, to name a few - are also theoretically made vulnerable. Due to users not updating their Geth software to the latest version, around 54% of total Ethereum nodes were thus vulnerable - above the 51% required to enable a concerted attack and eventual chain split. However, there is a final level of security - the longest chain is typically considered to be the “canon” one, in case of a split. This is why those users in the previous version of Geth aren’t now a part of the Ethereum main chain.

So, if you’re running Geth - update your software, and return to the fold.

The great crypto flippening: Can Ethereum overtake Bitcoin?

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“Ethereum’s ascent to the top of the cryptoverse seems unstoppable,” declared Nigel Green in mid-August, and it’s not hard to see why the deVere CEO thinks this. DeFi is on a tear, NFTs are mushrooming, Ethereum (ETH) remains more scalable than Bitcoin (BTC) and it also offers more uses including smart contracts. Moreover, Ethereum will soon move to a proof-of-stake (PoS) consensus algorithm, looking to be more eco-friendly than Bitcoin’s energy-intensive proof-of-work (PoW) protocol.

“Ethereum is already years ahead of Bitcoin in everything but price and fame,” said Green earlier this year, adding: “There’s a real sense that 2021 is the year for Ether. Its time has come.” But, is it really a foregone conclusion that the world’s first, largest and best-known cryptocurrency is ready to relinquish its market-cap crown? Maybe not.

“If you look at CoinMarketCap’s homepage over the past five years, Ethereum is usually sitting in second position, right under Bitcoin — and it really hasn’t moved from that number two spot in any permanent way since its launch,” Molly Jane Zuckerman, content lead at CoinMarketCap, told Cointelegraph, adding: “History shows us that there is only one cryptocurrency that can ever claim the ‘king of the cryptoverse’ title.”

So, is there a chance for a flippening — the term often used to describe a reversal of ETH and BTC? Are altcoins still benefiting from the light that shines upon Bitcoin or are they stepping out and becoming popular by themselves? Ultimately, can the two even be compared since they are seen to serve different purposes within the crypto and the wider finance space?

Not a done deal

“Ethereum’s eventual dominance is hardly a sure thing,” commented Eswar Prasad, professor of economics at Cornell University and author of the soon-to-be-published book, “The Future of Money.” There could be technical complications with Ethereum’s switch to the PoS consensus protocol, “and there are many risks of attacks on DeFi products that could undermine confidence in those products and in Ethereum itself,” he told Cointelegraph.

Still, Bitcoin hasn’t proven itself as an effective medium of exchange, added Prasad, and its blockchain has only “limited functionality” compared with Ethereum, specifically when it comes to decentralized finance (DeFi): “Ethereum provides more flexibility, especially for DeFi products and services, and it has the potential to become a viable and efficient medium of exchange, featuring both low latency and high throughput for transactions.”

Maybe Green went a bit too far, suggested associate professor of finance at the University of Western Australia Lee Smales. “Inevitable” is a strong word, after all, he told Cointelegraph, “but, I’d say it’s highly likely that this will occur — although the recent rally in Bitcoin has outpaced that in Ethereum and has maybe delayed the timing a little bit. I would suspect it [flippening] happens in the next two to three years.”

So, how long?

Many seem to be betting on Ethereum and the question is often: not if but when? Ether could surpass Bitcoin as the crypto world’s top store of value in the coming years, said Goldman Sachs analysts in July, while deVere’s Green put the flippening “probably within five years.”

“I think it will be difficult for ETH to flip Bitcoin any time soon,” Justin Hartzman, CEO and co-founder of Canadian-based crypto exchange CoinSmart, told Cointelegraph. “The next [BTC] halving is in 2024, which will inevitably push the price up. Also, keep in mind that ‘Ethereum killers’ like Cardano and Tezos are coming up big time. If they work out, they could siphon out a lot of potential market cap from Ethereum’s kitty.” If the trading of places does occur, “I could see it potentially happening in five to six years.”

“I don’t believe in terms of market cap and overall valuation that Ethereum will surpass Bitcoin,” CEO of Banz Capital John Iadeluca told Cointelegraph, adding: “Bitcoin stands as the global ‘introduction’ to cryptocurrency, at least for the foreseeable future. For example, I don’t see any scenario where the SEC approves an Ethereum ETF prior to approving a Bitcoin ETF.”

Jason Peckham, an analyst at investment management firm Invictus Capital, told Cointelegraph: “I disagree that it’s inevitable. In fact, five years is enough time for an outsider to flip ETH and BTC both.” A lot hinges on how the two crypto communities manage their regulatory challenges, he added, as well as internal factors, like the pace “at which ETH has been burnt at post-EIP-1559,” which should make it less inflationary and potentially more attractive to investors. He added:

“If I had to pin it on one thing, I would say that ETH needs the supercycle/double bubble thesis to play out. That should allow for its various sectors to continue prospering in a way that won’t be possible in a bear market, which would likely be bearish for ETH relative to BTC as we have seen historically.”

Environmental factors must also be taken into account. Bitcoin mining’s prodigious use of electricity has been long known, but when Elon Musk drew wider attention to it earlier this year, BTC’s price plunged. While Bitcoin has rallied since then, “the energy [issue] continues to garner attention,” said Smales, and that should only intensify. “So, the Ethereum move to PoS creates an additional advantage that could result in the flip occurring sooner.”

What could derail Ethereum?

Green recounted that ETH had already gained 300% in 2021, compared with only 55% for BTC, and it has outperformed all other assets during the first half of the year. Is there anything that could halt its momentum?

In order to stay in contention for flippening BTC, Ethereum needs to maintain its role as the biggest smart contract platform, however, some new competitors continue to emerge. “POS is not completely proven as of yet,” said Smales, and it could evolve so that the market is dominated by a few very large players — essentially centralizing it — creating market frictions and possibly even higher transaction fees.

The EIP-1559 upgrade was supposed to make Ethereum gas fees more manageable, but according to YCharts, the average gas fees have reached a three-month high. Given that the gas fees have placed a continuous strain on the usability of the network, the upgrade to Ethereum 2.0, or Eth2, cannot come soon enough.

Moreover, Bitcoin isn’t standing still, technologically speaking. “The planned Taproot upgrade could significantly enhance Bitcoin’s efficiency, privacy and the functionality of its blockchain,” said Prasad.

Bitcoin also enjoys the “first mover” advantage which can be critical with networks. “The case for BTC’s dominance boils down to its superior Lindy Effect,” Peckham told Cointelegraph, referring to a concept popularized by Nicholas Taleb which holds that the older a technology is, the longer will be its life expectancy. “Together with this is the long-term trend towards stronger-handed market participants holding the majority of Bitcoin while the rest of the world continues to be drawn into owning their stake in the headline cryptocurrency,” added Peckham.

Still, Ethereum seems to have momentum now. “The trends in the crypto markets have indeed been shifting towards Ethereum ever since the explosion of the DeFi summer, followed by the continuing popularity of NFTs,” said Zuckerman, as Peckham added:

“Cohorts of users were drawn into Ethereum for DeFi and for NFTs, while Bitcoin is less diverse in its range of uses by comparison. Most of what crypto natives like myself are excited about in crypto right now is either built on Ethereum or an Ethereum competitor.”

Ethereum has the richest ecosystem in the crypto space, and DeFi, which largely lives on Ethereum, today holds vast amounts in total value locked, despite the early summer downturn and assertions that DeFi was just a bubble with no inherent value.

“DeFi had its strictest test yet and passed with flying colors. The number of DeFi users has already passed 3.25 million as utility and use cases increase every day,” said Hartzman, adding: “With more applications and users coming in, Ethereum could leverage Metcalfe’s Law and exponentially increase its overall network value.”

Are Bitcoin and Ethereum really comparable?

Upon further reflection, though, does it even make sense to compare Bitcoin with Ethereum? One is a (putative) form of money, the other is a platform, a new supercomputer powering Web 3.0, upon which one can build new technologies, arguably.

Right now, the two platforms perform different tasks. Once the effects of the Taproot upgrade come to the forefront and developers start constructing a DeFi ecosystem around the Bitcoin network, then that could turn into a whole new argument. For right now, however, Bitcoin is primarily a store-of-value while Ethereum is a decentralized application platform. “This is not a ‘Coca-Cola vs Pepsi’ debate. This is a ‘gold vs internet’ debate,” said Hartzman.

“Both Ethereum and Bitcoin are cryptocurrencies, but vision-wise, they pursue two very different goals,” added Iadeluca: “I don’t believe Bitcoin and Ethereum are in competition with one another; rather, I believe their respective growth compliments one another.”

Related: London’s impact: Ethereum 2.0’s staking contract becomes largest ETH holder

“From a technical standpoint, they are fundamentally different,” stated Peckham, but from an investor’s perspective, it does make some sense to compare them.

“Bitcoin is unique as a store-of-value,” said Hartzman. “There really is nothing quite like Bitcoin, and there won’t be anything like it any time soon. However, having said all that, it is impossible to bet against Ethereum due to its incredible network value, rich community and pace of innovation.”

Peckham told Cointelegraph: “As a trader right now, I’m more optimistic about Ethereum in terms of price action. I think it will continue to offer superior upside to Bitcoin in a bull run.”

Rather than picking a winner, though, “a more realistic prospect,” Prasad told Cointelegraph, is that “over the next few years, Bitcoin and Ethereum cement their joint dominance of the crypto space while the competition between their adherents leads to innovations in both ecosystems.”

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