Is This Bitcoin's Fatal Flaw?

Tyler Durden's picture

Authored by John Rubino via DollarCollapse.com,

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

As the 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 First Time, Bitcoin Accounts for Less Than Half Of Market Cap Of All Cryptocurrencies

(Forbes) – For the 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 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.

 

1. Bitcoin’s development is stalled.

A more than two-year-long saga has left progress on its network stymied. With the various factions unable 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 first faced in early 2015. Meanwhile, as no decisions get made, transaction fees have risen from about 11 cents a year ago to $1.70 now, and the time to confirm a transaction has nearly doubled to almost 20 minutes. Because the community has been unable 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 21 million units.

 

2. Ethereum continues to grow.

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

 

3. New ICOs add value to the crypto space every day.

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

 

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

Because the ICOs are proving to be such an easy way to crowd fund, they are also being used just as that — as an easy 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 offer consumers, with a valuation of $300 million right after its ICO. Now, speculative trading has now multiplied its valuation to $1.2 billion.

 

5. Ripple is seeing a big spike.

While the other trends have been driving bitcoin’s share of all cryptocurrency market caps down broadly, what appears to have finally tipped bitcoin below the 50% mark is the 24% surge of XRP, the token of the Ripple network, in the last 24 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.

 

7. Tezos is about to launch.

Okay, so this last one might not have pushed 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 ability to formally verify smart 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 begins.

Those increasingly common predictions of bitcoin going to $20,000 or more are premised on the fact that its algorithm limits its supply. There are many more ounces of gold, for instance, than there are bitcoins, which implies that bitcoin should ultimately trade at a (possibly substantial) multiple 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 new “ICOs” now in the pipeline implies that barriers to entry in the cryptocurrency space are laughably low. Apparently anyone with relevant coding skills can create and launch another Ethereum or Litecoin.

With both demand 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 instance, 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 dominating. 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 obvious risks.

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Yen Cross's picture

  In the States, unless you want to carry a rocket launcher, to avoid being ripped off, be prepared for some serious disclosure.

Pinto Currency's picture

Rubino reads ZH (although no reference):

"... Bitcoin is a fraud.
Wait until the next 5 'special' virtual currencies are introduced - then people will realize they are just special nothings. Just like fiat.
In the meantime, load up fools. ..."

http://www.zerohedge.com/news/2017-05-15/vancouver-house-sale-only-2099-...

38BWD22's picture

 

 

Yes, there is a lot of risk in Bitcoin.  If you buy, only buy less than 1% of your net worth.

But, at $1879 now, it has had one big ride since its last crash.

I have never seen the Au:BTC ration at 0.67, never has gold been so low relative to Bitcoin (gold is cheap vs. BTC).

Beam Me Up Scotty's picture

So is Bitcoin overpriced?  Or gold underpriced??

Bunga Bunga's picture

Quantity ratio is 280:1 while price ratio is 1:1.5.  Either gold is overpriced or Bitcoin is underpriced.

CPL's picture

The invite was there to protect the pm asset price and haul those dumb cunts out of the ditch.  But you guys like doing business like stupid jews.  Fuck y'all.  Etherum btw is ascam it's been done four times by the same guy and when he fuck this next batch of people I'll be laughing for the fourth time.

Yen Cross's picture

 It's NOT about the amount, you dolt!  It's about what steps criminals will go through to torture you for your wallet encryption.

HRH Feant2's picture

I agree. I just watched BTC blow hour 1900 like butter. Scary. Based on volume and bot trading I don't get why the price increased so much. Fundamentals? There are no fundamentals.

As far as time and fees, I agree, I spent way to much to move a small amount of BTC and it didn't take 20 minutes. It took three hours.

I didn't put in any more than I can afford to see go up in a puff of smoke (not very much).

ejmoosa's picture

Ransomware payoffs....pure and simple.

Dirtnapper's picture

Only idiots will demand BTC for payoffs.  BTC is open ledger, one can track where the funds go. Monero or Cloak or other stealth blockchains are for the more intelligent criminal.

DownWithYogaPants's picture

You are not correct Dirt. Any one practicing a modicum of opsec will be totally anonymous.  Does know good to know that adsaliahfakhdf just received a bitcoin.

I can tell you that using it for ransomware is a bad idea mainly because Bitcoin is not a very liquid market.  The faster it goes up the less anyone spends.

You're ignoring the many faceted uses of Bitcoin.  Hand wave if you want but it means it's not worth the time to read your comment.

There are legitimate things about bitcoin to complain about but most of you seem to have not used it and be unqualified to comment.

dark pools of soros's picture

ZH cockheads don't know shit about bitcoin just let them rot pretending the internet is going away soon

 

aurum4040's picture

Hey amatuer, Ether takes about 6 minutes. Sometimes less. Which is why, among many other reasons, Ether is going to crush Bitcoin?. 

ejmoosa's picture

Where would bitcoin be without the ransomware payouts?

Dead Canary's picture

A few months ago, I read the SEC blocked a bitcoin ETF. What? A bitcoin ETF. You invest in an ETF to get into a GROUP of things. (Biotech, banking etc...)

If you want to invest in bitcoin, JUST BUY THE DAMN BITCOINS!

Now I get it. If bitcoin is about to crash, how do you short it.

You short the newly created ETF.

Huh, huh?

stacking12321's picture

in principle i agree, but a lot of people don't want to figure out how to buy and hold bitcoins safely, or don't have much tech savvy.

a bitcoin etf would allow all that money from lazy investors to go flooding into bitcoin.

 

Dead Canary's picture

Humm. That's makes sense. Although there is no evil element. I like explanations that are evil. These days I just assume evil right out of the gate.

daveO's picture

Right. When it comes to money, it's not just these days.

TwelveOhOne's picture

In principle I also agree -- but there exist gold and silver ETFs...

Yen Cross's picture

  That's another very good point. In the heat of exchange , how do you test the wallet hash-without electricity?

 The world is being infiltrated by crypto-currencies, because they're easy to emulate, under the right conditions.

  * P.S. ~ Just ask the Sham~WOW guy. haha

tmosley's picture

"...Gold is a fraud.

Wait until the next 5 'special' elements are introduced - then people will realize they are just special nothings. Just like fiat.
In the meantime, load up fools. ..."

This is how stupid you are.

garypaul's picture

Umm, last I checked there was a limited number of elements.

Teja's picture

Not really, but the more neutrons and protons you put together, the more instable the nucleus becomes. Until you find islands of stability in the higher reaches of the periodic system which may or may not exist. 

Actually, technically neutron stars are individual elements as they consist of lots of neutrons and maybe some protons squeezed together. But as a store of value, they are not really practical.

bluskyes's picture

perhaps they are not a store of value, but could the stars be securitized?

BTFDemocracy's picture

Bitcoin in my opinion is broken because I spent based on "transaction fee calculator"
!!!---> $1 USD <---!!! to get a small transaction through due to the bottleneck in mempool.

 

I hear people being upset that their transaction with high fees take ~9+ hours to get through to the exchanges. Based on the slowness of Bitcoin I transfer crypto value across exchanges with Ethereum or Litecoin, to eliminate the risk of limbo.

 

Bitcoin was meant to a super cheap fast way to transact globally. It has failed that purpose. Unless Bitcoin changes soon, it's market cap will become negligble compared to other cryptos. Also BTC's dominance share of all crypto market cap fell below !!!--> 50% <---!!! this week. It was at 90%+ couple months ago. I increasingly see Bitcoin as Myspace to Facebook.

bluskyes's picture

9 hrs? I sold 6k of bitcoin a couple of weeks ago, and it took 5 days to confirm.

hmmmstrange's picture

Ya, bitcoin is dead because too many people are transacting with it.

ZH FNG's picture

"No one goes there anymore. It's too crowded."

Yogi Bera...  

Sort of...

http://quoteinvestigator.com/2014/08/29/too-crowded/

 

coldmoldy's picture

This is why you need to look into iota. Instead of a blockchain it runs on a directed acyclic graph, which means the more people that use the system the faster it becomes. So it solves the scalability issue and it also has no fees. 

hedgewithme's picture

It is not bitcoin that is going to change things. It is the blockchain concept that is going to be carried forward into the future. Bitcoin may stay for a while or be replaced but the blockchain concept will be carried forward.

Placerville's picture

Market Cap is irrelevant in determining BTC worth. What is the USD 'market cap' relative to all other currencies of the world? USD pales in comparison to Zimbabwe hyperinflation 'market cap' alone.

Yen Cross's picture

 Hey Foneystar, BTC is NOW heavily regulated in the states unless you trade hashes for services and goods. [Just the same as gold and silver ]< which-BTW are tangibe assets<

dasein211's picture

That's the free market at work. May the best coins win.

Bigly's picture

Needs electricity

Reaper's picture

An EMP is bitcoin's fatal flaw.

tmosley's picture

Sure, the same way an atom smasher is gold's fatal flaw.

You would need the energy of a supernova converted into an EMP to wipe every copy of the BTC ledger, including many which are in hardened server farms deep underground. You can imagine the other problems you would have before something like that were to happen

unsafe-space-time's picture

If they would use atom smashers to  create gold it would cost million time more. Crypto currencies need to be pegged to energy units. Just weights and balances. Market speculation/manipulation bs is for kikes

OverTheHedge's picture

I still think the kilowatt hour would make the best unit of currency. Of course, you can't inflate it, so it would never take off. (Do you see what did there?)

hedgewithme's picture

Thats why we need EMP coin! It could be made out of rocks or something similar so that if an EMP goes off, the coin will not be effected by the discharge. It would be cool if it could be made out of shiny rocks so that people will believe they are valuble. Too bad there is nothing like that.

Dirtnapper's picture

You going to EMP the entire Earth?  If my State/Region was to get EMP'd, soon as I move to to where power and Internet is still working, my BTC/ETH will still be there for me.

OverTheHedge's picture

An emp will also destroy your $ account - and all banks will claim to have "lost" your money, even if they haven't. Banks are like that.

Everyone who rages against bitcoin because it is digital, and therefore ethereal, needs to consider their own bank account. You think your bank actually has the bits of paper to cover your deposit account? You already own and trade a digital currency. Before they had computers, they had ledgers, and before that they had sticks with grooves cut in them. What they didn't have, was the money.

Yen Cross's picture

  Just like drugs, there will be a "Black Market", if you regulate it.

 BTC is indirectly propping up fiat currency, because it's "settled in that currency".

  Inflation, and the value of goods should NEVER be confused with HUMAN input.

dark pools of soros's picture

not really..  i trade bitcoin to gold and gold to bitcoin.. and the REAL reason bitcoin went storming up is that lots of sportsbooks now take bitcoin but ZH don't really figure shit out anymore and I don't care if you all stay broke so why hat tip anymore?

 

 

EHM's picture

Limited. Barriers. To. Entry.

I love your wife's picture

Ripple is NOT decentralized.  Its not really meant to be a permanant currency but more like a temporary one.  "Cryptocurrency" and "Tokens" are just "money" when its in code form.  Ripple is aimed at banks as an alternative to SWIFT using blockchain technology.  Therfore XRP has to be stable and will be monipulated for its customer - banks.  Market cap for XRP on April 30th was $1.9B.  Right now its $14B.  That's the banks shoring up.

Bunga Bunga's picture

Ripple is also not trustless. Gateways can freeze IOUs. It is not even considered a real crypto currency. Ripple market cap is misleading, since only a small fraction of coins can actually float, the rest is held back. Market cap is skewed the same way with many pre-mined alts.

https://medium.com/@jimmysong/why-the-bitcoin-dominance-index-is-deceivi...

 

BustainMovealota's picture

Shit , another don't invest in Bitcoin article.  I'm glad I didn't listen a year ago.  Central Banking System loves pumping out this garbage information, hoping you heed their scary story.