Bitcoin has been referred to as magic internet money. No one knows who created it and those who’ve attempted to dismiss it have gotten a history lesson in the power of disruptive technologies. Essentially software that issues a currency and makes payments, Bitcoin amounts to a virtualized internet central bank, accountable to no one.
After creating the cryptospace in which all virtual currencies live, bitcoin’s underlying software has spread ubiquitously to other coin types. Currently, there are nearly 1000 types of coins available and more are being created every day. For the first time in the history of virtual currencies, bitcoin’s total percentage of market capitalization against these other coins has dropped below 50 percent.
As the technological rate of change continues to advance exponentially, more and more breakout technologies will emerge from seemingly nowhere and follow bitcoin’s rise to prominence in their own respective arenas. Bitcoin has had a good run, and there is still reason to believe it may be around for the foreseeable future. Having said that, its drop to below 50 percent of all virtual currency market shares is one of the most significant market indicators to have ever come from the world’s first virtual currency.
Because bitcoin created the market for cryptocurrencies, it has been able to hold a 90 percent market share over other virtual currencies for nearly the entirety of its existence. However, bitcoin’s market share has dropped over the past two months because of two main trends: the rise of initial coin offerings (ICOs) and a continuing lack of consensus amongst the Bitcoin community regarding scalability and growth.
“You can do just about anything with that platform and the confusion between the platform technology, which we now call blockchain, and the application, which happened to be called bitcoin … untangling that confusion has taken us about 5 years.”
This untangling has allowed other players into the cryptospace by ubiquitously adopting the underlying blockchain software as a platform for their own applications. In the same way that Bitcoin is a central bank of the internet that prints virtual currency and pays users in that currency for helping the network to function – these new players issue their own virtual currencies that also incentivize users to contribute to network functionality. This business model has established itself as the standard of the cryptocurrency industry and is the driving force behind the rise of ICOs.
Smith and Crown told ETHNews that from the start of 2016 to today, “Approximately $251 million have been raised in over 100 ICO token sales.” While there is data that can be extrapolated from individual ICOs relative to each other, there is perhaps no single metric as powerful for understanding ICO impact in the cryptospace as the cumulative effect they have had on bitcoin over the past two months.
Two notable players, Ripple, a global financial settlement solutions firm that uses a distributed network to facilitate real-time international payments, and Ether, the coin associated with the Ethereum blockchain platform, have seen dramatic growth. As of Monday, Ripple’s market cap was $11.5 billion. Yesterday it was at $12.5 billion, allowing it to surpass Ether, which had held the number two spot behind bitcoin for over a year. Today, the Ripple market cap is $15 billion. This rapid growth, which may be indicative of Ripple’s highly applicable use case and its endorsement by several major Japanese banks, has allowed it to sink its teeth into the total market cap of all virtual currencies in a way that distinguishes Ripple amongst its crypto contemporaries, and will define it as a breakout winner of the early cryptocurrency movement.
Close behind Ripple is Ether, the virtual currency that powers the Ethereum blockchain. Ethereum emerged in 2015 as the torch bearer for blockchain potential beyond the realm of Bitcoin. The excitement generated by Ethereum’s open-source, public blockchain and the extra computing functionalities internal to the Ethereum Virtual Machine (EVM), may be responsible for Ether’s market cap rise and the justification for its longevity as a top value holder amongst all other virtual currencies. As Ethereum developers near the roll out of their third phase, called Metropolis, it is likely that Ether’s market cap will surge again. The combined market cap of Ripple and Ethereum today is roughly $23.3 billion. Taking into consideration the number of remaining crypto-players who’ve had ICOs, and bitcoin’s current cap of $29.7 billion, Ripple and Ether emerge as the major players adding to the total market cap.
The Bitcoin Community Divided
An existential identity crisis between two groups within the Bitcoin community have divided consensus for years. Finding ways to improve the distributed network and scale the software for size and efficiency has created a philosophical debate about how best to proceed. Two basic user groups make up the divide. User group Bitcoin Unlimited believes in raising the block limit. User group Bitcoin Core, comprised of developers who have been involved in modifying Bitcoin’s code for years, believes in raising the number of transactions per individual block. This scalability issue was brought to the forefront of concerns about Bitcoin’s infighting last night when a surge in the number of bitcoin transactions, themselves having no space to fit into within the blockchain network, caused over 100,000 transactions to be stalled. This consequently raised the Trezor fee, costing some users as much as $200 to transfer a single bitcoin.
This internal saber rattling has continued to fragment the Bitcoin community over the past two years and may be the cause for bitcoin’s market share cap being eclipsed by other crypto actors. However, like all things in the cryptospace, there is a great deal of uncertainty. Although bitcoin has seen its total market share drop, especially over the past two months, the price of a bitcoin reached an all-time high of $1800 before returning to its support margin last week. As more players enter the cryptospace we should expect to see an increase in vying for market share.