Elon Musk Trashes Bitcoin — and He Might Be Right
He did it again.
In a tweet complaining about bitcoin’s decentralization problem on Sunday, Elon Musk sent bitcoin prices lower by about 15%.
This occurred a few days after the Tesla founder announced that his company would no longer accept bitcoin as payment for its electric vehicles due to environmental concerns.
That comes roughly three months after Musk announced that Tesla had bought $1.5 billion in bitcoin.
In an ironic twist, Musk has publicly professed his affinity for Dogecoin, which is an offshoot of bitcoin. The popular meme token featuring a shiba inu still requires the same energy-intense computational power to run its network.
After witnessing the impact of the centibillionaire’s tweets, it’s clear why bitcoin’s pseudonymous founder, Satoshi Nakamoto, chose to stay out of the limelight. He didn’t want to influence the price of the world’s first cryptocurrency.
However, Musk might be right about bitcoin. In technological revolutions, being first isn’t always best.
Too often, a competitor builds on your idea to create a better, more efficient product.
And this might be the start of a cryptocurrency event that will shift the power away from bitcoin to more versatile blockchains.
Is Bitcoin the New AOL?
I remember loading my first AOL disk onto my Dell desktop computer in the mid-‘90s.
The crackling and wheezing of the dial-up network bringing forth the iconic “You’ve got mail!” The ding of AOL Instant Messenger signaling an incoming message.
In the early days of the internet, AOL was the dominant technology. Twenty-five years later, the online landscape has completely changed.
Google dominates search and email, while Facebook and Amazon have carved out trillion-dollar businesses where AOL was once the only game in town.
For most of bitcoin’s lifespan, it’s been the only game in town in the cryptocurrency markets. This chart from CoinMarketCap.com shows the relative market share of bitcoin versus other cryptocurrencies since 2013:
In 2013, bitcoin controlled 95% of crypto’s total market cap. It dropped below 40% during the last crypto bull market in 2017. At that time, Ethereum surged to a peak of 31% total market share.
During the bear market of 2018 to 2019, bitcoin regained a market share of over 60%. But this lead has quickly fallen in the past few months.
Bitcoin now makes up 39% of market share while Ethereum is gaining at a 19% market share.
The “Flippening” Is Inevitable
Ethereum is in the process of changing the way that its network is secured.
In its current form, Ethereum uses a proof-of-work consensus mechanism to validate and secure transactions. This is similar to bitcoin and uses energy-intensive miners.
However, in less than two years, Ethereum will move to a proof-of-stake consensus mechanism where participants “stake” their Ethereum to earn rewards and secure the network.
In proof-of-stake, there is no energy-intensive mining required that could be detrimental to the environment.
So, maybe Elon Musk will forget about Dogecoin and join the Ethereum bandwagon.
Maybe he’ll recognize that Ethereum is a more functional cryptocurrency. It’s a token that pays for access to a global, decentralized computer.
It allows developers to build new decentralized services for finance, cloud storage and network bandwidth … and possibly a utility for shared autonomous robotaxis.
Ethereum’s ERC-20 tokens are the building blocks for these new digital solutions. Without them, access to Ethereum’s computational power isn’t possible.
That’s why it’s likely that Ethereum will grow to become a bigger network than bitcoin in the next few years in an event called the “Flippening.” At current prices, it’s already halfway there.
This doesn’t mean Ethereum will need to grow to a trillion-dollar network. It could even stay at its current $400 billion valuation and surpass bitcoin if it drops below Ethereum’s value.
In my view, the Flippening is inevitable. Just like it was inevitable that up-and-coming web properties would overtake AOL someday.
But Ethereum isn’t the only crypto that’s increasing its market share. You can learn about some of the biggest opportunities in the crypto space by watching my special presentation.
Editor, Strategic Fortunes