If you are interested in cryptocurrency, you have probably heard of ‘flippening.’ But to understand this concept, you need first to understand cryptocurrency.
Cryptocurrency is a virtual form of money. It employs cryptography and blockchain technology to secure and verify transactions. Unlike traditional fiat currencies, cryptocurrencies are decentralised. That means no central authority or intermediary controls them. Instead, they are governed by a computer network that follows a set of rules and protocols.
What is flippening?
Flippening is derived from the word " flip, " which means to overtake or surpass something. It refers to the hypothetical scenario where a cryptocurrency other than Bitcoin becomes dominant in terms of market capitalisation, trading volume, mining power, or other metrics.
The most common flippening scenario is when Ethereum, the second-largest cryptocurrency by market cap, overtakes Bitcoin, which is the first and largest cryptocurrency by market capitalisation. However, it can also refer to other scenarios, such as when a cryptocurrency other than Bitcoin or Ethereum becomes dominant or when it surpasses Bitcoin in terms of other metrics, such as trading volume and mining power.
How to measure flippening?
One of the most popular and widely used methods and tools for measuring and monitoring flippening is the flippening index. It is a single number that shows one cryptocurrency's relative performance and position against another in terms of multiple metrics.
This index is calculated by averaging the percentages of different metrics, such as market cap, trading volume, mining power, node count, transaction count, and transaction value.
Open Demat Account and Start Trading!
The flippening index can range from 0% to 100%. Here, 0% means that the first cryptocurrency dominates over the second cryptocurrency. 100% means that the second cryptocurrency dominates over the first cryptocurrency.
The flippening index can also be expressed as a flip score. This score is a normalised version of the flippening index that ranges from 0 to 1.
Understanding matrices impacting flippening evaluation
Other metrics that can be used to measure flippening include:
- Transaction count is the total number of cryptocurrency transactions processed in a given period, usually a day. It is an indicator of a cryptocurrency's utility and usage and also reflects the market's adoption and preference for it.
- Transaction value is the total value of cryptocurrency transactions processed in a given period, usually a day. It indicates a cryptocurrency's economic activity and impact and reflects the market's value and trust in it.
- Node count is the total number of nodes, or computers, connected to a cryptocurrency's network. It indicates the cryptocurrency's decentralisation and diversity and reflects the market's participation and contribution to it.
- Developer activity is the total code changes, commits, and contributions to a cryptocurrency's software. It indicates a cryptocurrency's innovation and improvement and reflects the market's talent and vision.
What are the main drivers of flippening?
Flippening is influenced and driven by various forces. These factors and forces can affect cryptocurrencies' value, utility, security, and stability. They also control the opportunities and risks for diverse stakeholders.
-
Technology: Bitcoin is based on a proof-of-work (PoW) consensus mechanism. Here, miners use their computing power to secure and validate the network and earn rewards. Ethereum is currently also based on PoW but is transitioning to a proof-of-stake (PoS) consensus mechanism. The validators stake their coins to secure and validate the network and earn rewards. PoS is expected to make Ethereum more energy-efficient, faster, and cheaper than PoW, giving it an edge over Bitcoin.
- Functionality: Bitcoin is mainly used as a store of value, a medium of exchange. It is also used to hedge against inflation and instability. Ethereum is mainly used as a platform for dApps, smart contracts, and decentralised finance (DeFi). It enables users to create and access various services and products, such as trading, lending, borrowing, gaming, and more. Ethereum's functionality and versatility could attract more users and developers. It can create more value and demand for its network and currency and potentially flippen Bitcoin.
- Regulation: Bitcoin is more widely recognised and accepted as a legitimate and legal form of money by various governments and institutions. Ethereum is often treated as a commodity or utility token by regulators, such as the US Securities and Exchange Commission (SEC), giving it more flexibility and freedom. However, there is also more uncertainty and risk. Regulation could positively or negatively impact both cryptocurrencies, depending on how it affects their adoption, innovation, and competition. Regulation could also create opportunities or challenges for flippening, depending on how it affects Bitcoin and Ethereum's relative advantages and disadvantages.
Conclusion
Flippening is when Ethereum becomes more valuable than Bitcoin. You can use different things to measure it, like how much money each coin is worth, how many people use them, and how much they move around. Technology, functionality, regulation, and competition can drive flippening.
Financial Calculators: Compound Interest Calculator | EMI Calculator | SIP Calculator | SWP Calculator | RD Calculator | NPS Calculator | PPF Calculator | Mutual Fund Returns Calculator | Inflation Calculator | Option Value Calculator
Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price