What is wrong with Ethereum and why the second biggest cryptocurrency has lost the most value in the first third of September? Considering the traded volume comparable to Bitcoin, one has to wonder, who would sell this much and what does it mean.
Source: coinmarketcap.com
The cryptocommunity becomes more skeptical about the future of Ethereum with each passing day, and the latest news only makes the price plummet faster.
The first ill omen came in the form of an argument between Vitalik Buterin and Bitcoin Core developer Jeremy Rubin. The community was not so much shocked by the prognosis made by Rubin predicting the fall of Ethereum to 0 as by Burerin pretty much agreeing with this statement.
This was followed by several news of ICO projects selling their ETH wholesale.
Then, Vitalik Buterin decided to share his opinion with everyone by telling, that another thousand-fold surge in the cryptocurrency market is impossible.
Later, other experts took an opportunity, to express their negative point of views.
All of this was accompanied by weak attempts to implement scalability solutions, struggle against mining centralization and preparations to a difficult migration to the Proof-of-Stake algorithm.
Now, let's break it all down to its parts.
The answer is no. His agreement with some of the arguments only shows that the issue itself is not new. “Economic abstraction” is a hypothetical problem that has been discussed among Ethereum developers for quite a while.This problem is, essentially, as follows: in theory, Ethereum-based projects could pay for transactions and execution of the contract code in their own tokens, instead of GAS. Thus, such projects could obviate the need for ETH for the users and increase the price of their own tokens that way. And that would lower the net requirement for GAS, as well as ETH demand.
Why “in theory”? Today, it’d take a mass code update and promotion fo the idea across the entire Ethereum mining community. And, in addition to that, a more developed blockchain infrastructure, that’d include decentralized exchanges, with liquid markets for each Ethereum-type token.
In real terms, some large-scale projects on Ethereum are currently capable of offering miners their payment in their own tokens. Which would obviously cost additional expenses for extra computing power. On top of that, this development risks the loss of speed and reliability of token transactions.
However it may be, the upcoming updates for the Ethereum network can solve this problem in the nearest time. And migration to Proof-of-Stake prevents it from ever happening. And Rubin’s suggestion that PoS transaction can be confirmed with any token is not entirely realistic. At the very least, because it’d demand the existence of a single decentralized crypto-exchange containing all the tokens.
The critical part here is that Rubin and others forget the prime value of ETH. Which is the Ethereum network power, as well as liquidity and recognizability of ETH. These are the qualities the project releasing Ethereum-based products are willing to pay for. On top of that, they define the value of ETH as the generally accepted financial tool.
Ethereum has network size, traded value and market cap comparable to c Bitcoin. However, the ETH market price is way less stable. But why?
ETH is not intended to store value.
Unlike BTC, ETH is not digital gold. And not even silver, this rank belongs to Litecoin. Big investors do not yet use ETH for storing value - curiously enough, this is due to Ethereum's utilitarian function.
Ethereum became a major tool for funneling fresh funds into the blockchain economy, leading to worldwide growth. So, whenever someone says that Ethereum has never had any practical benefit, they forget about the ICO revolution that happened in the crowdfunding and venture investment market.
The changes in the volume of funds collected on ICO market is directly connected to the supply and demand balance of ETH. The more funds the new projects raise, the higher is ETH demand. On the other hand, those who finished their fundraising campaign have to sell their ETH and spend these funds on the development of the project. And so, the decrease in the volume of funds collected in ICO causes disbalance and raises the pressure on the price of ETH.
Source: bloomberg.com
In actuality, the projects who raised tens of thousands of ETH for their ICOs are not the only one to blame for the price drop. The important detail to remember here is that the price of ETH reflects the general attitude of investors towards crypto. Thus, Ethereum is the flagship of altcoins and in many ways determines the dynamics of the market.
Today, ETH is one of the primary tools of investment in the market growth phase. Bitcoin, on the contrary, is “conservative” tool for movement of capital for the period of the cooldown of expectation for the future of the blockchain.
Ethereum, like Bitcoin, does lose a share of the market as blockchain technologies develop. Here’s the chart showing the Bitcoins share of the market cap (take now, that new projects actively took away a part of that share over the last year):
Source: coinmarketcap.com
It is quite telling, that a similar scenario has happened to Ethereum. Now, take a look at a less familiar chart that shows Ethereum’s share in altcoin market:
Source: icu.me
When the father of Ethereum mentioned improbability of thousand-fold growth, he probably was sharing his feelings about his project. Considering current capitalization, his statement is not unfounded. However, claiming that market leaderboards won’t change, would have been too presumptuous. Keeping in mind, that the technology is in the early stage of development, some minor projects will inevitably experience hundred-fold and thousand-fold growth in the future and will take a significant share of the future market cap.
Do not underestimate the influence Ethereum currently has on the market. Losing the status of the untouchable leader will take a lot of time if it’s going to happen at all. As it is with Bitcoin, only global growth of cryptocurrencies can take a significant portion of Ethereum’s share on the market.
Competition in the sector of smart contract platforms has grown stronger lately. Cardano, NEO, Tezos, EOS, and many others are fighting for Ethereum’s dominant position. However, just like Ethereum itself, they have their own advantages, technical issues, and unique aspects.
Storing your savings only in ETH is not safe and brings little potential upside. The same goes for Bitcoin - which is more of a “conservative” tool suitable for the periods of price correction, but it does not bring much profit in the phase of market growth and development. Diversification is the simplest and the most reliable way to have high-growth assets in your portfolio at the right time.
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