As Ether continues to drop in price we analyze the reasons that might be behind this long-standing crisis.
From a high of $1,433 of January 2018 to the most recent low of just over $84 of December 2018, the first alternative coin to BTC has been worrying its holdlers for quite a while now.
Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. The development was funded by an online crowdsale and the system then went live on 30 July 2015, with 72 million coins “premined.”
Its main purpose is to attempt to build “a revolutionary new platform for applications,” targeting anything from voting to financial exchanges to smart properties and, most importantly, decentralized applications. Even though Ether is used in the network as an alt-coin, it has more a computational than a scarce currency function.
In 2016 a decentralized autonomous organization called The DAO, a set of smart contracts developed on the platform, raised a staggering $150 million in a record crowdsale to fund the project. Users exploited a vulnerability in The DAO code and one-third of that crowdsale in ether were taken by an unknown hacker. The event sparked a debate in the crypto-community about whether Ethereum should perform a contentious “hard fork” to reappropriate the affected funds. As a result of the dispute, the network split in two with Ethereum deciding to follow the forked blockchain, while Ethereum Classic continuing its operations in the original blockchain.
By many, this has been indicated as the beginning of all problems for Ethereum. Since the drop from its all-time high, the network has not yet been capable of showing signs of recovery, let’s see why.
What’s happening behind the scenes of the Ethereum space?
Its first well known and long-standing issue is scalability. While Bitcoin has moved on and resolved the matter with off-chain transactions, Ethereum is still debating if using Sharding will be the solution.
Only yesterday Vitalik Buterin announced that the network might end up using the Bitcoin Cash blockchain as a data layer to temporarily tackle the scalability problem. This has ignited criticism due to the weakness of the BCH blockchain itself. Not only for the 10-minute block time that Vitalik himself recognizes as a problem but also for its hash rate, central control authority, and most importantly the fact that it can easily be 51% attacked by most BTC pools.
While the world is yet to see any major step forward in the implementation of ETH 2.0, the temporary BCH solution sounds much as a desperate attempt to show that something is moving.
On top of the scalability issue and the delayed switch to the Proof of Stake consensus mechanism, the number of hacks and frauds have been increasing in the community. With Vitalik and his team being the face of the network and therefore the target of hacks and scams, effective decentralization is unachievable especially compared to the Bitcoin system that does not provide a single central figure of reference.
It’s no secret that Vitalik Buterin has a considerable amount of Ethereum. He was blamed in the past for “pumping” his ETH property, which was to a great extent pre-mined. Yet, some are speculating that he might even leave Ethereum soon especially after some comments he made on Reddit that the whole project could survive without him.
Currently, Ether is trading at $223 and BTC0.02122984, very close to its all-time low against Bitcoin.