The Ethereum network and its native currency Ether (ETH) has been on something of a rollercoaster ride in its short existence to date. Just last January you could pick up a single coin for $8. The price rode the waves of the 2017 crypto bubble right up to a high of over $1,300. Since then, Ether has been one of the leaders in terms of losses. It’s still up from its opening price at around $220 at the time of writing; however, this figure is not that significant.
So, what’s the story? Is Ether done and dusted? How will the ETH price change? Will ‘the number two cryptocurrency’ hold on to its prestigious position behind Bitcoin? Let’s look at some of the arguments for and against a return of ETH to its former glory and possibly beyond.
Risk/Reward is Still Huge
Ether and the network it resides on, Ethereum, exist on the entirely different basis to other popular cryptos. Bitcoin is poised to replace money as we know it. Meanwhile, Ethereum is more like a world computer system. This gives it great potential and, unfortunately, a much greater chance of failure. Its concept of a decentralized platform for creating applications is completely new.
Of course, to serve the entire planet as a computer system, Ethereum needs to be able to process huge numbers of transactions every second. Currently, it is far out. Last year, the success of a simple game called CryptoKitties saw the entire network grind to a halt as people traded cute digital cats with one another. Although this tale is quite amusing, it shows the platform’s shortcomings perfectly.
The beauty of technology is in its ability to evolve. Ethereum has one of the largest developer communities of any blockchain project. As well as working on decentralized applications that could drive a future economy, many are focused on creating scaling solutions that will allow the platform to expand whilst still retaining its principles of decentralization. If Ethereum can scale sufficiently and just one killer application is built on it amongst the thousands that are currently being worked on, the ETH price will almost certainly increase. If the community fails, then the fate of the Ether price will be much closer to zero.
Issues Surrounding Smart Contracts
An additional potential weakness of Ethereum is the smart contracts feature. A smart contract, simply put, allows people to program their money. This is another potentially world-changing innovation. However, the problem with smart contracts is that they invite a lot of vulnerabilities.
As seen with the now infamous DAO project, a failed smart contract can have disastrous consequences. If the contract is not coded perfectly, the holes in the way it works allow exploits that can cost the participants as much money as is locked into the deal. With the DAO, this happened to be millions of dollars.
Smart contract technology is often painted as a miraculous innovation that can allow everyone to do away with intermediaries and escrow systems in just about every deal imaginable. However, rather than needing these specialists, a different kind of expert is required to safely use the technology. The person drafted in to design the contract between two parties would need to be able to create the perfect program. Then, the contract needs to be trusted by the participants since it’s unlikely that either party using it would be able to verify the code for mistakes or deliberate exploits.
Granted, if the platform scales and decentralized applications become popular, there will likely be generic open-source smart contracts out there for a variety of different applications. These would be tried and tested and only require the participants to agree on the amount entered into the deal. If this becomes the case, the applications built on Ethereum could be successful. However, this is a long way off, and until then, coders have their work cut out trying to make bulletproof smart contracts. When the stakes are as high as they are today, a failed one would cast serious doubt over the entire platform, and prices would respond accordingly.
In addition to the technical details, there is a fair amount of regulatory uncertainty surrounding the Ethereum platform. Whilst the US Securities and Exchange Commission has stated that Ether itself is not to be deemed a security, the same cannot be said about any of the tokens that are created using the network. If the tokens are considered a security, many of the projects might require buyers to be accredited investors. This would essentially decimate the average person’s ability to use an application which would be incredibly bad for the adoption of Ether and its price.
Plenty of Competition
On top of all that, there is the fact that there are now lots of smart contract platforms around. The likes of NEO, WAVES, EOS, and STRAT are all vying for the position of the de facto smart contract platform. Of course, there is nothing to say that they can’t all co-exist. Yet they all face the same problems that Ethereum does.
That said, one might offer a far superior scaling solution, greater usability, or shine in some other unforeseen way. If a true scaling is achieved on a different blockchain first, will there be room for more than one smart contract platform in the world? That remains to be seen.
Ether and the network it resides on face an uphill battle. However, that hasn’t stopped Ethereum from becoming the second most valuable network in the crypto world. If those developing on the platform can successfully navigate the numerous hurdles they face, the price of Ether could one day be huge. Time will tell if some of the more bullish commentators are proved correct. However, the $15,000 price prediction for this year made by Reddit co-founder Alexis Ohanian is certainly starting to look all the more unrealistic as we enter the final quarter of 2018.