Ethereum is getting a lot of press this year. Between aggressive growth, new technologies supported by the Ethereum platform, and wild fluctuations to price and hashrate, there has been much to talk about.
These changes are indicative of even larger developments in the near future. In order to understand the future of Ethereum, particularly in planning investment strategies, it is important to understand its origins and initial intended purpose, how it differs from Bitcoin, and what needs to happen in terms of technology advancements to make it a viable product for blockchain users as well as larger markets.
Ethereum: created for flexibility
Ethereum was envisioned and developed by Vitalik Buterin, a cryptocurrency enthusiast who was in his early 20s in 2014 when he began to develop Ethereum along with several co-founders. He was an early proponent of Bitcoin and cryptocurrency, but envisioned a platform that could do more than simply trade digital currency. By 2015, Ethereum had raised over $18 million, and the first live release, Frontier, was launched.
The Ethereum platform and its open-source blockchain technology is similar in some ways to Bitcoin, its more well known counterpart. They are both decentralized, secure, cryptocurrency platforms supported by immutable blockchain ledger technology. However, Ethereum offers several unique and flexible options that Bitcoin does not, primarily due to its Proof-of-Stake (PoS) validation system, a significant change from the Proof-of-Work (PoW) Bitcoin uses for validation.
Ethereum offers two types of accounts: those externally owned and controlled by private keys through individual users, and contract accounts. On the Ethereum platform, developers are able to build and launch a multitude of decentralized apps, a feature that has been one of the primary ways Ethereum has grown so much in recent months.
Other distinguishing offerings specific to Ethereum are also centered around flexibility, one of its strongest features is it’s rapid block rate. Ethereum block time is approximately 12 seconds as opposed to Bitcoin’s 10 minutes. This is partially due to the PoS security protocol Ethereum has chosen as a staking system.
Ethereum also has different processes in other areas. For example, rather than transaction rewards based on verification, or solving a block, Ethereum provides transaction fees to miners. Transactions available through the Ethereum blockchain include cryptocurrency (called Ether), smart contracts, and the Ethereum Virtual Machine (EVM). Transactions are available in both a permissioned and permissionless environment.
Growing Pains: Ethereum’s current state
2018 has been plagued by colossal fluctuations in market price this year. From an all time high of $415.31, Ethereum dropped below $170 in September. It is now hovering around $250.
The biggest and scariest time for investors, and perhaps an indicator of things to come, was the “flash crash” about a year ago, in June, 2017 on the GDAX exchange. Ethereum prices dropped from $319 to $0.10 instantly, due to a multi-million dollar trade. This issue caused many investors to price out from stop loss orders or insufficient margins, with many selling at great loss. This is a notable example of the long-standing reality of the instability of Ethereum, both it’s market price and it’s hashrate, and it is an issue big enough to drive the entire market to a great extent.
Additionally, there is mounting concern over a potential “ICO dump” that would flood the market with hundreds of millions of dollars with of ETH, as initial coin offerings liquidate in their efforts to minimize losses during an unprecedented market event.
Ethereum’s future: real-world applications
For Ethereum to recover and remain a revelant and useful platform, it needs to revisit stretegies that will make it a realistic go-to platform for real-world applications of greater economic benefit to the masses on a global scale. Vitalik Buterin, Ethereum’s co-founder, who has a well-documented history of cautioning against wild speculation and rampant economic growth at unsustainable levels, is again concerned about the impact of recent events on Ethereum’s long-term strength and viability.
Buterin states, “If you talk to the average educated person at this point, they probably have heard of blockchain at least once. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore. That strategy is getting close to hitting a dead end.”
In other words, Ethereum needs to become more usable. The first step is to solve the ongoing issue of scalability. Ethereum is flexible to a point in terms of its use applications, particularly as Dapps continue to grow, but it is not scalable to the extent it needs to be.
Second layer scaling solutions such as Ethereum 2.0’s Plasma and Sharding scalability offerings will have the ability to deliver tremendously higher transaction rates than the current platform. With the strong technological foundation on which Ethereum was built, and the high levels of investment in its future displayed by Ethereum founders and new developers alike, the future of Ethereum is not only worth watching, it is likely to continue for quite a while.