Denis’ Crypto Thoughts — The Bullish Case for Ethereum
by Denis Vinokourov
Ethereum was designed to be much more than a payment system but yet, it has been getting a lot of bad press lately, especially when compared side by side to Bitcoin. In the words of Vitalik Buterin, Ethereum is a “decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.” Similarly to Bitcoin, Ethereum also currently operates on a proof-of-work basis, but the upcoming upgrades will see a shift towards a proof-of-stake model where there will no longer be miners, but validators. These validators will be required to own ether and in order to validate a block, they will be required to put their owned ether on the line.
The changes are much sought after as these would address a number of issues. Primarily, scalability. There are of course other issues, some of which can’t be addressed as easily and this relates to Ethereum essentially being a funding currency for ICOs. As outlined by AutonomousNext, to use a project on the Ethereum platform, users have to buy and pay with a third-party token that was issued primarily for fundraising. They don’t use ETH to pay for the service. This, in turn, makes ETH less versatile. At the same time, ICOs that have raised ETH have to sell it to fund operations.
According to research conducted by AutonomousNext, given the BITA 50 index (an index that tracks the top 50 liquid coins) is now down about 70%. It is possible that most crypto funds are at least 50% underwater for this year. No wonder so many are rushing to hedge through shorting, especially if BitMEX is only too happy to provide 50x leveraged ETHUSD perpetual swap…
Let’s assume, it is a funding currency and traders will use ETH to make carry trades, just like in the forex markets. These trades are at risk of a sharp decline in the price of the funded asset. Further, there is a risk of a steep appreciation in the value of the funding currency.
Secondly, there are a lot of theories of crypto whales either cashing out, hedging or trading on insider knowledge. But why would anyone in their right mind broadcast a very noticeable net short position in a market as illiquid as Bitcoin or Ethereum?
Let us also think how many Bitcoin miners will soon go out of business because of high costs & mining difficulty. They will end up dumping their Bitcoin supply. Lastly, and this is just to finish off the rant, how many Ethereum “killers” have been built on Ethereum principles and how many are actually better than Ethereum when it comes to applications and so on…it’s like arguing that AppleOS will overtake and kill-off WindowsOS…