About Ethereum, ICO and bubble talks

As a long-time software engineer and entrepreneur, I have a tendency to appreciate consolidated technologies and adopt a very skeptical position toward buzzwords and over-engineered solutions. Sometimes I feel I am violently allergic to any topic complex enough to require more than one or two simple sentences to be explained. Also, from a technical perspective, I lack adventurousness and if you’ll look for me in any group of enlightened early adopters of whatsoever trend, you likely won’t find me.

So you cannot blame me if it took a dear friend of mine an entire year of contagious enthusiasm and tech evangelism to finally convince me to stop shrugging and give myself a chance to understand what this Ethereum platform was all about.

Like many others, I wasn’t sold, initially. The concept of a Turing-complete blockchain capable of powering up smart-contracts was a little too exotic for me. Besides, its creator’s prolix posts on the subject get sometimes indecipherable as they mix up the ideas behind the platform with outlandish economic principles and mathematical proofs.

These are among the reasons why I am feeling quite a bit uncomfortable as I suddenly call myself a self-appointed expert and try to offer my perspective. The trigger has been the argumentative WhalePanda’s story on Medium, which brings forward a fresh perspective, although overly negative, about the recent hype surrounding the first emerging Dapps as well as the Ethereum’s ecosystem in general. Personally, I feel his conclusion to be a bit too tunnel-sighted, especially when he ventures into dark prophecies of bubble bursts and developer’s responsibilities.

Before tackling his points, I would invite everyone to actually read the article with no preconceived criticism. Everyone investing in Ethereum needs healthy doses of reality checks and would benefit from being reminded to “invest only what you can afford to lose”.

The reason why I am writing this article is because I strongly believe Ethereum and its ecosystem cannot be judged with the same metrics of other technologies, some of which are only superficially comparable with it.

The bubble dilemma

Let’s start from the bubble. There is a lot of talk about the bubble we are supposedly in right now. I mean, how else could you explain the insane surge of ETH’s price? IMMO, the causes of such stunning race in the last four months are primarily to be found in the considerations and opportunities (or illusion thereof) rising from different factors.

Paraphrasing WhalePanda

Can you blame Speculators and Investors?


Can you blame developers

Only marginally.

Where would you place the blame then?

I would point to the following factors

  • The risky proposition to seek S.E.C. approval for Bitcoin’s E.T.F. and the aftermath of its rejection
  • The planned advancements of Ethereum (PoS, Raiden, etc)
  • The announcement of important companies and organizations entering in the EEA
  • The new funding mechanism of many new projects based on the issue and sale of custom tokens (i.e. Initial Coin Offerings or ICOs, such as Bancor, Basic Attention Token, Aragon, Wetrust, etc)

Bitcoin’s bleed toward Ethereum

I am not going to spend much time talking about the ever increasing costs of transactions on Bitcoin’s blockchain and their geological completion time as a source of users’ discomfort. Here I will limit myself to try and offer a simple explanation on a trend that greatly contributed to the success of Ethereum.

The crazy ride of Ethereum really started after the S.E.C. rejected Winkelvoss’s bid to create Bitcoin’s E.T.F. Before the announcement of the appraisal and the actual rejection, the price of Ether was actually stable. It was slowly recovering from a massive dip (which happened in November 2016).

This leads me to suspect that Bitcoin’s situation at that time actually created the condition to push investors’ awareness into other directions within the the realm of crypto (which after 2013–14 has slightly fallen off the radar). The S.E.C rejection, thus, posed the basis for the “next-in-line” blockchain to raise and get the stage.

Simply put, Ethereum rose because bitcoin holders (pardon, “hodlers”) started to migrate (or “flip”) to ETH to mitigate the risk of an averse effect produced by the S.E.C. decision which was seen as an important chance, if not the last, for BTC to renew investors’ interest and help overcome its fratricide feud. Ultimately, around the end of February, Bitcoin begun to bleed holders in favor of Ethereum, price of ETH started to raise which attracted new investors’ capital, which caused more BTC bleed, price’s raise, more investors, more BTC bleed… well you get the idea.

Exciting Innovation: PoS and Raiden

With the next major release, Ethereum will swap from Proof of Work mining to Proof of Stake, which would ultimately have the benefit to:

  • keep inflation at bay: since much lesser energy is needed to mine ETH, there’s no need for high amount of ETH to be created to compensate PoS stakers (as opposed to PoW miners)
  • drive the price up: in order to mine ETHs, stakes must be stored in a smart contract, which means they cannot be sold
  • make Ethereum less vulnerable to 51% attacks

The introduction of PoS would require a hard-fork and this notoriously risk to invoke apocalyptic scenarios of miners choosing between PoSEth or PoWEth after the hard fork is really ludicrous since:

  • it does not keep into consideration the difficulty bomb, which is part of the Ethereum’s code right now and will require not only a non-trivial refactor, but also another fork. So at that point there will be PoSEth, PoWEthDBomb, PoWEthWithoutDBomb. Moving to ETC? Well good luck convincing the community it is not a worthless scam
  • who cares? Depending on the minimum stake requirement (some say ~30 ETH, some other ~1000 ETH), even mortals like myself with normal server equipment can mine ETH with PoS (PoW requires pools of dedicated and expensive GPUs). PoS miners won’t spend egregious amount of dollars in electricity bills and won’t have to change their equipment on a regular basis like PoW miners just to keep up with the increase in difficulty.

Another criticism to PoS comes from the complexity any implementation needs to battle against. Since I am not familiar with Caspar (the code name for the actual implementation of PoS contract), I will have to trust what Vlad Zamfir (Ethereum lead developer) says about the topic.

And then there is Raiden. Admittedly, it seems quite unclear when it will be released but there are signs of life on Mars. Raiden is the single technology I am most excited about. When (actually if) implemented, it will bring Ethereum the capability of performing nearly instantaneous micro-transactions. A true holy grail for any IoT application in need to inter-operate or run on the blockchain.

Interlude: for the people who are hopeful that Ethereum won’t replace Bitcoins

WhalePanda seems to echo the opinion of a lot of Bitcoin maximalists here:

Doing such a major change [swap to PoS] on a (currently) $30 billion market is completely irresponsible, borderline insanity.

Well, forget $30b markets. In my career I have been working for a company which developed the air traffic control system for civil aviation traffic in southern Europe. I actually know what it means to plan the release of software which behaviour is truly a matter of life and death. Releases do not get pushed lightheartedly, but they certainly were and still are scheduled according to a strict but regular scheduling.

If this is acceptable for avionic systems, I would make the case that scheduled changes in less critical applications should not be viewed as a worrisome act of war and they can certainly be managed without disruption of activities. Besides, proclaiming the evil of long time planned changes in Ethereum while Bitcoin is rushing without unified consensus toward a segwit/core code split is kind of a hypocritical statement.

The real importance of EEA

One of the pillars of success for Ethereum is the growing interest of leading industries embodied by the Enterprice Ethereum Alliance (EEA), a federation of established corporations and startups formed with the purpose of advancing the Ethereum blockchain technology. Investors seem to respond enthusiastically any time new members are announced and tend to take the support as a huge endorsement.

Skeptics instead, tend to minimize the importance of the EEA. WhalePanda‘s article is an example of such skepticism

No, they don’t [use the public Ethereum blockchain]. They use “an” Ethereum, which is a (private) fork of Ethereum.

I think that the skeptical view has some merit and their proponents are probably more in the right than uncritical supporters here. However my take is slightly different.

I believe that the EEA will end up creating a synergy which will benefit the entire ecosystem regardless of the chain, public or side. I strongly believe that the power of the internet lays in the inter-operation of its constituent systems. This is something obvious for any developer or technology company. So much so, that it is the absolute norm for any respectable business to offer APIs to inter-operate with its software.

Translating this to Ethereum, from a code perspective, smart contracts do provide access to state variables and functions declared as external which can be considered de facto transactional APIs exposed to the outside world.

Thinking that corporations in the EEA will spawn their own segregated chains that won’t talk to each others is quite counterfactual and a bizarre belief.

Organizers of ICOs are NOT startups

Now to the most controversial part.

No, I am not impressed with ICOs. I think they are over-hyped and all the euphoria around them risk to seriously undermine the credibility of the overall platform. Token economy has some serious economical implications that I plan to analyse in a separate article.


If we look at the act of collecting funds for developing contract-oriented products, ICO proponents do NOT look like startups to me. Rather, I view them as consultants that build something on behalf of the community and get paid by many future users and some speculators to develop it. Once deployed, smart contracts remain in Ethereum and belong to the community.

From this perspective, token based economy is a fundamental paradigm shift which has the potential to fix the broken venture-driven startup innovation, which ends up in dooming 99% of startups and enrich the richest even more with the remaining 1%.

In a token-based economy instead, apart from a small percentile of costs which have to be covered through fiat (for now), startups will handle a reserve of tokens anchored to:

  • the initial value given by backers
  • the run-time value of trading
  • the intrinsic value of the product adoption

Admittedly this is NOT the case right now because all the euphoria and the hype result in over-funding projects, but, once this infancy stage is over (i.e. possibly after the likely burst of ICO bubbles), the speculators will give way to early adopters and future users of a certain product (contract) who will fund propositions based on their usefulness and which will remain to the community.

This means that the success of a proposition will be largely established at the crowdfunding event. Things like struggling startups with a product and no penetration will be a thing of the past.

Contracts having no chance of success will probably not even be given the possibility to run as they are unlikely to reach their target.

Even the lean startup movements will be affected by this. In fact it already is. All we need is to find a form of sustainable and maybe regulated token sale event, backed by an MVP.

A value proposition example: Civic

As an example let me talk about one of the upcoming token sales, Civic. Civic provides

an identity information marketplace and the token represents the units of trade within that marketplace coupled with privacy and smart contracting capabilities

Considering that I have to use sub-optimal, centralized providers for identity management for a lot of my projects, the promise of a block-chain based solution, immutable, trust-less and universal sounds like a great idea. Civic would solve a real issue for me. I would gladly fund their idea and commission to the Civic team the implementation of such a system. I would be using Civic tokens to power my applications. It is a good example of a project the community could get behind and I would love to see more propositions become decentralized autonomous public services.

So are we in a bubble or not?


What I think is that there isn’t a bubble, but there are a number of bubbles each and every one dependent on the ICO of choice. I urge everyone to think twice before investing in ICOs. They are distributed with a flawed mechanism designed to create hype and the market is too euphoric right now to distinguish between the products that end up having a widespread adoption and those which won’t.

Ultimately these bubbles will affect the price of ETH but NOT Ethereum as a technology platform. Its technology will inexorably keep evolving until maturity and it WILL be the basis for amazing decentralized innovations in the near future.

The speculation around it and the price considerations are the remnant of “store of value” philosophy and its unfortunate grip on the current way of perceiving the crypto space. After all what is a currency if not its value? Ethereum’s technology, instead, would retain its usefulness even if ETH price would drop to $0.

However, until the platform and its ecosystem will reach a higher standard of quality and maturity, the market will keep limping on a “price first” mentality.

Hodl on, my friends, and try to weather the upcoming squalls with the placid calmness of savvy watchers. These storms will only shake speculators while strengthening the community and the underlined technology.

After all there’s nothing more priceless than working code, right?

Thanks for reading! Feel free to recommend this story if you found it insightful. You can connect with me on twitter: https://twitter.com/autholykos