The state of Ethereum

If Bitcoin is the father of crypto, Ethereum would definitely be considered by many as the mother. Seven years after Bitcoin was born, Ethereum has reinvented the crypto industry as the first real utility token and was mainly responsible for a lot of the innovation we see in crypto today (both the good and the bad). As the second biggest cryptoasset by market cap, Ethereum’s success (or failure) has significant weight on where the industry (and the market) is heading, and in the last few months, their weight is feeling the power of gravity, in more ways than one.

Since late June, Ethereum has been slowly “decoupling” from the rest of market. After the major slump in the market in January, Ether (ETH, The Ethereum Blockchain’s native token) dropped from a peak of $1,432 to a low of $263, loosing over 80% of its value in a little over 6 months. While such a decline isn’t out of the ordinary for the crypto market, Ethereum has been among the only assets who actually had some sort of fundamental demand driving the price (and just hype), even if not for what it was originally designed for.

In theory, Ether’s main usage was supposed to be a fee for running transactions on the Ethereum network. In practice, Etheruem’s ERC20 framework has given birth to thousands of new tokens and with them gave a new life toconcept of ICOs. As the ICO trend exploded, Ether’s main use-case became a means of investing in ICOs, and there lied its much bigger demand, which was also the main driver to its rise in value.

In the last 3 months, we’ve seen a massive decline in both the amount of new ICOs and the amount of money raised by ICOs. Add that to the fact that many of the new ICOs are raising bigger portions of their funding in fiat and not crypto, and there goes all the wind out of Ethereum’s sails.

So if the ICOs are gone. We still have transactions fees right? or do we?

a couple of days ago, a post by Jeremy Rubin titled “The collapse of ETH is inevitable” set fire on the Ethereum community. Rubin, a Stellar technical advisor (Stellar is considered somewhat of a competitor to Ethereum), explained in a very technical manner, Why Ether is not really NEEDED to sustain the Ethereum blockchain, and because there will not be any REAL demand for the token, the price of Ether will eventually go down to zero.

You are more than welcome to read Rubin’s full post if you really want to get into technicals (and if you do, read Vitalik’s answer while you are at it). To make a long story short, even though he is probably biased, Rubin has some valid arguments, and while some of them have been refuted by Vitalik, others have been acknowledged as challenges the network will have to deal with in the future.
While the effects of the actual technicalities will probably effect Ethereum somewhere down the road, the side effect of this discussion, , alongside the chatter throughout the crypto community has managed to drop Ether’s price in another 5% in the last 3 days.

Is Ether really going to zero?

Ethereum’s blockchain is due for some serious upgrades in the coming months, introducing a new set of features, improving both network performance and economic incentive structure. Ethereum still holds appx 10% of the entire crypto market cap, has the biggest developer eco-system by far, and has a lot of strong, well-funded companies support it. This doesn’t mean it beyond the point of failure, but it looks like there are still tricks up its sleeve and we wouldn’t start digging a grave anytime soon.

Having said that, being the first or biggest at something is not a guarantee of anything, it only makes you a big slow target for your competition. Google wasn’t the first search engine, Facebook wasn’t the first social network and Amazon wasn’t the first online bookstore. In order to maintain its market dominance, Ethereum’s foundation and community will have to work hard and not only create a working product but to prove that the network provides actual value (pun intended) to actual users and solves real problems (public fundraising not being a part of them) for them.