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Ethereum seems to be the cryptocurrency everyone is talking about at the moment. It has seen a monumental rise to stardom this year, which has led to widespread speculation that it holds the potential to eclipse Bitcoin. While the impressive trajectory should not be disregarded, and some investors have compelling logic behind their arguments, it is our view that Ethereum presents no danger to Bitcoin in the long run.
Before we get into our reasons for saying so, let us first run through the basics of Ethereum.
Ethereum is a decentralised network, i.e. numerous computers located around the world that each hold a full version of its blockchain, which runs multiple applications that make use of smart contracts. In essence, monetising computing power similar to that of Bitcoin.
As a result of its utility and the proliferation of new use cases for its blockchain, the value of its token, Ether, has risen.
But it has some challenges.
There are a number of issues with Ethereum, which go largely unnoticed by the Ethereum community, but have been raised on a number of occasions in the Bitcoin community.
In 2016, the first major DAO (decentralised autonomous organisation) was hacked and tokens to the value of over $50m were stolen before the attack could be stopped. Following this, Ethereum issued a ‘hard fork’ which saw $40m of the stolen funds returned to investors. While this may have been good news for the impacted investors, it highlighted the fact that the so-called immutable Ethereum blockchain can, in fact, be altered. In a genuinely decentralised project this can not happen, as reversing time goes against the grounding principles of cryptocurrencies.
Ethereum’s creator, Vitalik Buterin, is essentially the CEO of Ethereum, and a controversial figure in the cryptocurrency world as a result of his involvement in the hard fork mentioned above. He is also an active participant on social media platforms and has recently come under heavy fire after a post he made with regards to a repeat action of reversing time just like Ethereum did after the DAO attack. His contentious commentary and online activity has resulted in a cult-like following, with the Ethereum community frequently seeking his opinion on events.
Buterin is also a council member of the Ethereum Foundation, the group that essentially oversees the development of the project. Considering Ethereum is his brainchild, there are naturally questions around his true level of involvement, and how objective he could be.
Controversy aside, it is not in the nature of a true decentralised project to be led by any one person or organisation. With Buterin very much in the driving seat, it reinforces the fact that Ethereum is subject to a certain level of centralisation and therefore cannot offer the same philosophical and sovereign value that Bitcoin does.
One of the utilities Ethereum provides is the ability to launch your own token on top of its blockchain. In recent months, this has become an extremely popular way for cryptocurrency-based organisations to raise funds. Essentially it is the cryptocurrency equivalent of an initial public offering (IPO), except with a far lower barrier to entry.
This year we have seen a mass of different ICO’s launched, with millions being raised, even when little to no solid development work has been done on the project.
To offer insight into the scale these ICO’s have reached, the table below highlights key Ethereum growth metrics.
The impact of the ICO market on Ethereum is clearly evident. We can see that the $390m raised from ICO’s alone this year, is the equivalent of 55% of the total Ethereum market cap at the start of 2017. This has been the major contributing factor in the gains seen, and the worrying part is that this is predominantly new, ‘uneducated’ money flowing into ICO’s, with many being little more than concepts at this point. Is essence, Ethereum could be said to be experiencing its own dotcom bubble.
And here is why Ethereum poses no great threat to Bitcoin.
Bitcoin can encompass all that Ethereum can do. It is programmable money. This means that Bitcoin can morph and adapt to build and solidify existing and new use cases that come about for the technology. The potential applications are practically endless, and we have only experienced a fragment of its capabilities to date. Bitcoin still has loads of room to grow.
Directly related to Ethereum’s smart contract functionality, Bitcoin has its own version of this called Rootstock. It is the first open-source smart contract platform, that was built specifically for Bitcoin. The Bitcoin community and proponents have always envisaged smart contracts being a crucial Bitcoin offering, and with recent advances, we are that much closer to seeing them implemented on the Bitcoin blockchain. This is a game changer.
Furthermore, Rootstock provides a solution to the ongoing scaling debate in Bitcoin by enabling circa 100 transactions a second - on par with PayPal’s transactional power - without the need to sacrifice decentralisation.
Basically, Rootstock allows innovative developers who want to create decentralised applications the ability to build on top of the most powerful computing network on the planet, Bitcoin, negating the need for Ethereum.
Bitcoin’s innate ability to adapt and incorporate other utility gives it an edge over other cryptocurrencies that have been designed for a sole or specific purpose.
It is, therefore, my opinion that Ethereum can have its glory days, but Bitcoin is pacing itself for long-term, stable growth, which is naturally a crucial and preferred aspect of investment.
Note: We do offer diversified portfolios that include altcoins as a means to maximise growth. At this point, we are close to introducing Ethereum as an altcoin choice.
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