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Ether cryptocurrency, a victim of blockchain success
LONDON, Sept 23, 2018 (BSS/AFP) – For all the attention afforded bitcoin,
it is its rival ether that is hitting the headlines, with the popularity of
its blockchain technology Ethereum driving concerns that have sent investors
fleeing.
Virtual currencies have struggled across the board this month after US
investment banking giant Goldman Sachs pulled back from its plans to open a
trading desk for bitcoin, damaging sentiment for the entire sector.
Ether has slid 20 percent in value, taking a further hit from comments
made by Vitalik Buterin, co-founder of Ethereum, which powers the
cryptocurrency.
Earlier this month, the 24-year-old Russian-Canadian programmer told
Bloomberg that “the (Ethereum) blockchain space is getting to the point where
there’s a ceiling in sight”.
A blockchain is essentially a ledger for recording transactions, which is
both open to all who use it but extremely secure, and has enabled the rise of
cryptocurrency trading.
A multimillionaire thanks to Ethereum, Buterin has previously spoken about
“scalability” probably being the number one challenge facing the sector.
– Blockchain traffic jam –
Unlike bitcoin’s blockchain, which carries out transactions involving only
the cryptocurrency, Ethereum can host different virtual tokens and also
enable certain digital applications and so-called smart contracts.
Such programmes can for example automatically trigger payments without the
use of a third party when pre-defined conditions are met, such as winning a
sports bet.
Ethereum is also home to two-thirds of initial coin offerings (ICOs),
essentially a fundraising tool for companies which issue the tokens against
cryptocurrencies much like issuing shares on a stock market.
An explosion in the number of ICOs in 2017, two years after ether’s
launch, resulted in the cryptocurrency’s price rocketing 160 times in value
over a 12-month period.
The craze surrounding ICOs has also caused congestion to Ethereum’s
network, contributing to ether’s price collapse beginning in January.
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“The more it’s demanded, the more likely you are to clog the network,”
said Jerome de Tychey, president of Asseth, an association promoting the use
of Ethereum.
A clogged Ethereum results in higher charges for clients wanting their
transactions prioritised — and average fees briefly hit a record $5.50 in
July according to bitinfocharts.com. Generally though, fees fluctuate around
a few cents.
Delays to a planned overhaul of Ethereum’s scalability have meanwhile
likely discouraged some investors from using the blockchain, according to de
Tychey.
Naeem Aslam, an analyst at traders Think Markets, said Buterin “isn’t
doing the job which he is supposed to do” — that is, to make companies
“trust the technology and provide them (with) what they need”.
– Virtual currency, real plunge –
The plunge in the value of ether has indeed been dramatic. Since the start
of August, it has lost more than half its value.
Going back to May, the drop is 75 percent, with the total value of the
virtual currency tumbling to about $23 billion from $82.5 billion.
Yet the huge drop has only taken ether back to its value of a little over
a year ago, at some $220 for one token.
Another factor weighing on ether’s price has been the success of ICOs. The
companies which raised funding in ether with ICOs now need to sell to them to
cover operating expenses in fiat currencies.
According to sector analysts Diar the companies that raised funding before
the price boom at the end of last year have sold off some 20 percent of their
ether holdings since April, weighing on its price.
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