Ethereum Market Shaken By Bitcoin Concerns
The Ethereum market tested a seven-week low of $169.89 on Sunday amid concerns about a “Bitcoin civil war.” Prices plunged 20% before rebounding.
Ethereum valuations have dropped almost 57% since their high of $395.04 on June 13th, 2017. It remains to be seen if Ethereum has stopped falling following after a gargantuan run up that began at the first of the year.
What is Ethereum?
The Ethereum token, also known as an “Ether,” is a cryptocurrency based on a distributed network blockchain for contract facilitation that was organized in Switzerland and launched in the summer of 2014.
Ethereum is currently the primary market cap competitor of Bitcoin, the current market leader in cryptocurrency markets.
Initial excitement for Ethereum was high. Building off of the success of Bitcoin, the Ethereum project proposed several innovations that early adopters considered superior to the original cryptocurrency.
The chief advantage was the addition of a general concept known as smart contracts.
This addition allows for a more flexible application development, making Ethereum more than just a payment system. It allows for end-to-end transaction management in a streamlined fashion potentially more business-friendly than Bitcoin. So far smart contracts have also allowed for “smart thievery,” as the DAO contract raised $150 million only to lose $50 million to a simple heist.
Ethereum has also had its own share of growing pains. Thefts, hacks, bugs, and security concerns have led to several splits (also known as forks in blockchain parlance). In July and October of 2016, Ethereum forked a total of three times.
Post-fork consensus was that the security upgrades and countermeasures were sufficient, leading to a large, sustained runup in price.
To Fork or Not to Fork
Due to the decentralized nature of blockchain environments, there is no centralized control to enforce adoption of new protocols and updates.
If a new update is proposed and a portion of the network chooses not to participate, the adopters can choose to penalize the non-adopters by refusing to authenticate their transactions. When this happens it is called a fork, and a new cryptocurrency is carved off, much like a glacier calving off an iceberg.
Four cryptocurrencies are the result of Bitcoin forks:
- Bitcoin XT
- Bitcoin Classic
- Bitcoin Unlimited
Ethereum has spawned one active downstream cryptocurrency, Ethereum Classic, as the result of a massive cryptocurrency scam (the story of which deserves an article of its own).
The Great Bitcoin Civil War
Further complications to the Ethereum market come from the Bitcoin Civil War.
For two years, the Bitcoin community has disputed the merits of two competing software updates. Security and technical concerns have led Bitcoin miners to converge behind two different, mutually-exclusive sets of updates to the blockchain engine behind Bitcoin.
One camp believes Bitcoin should behave more like an asset. A competing camp wants Bitcoin to take a more active, corporate-friendly approach. Both camps have their promoters and detractors.
The resulting game of chicken has led many investors to avoid Bitcoin, possibly in favor of Ethereum and other blockchain-based cryptocurrencies. The last few months saw an influx of new cryptocurrency investors, but this uncertainty has prompted investors to eschew cryptocurrencies altogether due to the high risks and uncertainty.
The clear winner so far has been volatility, as the Ethereum Market has run up 5,000% since January 1, only to crash 57%, a net increase of 2,300%.
Bitcoin has more than tripled since January, only to fall back more than 30%. Bitcoin started out the year at the $910 mark and rose to almost $3,000 before retrenching to around $2,200.
It is impossible to tease out whether or not the Bitcoin contention has been a net positive or negative for Ethereum. Either way the markets for both cryptocurrencies have so far signaled optimism as their valuations are dramatically higher (as of this posting).
The Future of Ethereum
Past and current volatility in cryptocurrency has produced broad spectrum skepticism against the emerging markets.
The promise of streamlined contracts and purchases makes the idea tempting, and corporate interests around the globe have signaled their desire for reliable and secure blockchain based products.
Technical analysis proposes a hard floor of $100 for Ethereum, but even such a pessimistic valuation places it more than 1,000% over 2016 levels.
Of the ten largest cryptocurrencies, Bitcoin and Ethereum lead the pack by a wide margin, controlling over 80% of the total market if one includes their forks.
The remainder of the market is controlled by unique cryptocurrencies with tantalizing offerings that could someday rival or supplant the current market leaders, or they could evaporate the same way as Betamax, laser discs, HD DVD and the Zune.
Whatever happens, cryptocurrencies control more than $50 billion worth of hard currency and provide services and platforms for which there is great demand. They are not disappearing anytime soon, and the near to mid-term future promises exciting developments, new innovations, and radical shifts in technology.
The word of the day is volatility, and the evolution we are witnessing now promises to deliver robust and multi faceted tools for the marketplace of tomorrow.