Ethereum’s (ETH) Coin Price has been a roll coaster ride so wild lately that even the mainstream media noticed it.
For instance, Coinbase estimates Ethereum’s price fell to $210.11 on the morning of 23 September 2019 but fell to $204.86 that afternoon. Moreover, ETH fell as low as $168.61 on 31 August 2019. Plus Ethereum shot up to $335.10 on 25 June 2019.
So what; besides speculation, explains the wild Ether (ETH) price fluctuations? My theory is that Ethereum is not a simple cryptocurrency like Bitcoin (BTC).
Ethereum vs Bitcoin
To elaborate, a classic cryptocurrency; such as Bitcoin (BTC), is nothing but a currency. In the final analysis, a currency is only a store of value.
Hence you can only do five things with a cryptoucrrency like Bitcoin. First, you can buy with Bitcoin –if you can find a merchant that accepts it. Second, you can store Bitcoin in a digital wallet.
Third, you can sell Bitcoins and buy something else with the proceeds. Fourth, you can speculate on Bitcoin’s price. Fifth, you can borrow against Bitcoin, if you can fin a lender who accepts BTC as collateral.
Thus, Bitcoin is a very simple mechanism. Note: I think the simplicity partially explains Bitcoin’s popularity. Bitcoin is easy to understand, so even technophobes can grasp its value and importance.
Ethereum is far more than Just a Cryptocurrency
Ethereum, on the other hand, is a decentralized computer and digital ecosystem they build in the blockchain. Consequently, Ethereum is far more than just a cryptocurrency.
More importantly, Ethereum offers a “build your own cryptocurrency kit” that lets anybody create her own crypoturrency. Hence, anybody can build an Ethereum marketplace, based on his own Ethereum Request for Comment (ERC20) token.
In addition, you can build digital robots called DApps (decentralized applications) or smart contracts into any Ethereum app. In fact, you can even build smart contracts into ER20 tokens.
Smart contracts make popular stablecoins Tether (USDT) possible. To explain, a stablecoin’s smart contract releases payment in fiat currency when you spend the stablecoin. For example, Tether releases payment in US dollars.
What’s Driving Ethereum Price Fluctuations?
I think it is all the ERC20 tokens that drive Ethereum’s Price fluctuations. Tether (USDT), for instance, was CoinMarketCap’s sixth most valuable cryptocurrency with a Market Capitalization of $4.131 billion on 23 September 2019.
Investopedia estimates there were over 181,000 ERC20 compatible tokens in existence on 16 April 2019. Therefore, I think it is Ethereum’s utility and the potential to create marketplaces that drives its price.
There are some serious limitations to Ethereum, however. In particular, Ethereum; like Bitcoin (BTC) is slow and clunky. In fact, Hacker Noon’s Taygun estimates an Ethereum funds transfer can take six minutes.
Thus, it could take six minutes to pay for a digital weapon or tool at an Ethereum gaming platform like the Abyss (ABYSS). Moreover, it could take you six minutes to pay for your groceries at the supermarket with an Ethereum stablecoin like the Dai (DAI) or Tether.
I cannot picture any supermarket manager putting up with six-minute delays at the cash register. Such delays can lead to long lines, which inspire customers to go to another store. Plus, I cannot imagine McDonald’s (NYSE: MCD) accepting a payment method that leads to six-minute delays at the drive-thru.
Are Bitcoin and Ethereum too slow to be Viable Payment apps?
Ethereum is a lot faster than Bitcoin (BTC); however, Taygun estimates it takes up to an hour to process a Bitcoin transaction. Hence, I do not consider Bitcoin a viable payment option for most people.
Bitcoin and Ethereum are slow because they are not scalable. Scalability means that you can quickly expand a blockchain’s capacity and speed. The Bitcoin and Ethereum blockchains lack scalabity because of all the encryption and security measures they have.
For instance, Blockchain.com estimates that Bitcoin’s blockchain could only process 3.849 transaction per second (TPS) on 23 September 2019. In contrast, Visa (NYSE: V) claims its platform can process up to 24,000 TPS.
In comparison, Taygun estimates, Ethereum can process between 15 and 25 TPS. Therefore, an Ethereum e-commerce platform could crash if 30 customers try to pay for goods at once.
Is Ethereum Scalable?
Thus, it is easy to see why retail giants like Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) want nothing to do with Ethereum. Statista estimates, Amazon Prime had 105 million subscribers in the United States alone in June 2019. Hence, there is no way Amazon could accept ETH or ERC20 tokens without crashing.
Consequently, many organizations are working on solutions to the Blockchain Scalability problem. For instance, brainbot labs’ Raiden Network Token (RDN) is an attempt to build a scalable ERC20 token. In addition, Ethereum creator Vitalik Buterin proposed an Ethereum sacalability solution called Plasma.
Meanwhile, the Bancor Network (BNT) is attempting to solve the scalability problem by offering fast conversion of ERC20 tokens into a more scalable cryptocurrency called EOS (EOS). Notably, the EOS Network Monitor estimates EOS was processing 94 to 108 TPS on 23 September 2019. Furthermore, EOS the EOS Network Monitor claims EOS has processed up to 3,996 transactions per second at maximum capacity
Security vs. Scalability
Unfortunately, we do not know if any of these scalability solutions are reliable or sustainable. Bancor’s convertibility, for instance, adds more steps to transaction processing.
That means there are more things that can go wrong. In addition, adding steps to the transaction process, offers hackers more vulnerabilities to exploit. Each new step is another way for thieves to enter the platform.
In addition, solutions like EOS increase speed by reducing encryption and security. In fact, you can call EOS, a sidechain a less-encrypted digital shortcut, rather than a blockchain.
Will AI offer both Security and Scability?
Therefore, crytpocurrency creators must choose between security and scalability. However, platforms can increase speed and capacity by using active security measures. Having humans or artificial intelligence (AI) constantly monitoring the system for threats, for example.
Active security measures can be more effective. The threat of arrest and prison is always a greater deterrent to criminals than a lock or a safe. Active security scares hackers because it could quickly send police after them.
However, active security will be more expensive than a thicker blockchain. The platform could have to pay human security experts to monitor everything.
An AI could monitor the system and provide active security, for free, however. You could theoretically program an AI to detect suspicious activity and report it to law enforcement for instance. Such an AI is theoretically possible, but developing, testing, and deploying that artificial intelligence will cost a fortune.
What Ethereum-based Tokens are valuable?
I think Ethereum’s greatest value is is the ability to make ERC20 Tokens. However, I believe some ERC20 Tokens have more potential value than Ethereum (ETH) itself.
Some potentially valuable ERC20 tokens include:
- TheBancor Network (BNT) – I think this conversion app’s ability to convert quickly to EOS (EOS) offers scalability. In addition, Bancor’s Liquidity Network offers fast access to many interesting ERC20 tokens.
- Augur (REP) – I believe blockchain Prediction Marketscould become a big and lucrative business. Augur is a platform that anybody to build prediction markets. I like Augur the popular American blockchain wallet Coinbase supports it.
- The Basic Attention Token (BAT) – I think the BAThas a lot of potential because they base it on a “product” corporations will pay money for. The product is internet and social media users’ attention. Notably, they built Alphabet (NASDAQ: GOOG) empire by monitoring internet users’ habits with the Google search engine. Likewise, BAT offers an interesting browser they call Brave, and a token (the BAT) to monetize internet use. Plus, Coinbase supports the BAT.
- USD COIN (USDC) the USD Coinis an ERC20 stablecoin backed by Coinbase. I like the USD Coin because it offers fast access to the world’s reserve currency – the US Dollar and Coinbase backs and trades it.. Notably, USD COIN is the creation of cryptocurrency builder Circle which has the backing of the investment banking giant Goldman Sachs (NYSE: GS).
These are just a small sampling of the many ERC20 tokens out there. I think the variety and flexibility of ERC20 tokens could make Ethereum valuable. However, I believe we could soon see an ERC20 token with a higher Coin Price and Market Capitalization than Ethereum (ETH) itself.
Therefore, smart speculators could make more money by ignoring Ethereum and buying ERC20 tokens. Hence, the tokens they build from Ethereum’s blockchain could be more valuable than Ethereum itself.
Originally published at https://marketmadhouse.com on September 23, 2019.