Ethereum is NOT a blockchain. It is also NOT a cryptocurrency! It is actually a protocol (a set of rules or procedures). While browsing the Internet, you may have noticed that website URLs begin with HTTP or HTTPS. This is the hypertext transmission protocol. E-mails use the simple mail transmission protocol, the post office protocol. All the coolest technical stuff runs on logs.
Ethereum is a protocol. And several independent blockchains run on it – the most popular are Mainnet, Görli, Kovan, Rinkeby and Ropsten. These blockchains do NOT talk to each other.
When most people talk about Ethereum, they are talking about Mainnet – Ethereum’s primary public production blockchain. This is where actual value transactions take place on the blockchain. The native crypto of this Ethereum is Ether (ETH). At the time of writing, the price of 1ETH is $ 3,577 or roughly Rs. 2,77,750. Let’s stick with this definition for this post.
And then there’s Ethereum Classic, the original version, with its native crypto ETC. The moral of the story so far is – Ethereum has more to offer than meets the eye. Let’s dive in.
1. What I hate about Ethereum
I hate that Ethereum is neither “immutable” nor “censorship resistant”. Surprised? Let’s go back to 2016.
A bunch of really smart people came up with the concept of Decentralized Autonomous Organizations (DAO). It’s a kind of cooperative – think of cooperative banks or even the Amul dairy cooperative. The difference is that a DAO only exists on a blockchain and its rules are coded in “smart contracts”. By the way, smart contracts are neither smart nor contracts. But that’s talk for another day.
Anyway, this DAO raised about $ 150 million worth of Ether (ETH) through a token sale. But a really clever hacker took advantage of a flaw in the “smart contract” and siphoned off all the money! Well, logically nothing should have been done about it. Blockchains are “immutable” and “censorship resistant”, right? That too is a dirty word for another day.
But a number of people have proven that Ethereum is neither “immutable” nor “censorship resistant”. They implemented a “hard fork” and rolled the history of Ethereum back to before the hack. This reassigned the hacked ether to another “smart contract” and allowed investors to withdraw their funds.
The purists hated this and that led to Ethereum splitting into 2 blockchains: Ethereum and Ethereum Classic.
Did you know already?
- ETH, Ethereum’s native cryptocurrency, climbs to $ 3,500 with a market capitalization of over $ 400 billion.
- ETC, Ethereum Classic’s native cryptocurrency, is priced at $ 50 with a market cap of $ 7 billion.
2. What I love about Ethereum
Ethereum pioneered decentralized finance (DeFi).
An amazing multi-billion dollar ecosystem has developed around it:
- Over $ 100 billion in fiat-linked and algorithmic stablecoins
- Innovative projects such as Uniswap, Chainlink, Aave, Unstoppable Domains, Basic Attention Token, Polygon and OpenSea
- Asset-backed cryptos like tokenized stocks
3. What I fear about Ethereum
ETH’s high price will kill Ethereum. As a blockchain, Ethereum is only valuable if startups, DAOs and developers continue to build on it and use it.
Investors, on the other hand, do not give the blockchain a heart. They just want ETH to have “moon” and “lambo”. With the rise of ETH, Ethereum is becoming impracticable for users. Imagine this – it costs $ 160 to transfer tokens worth $ 100! Yes, that’s how ridiculous things have become.
This leads startups, DAOs and developers to migrate to “Ethereum killers” like Cardano and Solana.
Let’s take an example to understand how stupid this situation has gotten.
In the conventional world, we need fuel (gasoline, diesel, coal, electricity, etc.) to power the transportation sector (trains, planes, trucks, etc.). Now let’s assume that the price of fuel explodes. It would have an impact on the entire world economy. Everything would be very expensive. The transport sector would then be forced to switch to alternative energies such as solar energy.
This is what the ETH price does to the cost of doing business in the world of decentralized finance (DeFi). ETH is the fuel for DeFi. Raise the price and you will destroy DeFi.
The second thing I fear is the sudden creation of a huge number of ETH. Unlike Bitcoin, which has a cap of 21 million coins, there is no limit to how much ETH can be created. So if a rogue group suddenly creates a huge amount of ETH, their price could crash to near zero!
The third thing I fear is that a fatal flaw or mistake is being exploited. Ethereum is going through many technological upgrades to improve transaction speed, reduce gas fees, and migrate from proof-of-work to proof-of-stake. One big mistake and ETH could lose value and crash to zero.
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He’s also an amateur boxer and a retired hacker. You can follow him on LinkedIn.
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