Threats to Ethereum (ETH)

The threats to Ethereum (ETH) are many and growing. Hence, the second most valuable cryptocurrency’s utility could soon disappear.

Notably, Ethereum’s Coin Price fell from $875.85 on 23 February 2018 to $148.18 on February 22, 2019, CoinMarket Cap estimates. Moreover, Ethereum’s Market Capitalization fell from $85.6645 billion on February 23, 2018, to $15.245 billion on 22 February 2019.

Dramatically, Ethereum lost nearly 85% of its value in less than a year. Hence, speculators underestimated the threats to Ethereum? Thus it is a superb time to examine and assess the many threats to Ethereum.

What are the Threats to Ethereum (ETH)?

The greatest threats to Ethereum in today’s market include:

The Blockchain Scalability Problem

Ethereum’s greatest weakness is that it can only process 15 to 20 transactions per second (TPS) depending on which critic you ask.

Ethereum is slow because all the encryption in the blockchain limits its capacity. Thus, there is limited room to move transactions in the Ethereum blockchains. This is bad for business because an Ethereum platform could crash if it tries to process over 15 transactions a second.

These limitations make up the Great Blockchain Scalability Problem you have probably read about. In fact, scalability is the main roadblock to the creation of large-scale Ethereum payment, gaming, and e-commerce solutions.

In contrast, Visa’s global payments network can supposedly process 45,000 transactions a second, Coindesk claims. Under these circumstances, Ethereum is far from a serious payments solution.

Okay, many people including Vitalik Buterin himself and the gang behind the Raiden Network (RDN) are working on blockchain scalability solutions for Ethereum. Unfortunately, there’s no evidence any of these people are anywhere close to releasing a working scalability solution for Ethereum.

To explain, a scalability solution will increase Ethereum’s speed and capacity to allow several hundred TPS a second. Scalability solutions are difficult because most of them involving cutting encryption and lowering security to increase capacity.

Hence, a working blockchain scalability solution is likely to create security holes hackers will exploit. For instance, sidechain solutions like Ripple’s (XRP)remittance corridors create less encrypted digital shortcuts between the blockchain.

EOS (EOS)

EOS is a more advanced bockchain ecosystem whose builders claim to have solved the blockchain scalability problem.

For instance, Cryptoinvest claims they tested the EOS network at 3,996 TPS. However, blockchain testing company Whiteblock alleges EOS cannot verify its TPS claims because the transactions are not cryptograhically validated.

In addition, a Whiteblock press release charges, “EOS is not a blockchain, rather a distributed homogeneous database management system, a clear distinction in that their transactions are not cryptographically validated.”

To clarify, I think this means Whiteblock’s experts believe EOS is a sidechain and not a blockchain. However, EOS is popular with speculators. For instance, CoinMarketCap estimates EOS was the 4th most popular cryptocurrency with a Market Cap of $3.477 billion on 22 February 2019. However, CoinMarket Cap gave EOS had a Coin Price of $3.84 on the same day.

Importantly, it is possible to create EOS based utility tokens similar to Ethereum request for comment (ERC20) tokens. To explain, a utility token is a digital coin that functions as both a cryptocurrency and a token on a platform. For instance, an ERC20 token like Pluton has value as rewards points on the Plutus platform and as a trading cryptocurrency.

EOS’s Low Coin Price

However, I think EOS’s biggest threat to Ethereum is its low Coin Price, $3.84 on February 23, 2019. Notably, entrepreneurs are building some very impressive EOS platforms. For example, the BancorX liquidity solution which could convert Ethereum (ETH) into EOS and Horus Pay’s payroll solution.

In the final analysis, I think EOS is a direct threat to Ethereum because it offers similar capabilities and more scalability at a lower price. Thus, EOS (EOS) could be a better and cheaper cryptocurrency than EOS. Hence, users will favor EOS because it is cheaper and more scalable.

Moreover, EOS’s developers appear to have a strong commitment to solving the basic problems delaying cryptocurrency’s adoption. At the end of the day, that commitment could be EOS’s greatest strength and the biggest threat to Ethereum.

Liquidity and Convertibility

I think liquidity and convertibility are the biggest barriers to cryptocurrency adoption. Unfortunately, Ethereum’s major developers have done little to address these problems.

To explain, liquidity means that money has value. Specifically, you know your currency has value when you take it down to the store to buy food.

Importantly, convertibility means you can quickly convert one currency into another. For example, you can easily convert Ethereum (ETH) or EOS (EOS) into dollars, or Euros.Thus, you could use Ethereum or EOS to pay for such trivial items as food for your family and fuel for your car. Obviously, without liquidity and liquidity cryptocurrency is just an interesting digital toy. 

However, organizations like the Ethereum Project and the Hyperledger Project have made little progress on the issues of liquidity and convertibility. Instead, those entities are concentrating upon basic technological fixes rather than economic adaptations.

On the other hand, Bancor’s Network offers liquidity by backing cryptocurrencies with other cryptocurrencies. Importantly, Bancor’s initial solution works with ERC20 or Ethereum-based cryptocurrencies.

Moreover, Bancor makes cryptocurrencies convertible by making it easy to exchange altcoin for another. For instance, BancorX enables users to exchange ERC utility tokens for EOS utility tokens.

Stablecoins

In addition to Bancor, fiat currencies like the US Dollar supposedly back so-called stablecoins like the USD Coin (USDC) and the Dai. In detail, stablecoins like the Dai contain a mechanism designed to keeps its Coin Price at $1 USD. Importantly, the Dai is also an ERC20 or Ethereum utility token

Stablecoins threaten Ethereum because one of them could quickly become the most used cryptocurrency. For instance, merchants could only accept stablecoins and refuse Ethereum payments. In addition, governments might allow stablecoin payments but ban pure cryptocurrencies like Ethereum.

However, the stablecoin mechanisms are unproven. Notably, the Coin Price of stablecoins like the Dai (DAI) often dips below or rises slightly above $1. For instance, the Dai (DAI) Coin Price was $1.01 on 22 Febraury 2019. On the other hand, stablecoins show that an Ethereum token backed by a fiat currency is possible.

Thus, Bancor and stablecoins partially solves the problem of Ethereum convertibility. Conversely, the liquidity problem still exists because the link between stablecoins and fiat currencies is tenuous.

Other Cryptocurrencies

Oddly, I do not consider other big cryptocurrencies like Ripple (XRP) and Bitcoin (BTC) direct threats to Ethereum.

To explain, neither Ripple nor Bitcoin works with a widely adopted blockchain ecosystem like Ethereum. In addition, it is not possible to create easily create Ripple or Bitcoin utility tokens.

Hence, those currencies; and lesser altcoins like DASH (DASH) are not direct Ethereum competitors. Specifically, they designed cryptocurrencies like Ripple, DASH, and Bitcoin  only as payment solutions rather than as blockchain ecosystems. Thus, you can make a good case Bitcoin is not competing directly with Ethereum.

Other Cryptocurrencies

Strangely, the various Ethereum clones like NEO (NEO) and Waves (WAVES) are not threats to Ethereum. I believe neither NEO nor WAVES threatens NEO because neither blockchain is being widely adopted. 

To clarify, NEO and Waves are blockchains that function like Ethereum. For instance, NEO is trying to build a “Smart economy” ecosystem based on smart contracts – just like Ethereum. In addition, WAVES offers a “build your own” cryptocurrency solution much like Ethereum.

However, Waves was CoinMarketCap‘s 22nd Ranked cryptocurrency on 22 February 2019 with a Coin Price of $2.85. Meanwhile NEO was the 17th ranked cryptocurrency with a Coin Price of $9.11. I think these rankings show an Ethereum clone needs to distinguish itself with a capability like a blockchain scalability solution to gain serious market share.

Thus, Mr. Market will ignore Ethereum clones like NEO until they demonstrative an impressive capability like liquidity or scalability.

EOS is the Greatest Threat to Ethereum

Hence EOS is the only Ethereum clone attracting wide use right now. However, it is possible that a better Ethereum clone with solutions to most of blockchain’s limitations could appear.

In the final analysis, Ethereum (ETH) speculators need to be careful because Ethereum is an unproven technology. In fact, they have not addressed most of Ethereum’s limitations and most Ethereum based solutions such as smart contracts are still theoretical.

In the final analysis, Ethereum (ETH) speculators need to be careful because Ethereum is an unproven technology. In fact, they have not addressed most of Ethereum’s limitations and most Ethereum based solutions such as smart contracts are still theoretical.