Very ‘Interesting’ Times Ahead For Ethereum (ETH) - Popcorn Standby

I find the technology of Ethereum extremely interesting and I have been invested in it from 7 USD. However, I think Ethereum took the wrong path, so I take profits regularly and convert it back to BTC. At 350 USD I sold half of my stack as described HERE and cashed out in BTC. In the months that followed I sold off more than another half over time.

I see many risky events on the horizon, so I expect a very ‘interesting’ time to come. I am not sure if the price will go up or down, but I expect great volatility and a very educational show. I am happy that I am not heavily invested in ETH anymore………

Interesting times are ahead for Ethereum

So what went wrong?

I think Ethereum made two huge mistakes. Firstly, they took the centralized path by rolling back the blockchain after the DAO hack. This is a huge deal: A payment made on the ETH blockchain is never sure, since it can be rolled back because of the mistake of someone else.

Beside that, Vitalik pushed for the rollback and the part of the community that saw him as a leader supported him and stayed on the ETH side after the fork. The part that didn't agree forked off with ETC. This means that Vitaliks power to decide increased enormously and the future of ETH is not decided by decentralized consensus anymore, but by the will of Vitalik. This greatly undermines the strength of the network.

The hardfork will be exiting to watch

An exception on the above described fact is the upcoming hardfork to change from PoW to PoS. Bitmain just released Asic miners for ETH and invested a lot of money in the development of the chips. They, and other miners will certainly not agree on the upgrade that makes their machines obsolete and they will create a chain split again.

The outcome will probably be another split, centralized action from Vitalik that pushes the fork through or a cancellation of the fork because the miners keep blocking it. All of these outcomes will not be positive, especially a split will be messy, what will happen to all the ICO’s on top of Ethereum?

I found the scaling civil war in BTC extremely interesting and learned a lot about game theory by following it closely, I expect the ETH story to become even more interesting…….

Change to POS is extremely risky

I think it is very experimental and risky to change the consensus algorithm of a 40 billion market cap cryptocurrency while it is up and running. Bitcoin Core devs are even hesitant to implement much less relevant changes and they are proven right (remember what happened with the 2x fork?)

Beside that PoS is way less secure and never tested on really big scale. Cardano is the most valuable PoS blockchain of this moment and is ten times smaller in market cap than ETH and has a tiny track record. The bigger the value of the network is, the bigger the honeypot for bad actors and the bigger the chance that the system breaks.

Yesterday I read an amazingly interesting article about PoS and it made me really worry about every PoS blockchain. The point is that a bad actor only need 1/3 rd of the active stake of the network. This means that when only 25% of the ETH owners is actively staking (majority of the ETH will be used in smart contracts, ICO’s and trading) someone only need to own 12,5% of the total supply to successfully attack the network!

I remember that when the banking consortium came in the price of ETH tripled over a few weeks. If they been accumulating since they could easily own 12,5 percent and be able to destroy ETH and damage and greatly delay the entire cryptocurrency industry. Or how hard do you think it will be for Soros and Rockefeller to get their hands on 12,5%?

Competition becomes a threat when you give up the base features

In EVERY use case of blockchain, security and decentralization are the main features. If you have the ultimate level of security and decentralization, projects with a lot of money involved will choose that above faster transactions or fancy functions.

By giving up security by moving to PoS and giving up centralization by rolling back the blockchain they will need fancy functions that are a multiple better than the competition to stay ahead. When you maintain these base features a competing project will need much better functions to even make a chance to overtake you. I think Ethereum will eventually be overtaken by competing projects like:

Ethereum Classic

Ethereum Classic (ETC) came into existence when a certain part of the community didn't agree with the roll back and kept using the old chain. ETC will keep PoW as their consensus algorithm and maintain decentralization and security.

Beside that ETC can be used in a ‘flippening’ attempt by rich miners who want to keep their equipment relevant and be hyped up enormously in the process. BTC was resilient enough to resist the flippening attempt from Bcash, but will ETH be resilient enough too? It is way more vulnerable for attacks and they have less diehard HODLers to support the price.

Rootstock (RSK)

RSK is a sidechain of Bitcoin that is fully compatible with the EVM (Ethereum Virtual Machine). This means you can literally copy / paste smart contracts from ETH to RSK and it will work. The advantage of RSK is that it is backed by the world strongest blockchain and faster and more scalable than ETH. To speculate on RSK, you can just invest in BTC.

I believe that eventually all the blockchain platforms will move to a sidechain of BTC, because it is simply way more efficient and the side chains will make each other more valuable. For example: RSK will make Lightning more secure because it adds value to the BTC network and attract more miners. LN also makes RSK more valuable because it increases the value of the BTC blockchain what leads to a higher security level.

NEO

NEO is a competitor that uses PoS too. The features of NEO are just newer and better. Normally this wouldn't matter because ETH is benefitting from the first mover advantage and network effect, but because they gave up the base features as described above they will have to compete on the fancy stuff and are overtaken here already. NEO could benefit from regulations in China or headwinds in ETH.

EOS

EOS doesn't have a working blockchain yet, but if they really create what they promise it could become a serious competitor of ETH. With free and almost unlimited transactions they will be a multiple better than ETH, and since ETH is planning to take there security level back to the same level as EOS (PoS) this could really make the difference.

Conclusion

I am very sure ETH will face hard times in the years to come and it could even blow up in a worse case scenario. However, there are still reasons to make the price skyrocket when things go more smoothly than expected. Bitcoin had a HUGE run up in the worse part of the scaling war, maybe ETH will do the same.

Also, institutional money is expected to flow into crypto and probably these new investors will choose the blue chips like BTC, ETH, XRP and LTC. This could boost the price up, even in a negative environment.

I think short term, ETH can do still well (CAN do, I have no clue!), but long term I am bearish because of the described issues. I think BTC will remain the king, but ETH will eventually be overtaken by another smart contract platform (and there are many!). ETH made some critical mistakes in my opinion, so I will decrease my holdings over time.

Disclaimer
This is no financial advice, just my view on the market.

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