Ethereum holding its own among onrushing challengers: buy and hold recommendation - long term

This article seeks to examine some of the tail-winds and head-winds that currently exist for Ethereum.

1. Tail Winds
Ethereum has a road-map that it is following to try to improve its system: https://www.ethnews.com/ethereums-road-map-for-2017

Ethereum recently announced a major upcoming milestone in its impending "Metropolis" hard fork, which is set to release at the end of September 2017. While the spotlight is currently on Bitcoin's "Game of Coins" war between its many kings, the spotlight may soon switch to Ethereum due to the very positive aspects of the impending hard fork.

Ethereum's Metropolis hard fork brings with it the basis for zero knowledge proofs (allowing for anonymous transactions) and masking which improves security against quantum hacks and more generally as well. Initiating this into the Ethereum system would be a major development and differentiation from Bitcoin. The fork also brings simplification of programming, smart contracts and cost relief as well.

These changes will form a very positive story of progress, development and promise for Ethereum and its community. The introduction of these will also likely shine a light on even more exciting developments, including later steps towards the introduction of proof of work and others described as follows:

A key goal of this phase will include the transition from proof-of-work (mining) to proof-of-stake (virtual mining) using the Casper consensus algorithm. One of the benefits of this transition is the reduction of external resources required for mining, as well as reducing the large amounts of electricity consumed in the process.

With the release of Serenity, Ethereum abstraction will offer developers more flexibility, such as the use of UTXO tree token management on the Ethereum blockchain. The ability to have advanced-contract execution schemes will allow smart contracts to become more autonomous, reducing the need for smart contracts to be externally activated.

Blockchain sharding, the process of ‘cutting up the blockchain into thousands of pieces,’ will allow each running node the ability to approve only their piece (or shard) of the network. Ethereum developers are currently building solutions to provide every shard with Merkle proofs “that can compare across each other and make it so that is has a strong sense of consensus.”

Other milestones will include decreased block times that will speed up transactions exponentially as the technology advances. It is theorized that blockchain sharding will aid in the decreasing of block times and much research is currently being conducted in this field.

The timing of the roll-out is also interesting, since a major new competitor, Tezos, is likely to launch at the end of October or earlier. Ethereum's announcement could thus steal some of Tezos' thunder and try to guard some of its network effect from being stolen.

The sheer number of Ethereum alliance members provides Ethereum with major credibility and they are said to be actively advertising for programmers with training in the Ethereum solidity programming language.

The advent of companies like TenX etc. could well help to chip away at some of Bitcoin's market dominance for Ethereum, since it will not have to worry about targeting individual merchants or companies for adoption. Further, there are now ATM's that have begun accepting and selling ethereum including other coins.

Finally, while all of the hub-bub and commotion within the Bitcoin community about forks and block sizes may be eye-catching and generate great headlines, crypto-community members are no doubt going to notice the quiet Ethereum blockchain that seems to play nice with its members and make improvements with relative ease. With the run-up in the crypto overall market-cap to 145 billion, it seems likely that Ethereum will be in for another bump (perhaps to $400 per coin) as Metropolis approaches. The future could see a much higher run-up.

2. Head-Winds
While I am bullish on Ethereum, it would be irresponsible not to consider some of the headwinds. These do exist, but I don't see them as outstripping the benefits of Ethereum.

In Mid-June 2017 Ethereum hit a record high of over $400 U.S. per coin. But by Mid-July 2017 the price had dropped to the $140 U.S. per coin range (and if you were part of the Flash-Crash, it fell to nearly nothing). By the end of July, the price had moved to $200 per coin. I had called for it as a coin to watch to hit $300 and it has moved to $300 and basically been range-bound since then. I am renewing my buy and hold recommendation on it, but as a longer term coin to hold. I make this recommendation despite the hungry challengers approaching (EOS, NEO, Tezos, etc).

Ethereum's price drop from $400 to $140 must be viewed in context: On February 1, 2017 the coin was worth $10.62 (and 95 cents on January 1, 2016). So, like so many things, the context is the key.

However, I believe that the drop in price was reflective of many of the issues that Ethereum has. First and foremost, one of Ethereum's big money magnets has been the ability of Dapps to be built and distributed via ICO's with independent coins. As those ICO events have approached and occurred, investors (or "donators") have flooded into Ether in order to participate in the ICO. This had a dramatic and positive effect on Ethereum's network effect and price. But the effect was temporary, as the ICO's closed, the air came out of the balloon as the company's sold their Ether for fiat to fund ongoing expenses. The value created is no longer within Ether and resides instead in a separate coin (think of it like Ether being a taxi that the Dapps hop in and out of).

However, while that may be the case, it still does provide Ethereum with considerable notoriety and function as a base system. Others like Tezos may make up some ground with Ethereum since they are encouraging app development within the Tezos system itself - but they have over $230 million to throw at growing the system, and have already thrown $50 million dollars at an initial VC fund to start that process (and, we assume that the proceeds will be reinvested to fund further projects). Ethereum simply does not have those kinds of funds available within the system itself to the best of my knowledge - although I suspect that many VC's would be happy to participate in legitimate start-ups. The issue has been that the ICO's with new coins are simply too profitable for start-ups to ignore - but the SEC and other regulatory bodies will probably cure that over time.

Another issue that has been raised by many is the problem of scaling. Ethereum, like bitcoin, has no stable and easily understandable governance structure. It follows the chaotic and messy system that Bitcoin has - which looks to forks (both soft and hard) in order to make changes. But there has been none of the infighting that has been plaguing Bitcoin. Now is that because the Ethereum community is more enlightened than the bitcoin community? I don't believe so. I believe that it is the old story of the community with a common enemy/rival to catch being united, but the community that is at the top turning inwards for its wars. As Ethereum grows, it may find the same kind of issues that Bitcoin is currently dealing with. Thus far, the community has been largely unified around Vitalik and it does not appear to be a significant problem at present.