The Bancor ICO Showed Ethereum Has a Fundamental Problem

Scaling is a challenge for all of these currencies going forward:

More worryingly, the freeze-up of the ethereum network showed that it can’t handle sudden surges in transaction volume. That’s very similar to the problem plaguing its forebear, bitcoin; ethereum was supposed to be more resilient. Ethereum processes about 50% more transactions than bitcoin does every 10 minutes, thanks to its rules that make miners confirm transactions at more frequent intervals. It also side-steps the dispute at the heart of bitcoin—how to increase its “block size” and thus transaction capacity—by allowing the number of transactions processed by each miner to be increased or decreased by a small degree by the miner itself. This means ethereum blocks can grow or shrink dynamically, whereas bitcoin’s blocks are stuck with an arbitrary limit.

Even those clever features haven’t been enough to prevent the ethereum network from seizing up during high-traffic events, like a hot ICO. “This wasn’t the only one, there was at least one other ICO that caused congestion, for at least two to three hours,” says Nick Johnson, a developer at the Ethereum Foundation who works on the protocol. Johnson notes that ethereum has other mechanisms to reduce the effects of traffic jams, such as the ability for ICO issuers to set a maximum price on transactions. This is what Bancor did, and it allows ethereum users not participating in the ICO to get their own transactions confirmed—so long as they pay a price above the limit.

Johnson also points out that unlike bitcoin, which is suffering from prolonged congestion due to its block-size limit, ethereum is being overwhelmed only sporadically, during unusually high periods of activity. Still, he says, the ability of all blockchains to scale remains a fundamental problem for the field. “There is no magic wand,” he says. “Yesterday, we had one ICO and ethereum basically collapses,” he said, speaking to Quartz the day after the Bancor offering. “It just shows me that we are a long way off from a decentralized world computer.”

https://qz.com/1004892/the-bancor-ico-just-raised-153-million-on-ethereum-in-three-hours/