Ethereum and Ether (ETH) were the enabling platform of the recently ended ICO hype. The super-simple creation and distribution of new cryptographic tokens using the Smart Contract templates of the Ethereum Foundation triggered the worldwide ICO tsunami, which washed around USD 30 billion in investor funds into the wallets of more than 1,100 ICOs. In the aftermaths of the collapse hype, the sustainability of the Ethereum blockchain and the ETH is critically questioned.
ICO platform Ethereum
The ICO hype of the last 18 months has not only caused the price of cryptocurrencies to explode but has also and above all helped the Ethereum blockchain to break through. The majority of the currently 1,050 tokens listed on CoinMarketCap are based on the Ethereum blockchain and have been issued in the course of the ICO’s. Of the top 100 tokens on CoinMarketCap, 95 are based on Ethereum and the ERC20 token standard. Without Ethereum, the ICO hype would probably never have happened. With Ethereum even the average John and Jane Doe could develop their own ERC20 token and perform and ICO within a few hours. Ethereum seemed a perpetuum mobile of the new money creation.
The ICO’s drove ETH demand and thus its price. From just under USD 11 by the end of 2016, the ETH rose to over USD 1,200 in January 2018, which is 109 times as much. By way of comparison, the BTC rose from around USD 1,140 to around USD 19,870 during this period, a rise of “just” under 17 times.
What’s comes Post-ICO?
Now more and more critical voices are predicting an imminent end to Ethereum after the collapse of the ICO hype, the many ICO scams and the increasingly rigorous actions of enforcement agencies and supervisory authorities. There are also critical public voices that blame Ethereum for the many ICO scams and the resulting damage to hundreds of millions of investors. As a critical observer, causality really cannot be dismissed so easily.
If, for example, the centrally managed Ethereum Foundation had implemented regulatory controls, it might have been possible to prevent the majority of scams. In fact, Ethereum has enabled thousands of unregulated ICO’s acting as an unregulated investment platform, shooting hundreds of scams into the global investor universe. Although Ethereum presents itself as a platform for decentralized applications, the ecosphere itself is centrally controlled by the Swiss Ethereum Foundation. In this respect, one could have expected the Foundation and its mastermind Vitalik Buterin to implement regulatory algorithms in smart contracts in order to protect investors.
The American John Gotts is on LinkedIn one of the eloquent critics of Ethereum and argues in precisely that direction. For him, Ethereum had only been irresponsibly inflated by the many ICOs. For Gotts, most of the ERC20-based tokens are illegally sold financial instruments (securities) in the first place and he expects that up to 99% of all ERC20 ICO’s will ultimately not survive.
In another article published on TechCrunch just recently the crypto expert and co-founder of the MIT Digital Currency Initiative, Jeremy Rubin, predicts an unavoidable collapse of the Ether (ETH), the native cryptocurrency of the Ethereum blockchain. As can be seen from the chart above, since the end of the ICO hype, ETH Zurich has lost significantly more in value than Bitcoin (BTC). The market capitalization of the ETH is currently already less than 20% of the BTC with a downward trend.
On LinkedIn, the discussion as to whether the ETH is approaching zero or has a future as a crypto-asset is now in full swing. An exciting and necessary discussion.
The crisis of the Ethereum ecosphere
One of the founders of FinTelegram already published an analysis of the ICO hype a year ago and pointed out the responsibility of the Ethereum people. He had already expected that the ICO hype would leave a lot of investors disappointed and that its collapse would have lasting negative consequences for Ethereum.
In any case, it is a fact that with the collapse of the ETH prize many crypto-mining models no longer work profitably. In our opinion, this will lead to a wave of collapses of ETH mining systems and aggravate the situation in the Ethereum ecosphere. It is also a fact that the supervisory authorities in many jurisdictions are currently taking action against ICO’s and that we are only at the beginning of this process. It doesn’t take a rocket scientist to predict that many ICO’s will have problems with regulators. In many cases, the ERC20-based ICO’s will be qualified as “security tokens”, which would make the ICO and the associated raising of capital as well as trading on the crypto exchanges illegal.
The fact is, however, that we still have no idea what the consequences for the Ethereum ecosphere of the unbelievably high number of scams that have been and will be handled with the ERC20 tokens will be. Ultimately, all these facts could lead to a lethal crisis of confidence around the ETH and the Ethereum Foundation.