Crypto markets have had a pretty tumultuous 2018, from all-time highs just after New Year to a 70% price crash at the beginning of April. Since then they have recovered somewhat, but this last week has seen prices tumbling once again and the top two, Bitcoin and Ethereum, have led the descent.
Ethereum is different to Bitcoin in that it is a open-source decentralized application (dApp) platform rather than a straight out currency or store of value. The price of Ether (ETH), the crypto-currency generated by the Ethereum platform, is, like other digital tokens, dictated by supply and demand, but there are a number of other factors too.
During the initial coin offering (ICO) boom late last year, developers were using Ethereum to power their own projects and tokens. This heightened demand pushed prices for ETH to a record peak of $1,420 on January 13, according to analytics website coinmarketcap.com. Since then it has lost about 57% to hover at just over $600, which is where it trades at today.
Ethereum is still the platform of choice for many blockchain projects, but a growing number of faster and more efficient alternatives are emerging. EOS, Neo, Cardano and Icon all offer faster transaction speeds and more efficient block validation technology than the current Ethereum network. The problem with its current network is scalability. Ethereum cannot offer super high speed transaction rates on the existing blockchain and slows down under a heavy load.
A prime example of this was when the first blockchain game, CryptoKitties, was released in December. It allows players to buy, sell and breed virtual cats on the network using ETH. This, unsurprisingly, causes the Ethereum network to suffer performance-wise as the trade of tens of thousands of digital moggies clutters it up. To compound matters, more games and dApps have been released on Ethereum since then, which means the platform is becoming a victim of its own success.
There are plans in the pipeline to solve Ethereum’s scalability woes and one of them is sharding. This is a technology that will divide the data across many servers to fragment its digital ledger. Transaction times will be reduced as only the relevant ‘shard’ will be broadcasting data, not the entire blockchain.
Ethereum works on a system of smart contracts, so by adding a second layer it reduces the load on the network as a whole. This scaling solution is known as Plasma, which will replace server farms with peer to peer networks running dApps.
Another major change for Ethereum will be the Casper update, which introduces a ‘proof of stake’ system to ease reliance on ‘mining’ or ‘proof of work’ which is time and energy consuming. These updates are still a few months away, but they should bring speed back into Ethereum.
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