Bitcoins have become the nameplate for cryptocurrencies since Satoshi gave them their name. These digital assets are mined through the solution of complex algorithms which in turn, build a blockchain of data. There are other ones as well, for example, ethereum.
This blockchain is supposed to be immutable and free from corruption, as each block is built from the previous one and cannot be undone without changing the entire chain.
The accountability of the blockchain made it the perfect platform to track the ownership of digital currency and thus the Bitcoin was born.
Even though Bitcoin was one of the first ones out of the gate, it only harnesses a fraction of what blockchain has to offer.
Ethereum is a software platform built on blockchain technology that allows developers to build and deploy a decentralized application (Dapp). Bitcoin is essentially a DAPP which could be run on Ethereum.
As such, Ethereum has been garnering a lot of attention from both investors and the media.
So just what is it that you can do with Ethereum?
First, there’s smart contracts.
Up until now, if you made an agreement with someone, a contract would be signed, possibly notarized and at the completion of the deal, the parties in the contract would carry out what was written in the contract – or not. Trump is a prime example of the bait and switch products and services contract.
Smart contracts have no third-party, arbitrator or ginger-haired con artist to trust for the execution of an agreement’s terms. If the conditions laid out in the smart contract are met/verified, payment/execution is automatic.
Ethereum also allows users to create their own crowd-funding campaign for product pre-sale, or an ICO (cryptocurrency version of an IPO). No trust is necessary. If the campaigner is unable to fulfill the promises set out in the crowdsourcing agreement, the money is automatically funneled back to the contributors.
Democratic autonomous organizations (DAOs) can be created on Ethereum. You could create an autonomous organization where proposals submitted by your backers are voted on in a transparent process and implemented, without you ever having to get involved. That’s not all, there’s virtual NGOs, online shareholder voting and virtual countries with enforced constitutions.
At this point, the world is your oyster with Ethereum. At least that is what it looks like.
Ethereum has climbed the ranks to become the second largest cryptocurrency in the world. Since the top of 2017 when it began trading, Ethereum has rocketed more than 5,000% from $7.98 to $407.10 during morning trading. Bitcoin, on the other hand, dropped approximately 17% today.
Vladimir Putin praised cryptocurrency at the St. Petersburg International Economic Forum recently saying, “it’s essentially the foundation for creating brand-new business models.” This isn’t just talk, the state development bank, VEB, has agreed to use Ethereum to help implement blockchain technology in Russia. Singapore has carried out a test using Ethereum blockchain tech. Japan is moving to make Ethereum and other cryptocurrencies valid payment.
There are some serious things to consider before jumping onto the Ethereum bandwagon however and blockchain technology in general.
Hard forks. The blockchain isn’t immutable. Ethereum offers a great example of this as the organization decided to do a hard fork in their blockchain after one of the DAOs created on the platform was hacked and one of the backers lost everything.
As a group, it was decided that a hard-fork (re-write) would be created in the blockchain, to effectively erase the impact of the hack and return the money to a separate contract. This was good for the investor and Ethereum’s leadership, but it revealed a tragic flaw with the system and its execution.
First, any kind of change must be democratically approved by everyone using Ethereum. A majority was reached, but there were many users who felt the core concept of immutability had been over-run by the personal interests of those in charge of the Ethereum Foundation and they didn’t want to follow the new way.
So, at the hard fork, you now have Ethereum Classic for all those offended by the refund and the new Ethereum for all those who are comfortable with a sliding scale of correctness.
There’s a bubble. ICOs are tying up Ethereum or ETH. Tokensale caps are ridiculously high, more money than any tech start-up would require. Then when companies look at how ETH is growing in value, they decide to cash in only what they need and hold onto the rest for investment. This hoarding far outstrips the amount of coins being mined. Speculators jump in and feed the vicious circle.
When these companies have to sell to pay bills, or there’s a bug in the system or another DAO goes sour, Ethereum’s value will most likely tank, taking a great deal of small time investors with it.
Sure, Ethereum co-founder, Vitalik Buterin, says all that glitters is gold, but he’s got a vested interest in at least one of the ICOs going on Ethereum, so he’s not going to be talking about the Emperor’s lack of clothes.
I’m not screaming that the sky is falling, but data seems to point to an impending market correction for Ethereum and cryptocurrencies in general.
So, Bitcoin versus Ethereum. I’ll run with Ethereum, but not until after the correction and Buterin removes himself from the equation.
–Gaalen EngenDisclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.