The Collapse of ETH, and Other Myths
By: Robert Rutherford
Tags: Blockchain, Ethereum, Cryptocurrency, Bitcoin, Cryptocurrency Investment

The Collapse of ETH, and Other Myths

Techcrunch came out with a bottom signaling article titled, “The Collapse of ETH is Inevitable”, in which a disgruntled Stellar/Bitcoin holder tries to explain why ETH will have no value.

Skip it.

Ethereum is a world computer, a shared computer, that costs gas (small amounts of ETH used to transact on the blockchain) to operate, with the outcome being a censorship resistant output.

There either will be a demand for this computer, and therefore a demand for gas, or there won’t.

Off chain transactions lower the demand for gas. However, they also increase the possible interactions of the Ethereum blockchain. If a ÐApp needs access to the ETH blockchain, it will have to expend gas on chain.

The more ÐApps that use ETH, the greater the number of on chain interactions.

The first two years of ETH involved mostly on chain transactions. ICO participants of 2017 will remember a number of times the blockchain became almost unusable. Late in the year, CryptoKitties became the most significant user of gas and the Ethereum blockchain, prompting critics to question Ethereum’s scalability.

Now, however, there are a growing number of ÐApps that stack off chain transactions (like Peepeth) to allow a number of actions to take place before having to expend gas.

This creates less clogging on the ETH blockchain, and increases the user experience. Nobody wants to use a Facebook or Twitter type service in which every “Like” “Share” or angry “Comment” requires an extra step to pay for the transaction.

On second thought, having to do that for angry comments might not be a bad idea…

The Importance of On Chain Transactions

Off chain transactions are great for gaming and social applications that require a higher number of transactions, but can be more vulnerable if the token’s market cap is low enough.

But on chain transactions leverage the full power of the Ethereum world computer, and are nearly impossible to reverse, except in the case of a hard fork.

And as Ethereum continues to develop, hard forks become more difficult to implement. The likelihood of a second “Ethereum Classic” grows less likely by the day:

In a contentious fork of Ethereum, @MakerDAO’s governance would significantly influence Eth’s social layer. Tokens collateralizing Dai will be seen as of relevance, quality, liquidity; & will try to earn this ‘badge’ w/ alignment. One wouldn’t want to be on the ‘Dai-less’ fork. https://t.co/BWc3PgzsAb — FollowTheChain⛓ (@FollowTheChain) September 4, 2018

(Dai is a decentralized stable coin created by depositing ETH into a smart contract and borrowing against it. Soon, other ERC-20 tokens will be used to deposit and withdraw Dai as well, meaning there will be even more inertia to prevent contentious hard forks in the Ethereum blockchain.)

Ethereum Grows in Interoperability

The final piece of the on chain puzzle is that as the Ethereum ecosystem grows, interoperability between various ÐApps grows. Just as the internet stack grew more capable with each protocol (http, smtp, tcp/ip), each Ethereum ÐApp adds another capability to the blockchain. These make Ethereum more than the sum of its parts, and create incredible moats to newcomers hoping to take its place.

Blockchains don’t need to be winner take all, but power laws point towards one blockchain becoming 80% or more of the total market. It’s too early to tell if Ethereum will take this place, but don’t take the haters too seriously: it’s easy to write an article attacking ETH when price is down 80% from it’s all time high.

But it’s difficult to envision the future that blockchains can create for us. If they live up to their promise-and the current pace of actual development points to this-the market for ETH will have no lack of demand…and early holders should see quite a return on their investment.