The Ethereum (ETH) platform was the pioneer of smart contracts that enabled the crypto-verse to enjoy decentralized applications as well as ICOs. This aspect of the platform is the reason the digital asset skyrocketed from obscure levels of $8 only last year in January, to $1,400 around January 17th this year. This is a percentage increase of 17,400% in 12 months. ETH has since declined to current levels of $478. Some crypto enthusiasts have even started considering Ethereum Classic (ETC) as a possible investment option.
Scalability issues
This is due to the fact that the ETH platform is yet to solve critical scalability issues that have peaked due to network congestion whenever a new decentralized application is launched. Cryptokitties is the best-known DApp that congested the ETH network. There is also Shrimp farm and Pepe the farmer.
The issue of network congestion is the reason the New York-based Tetras Capital, has shorted Ethererum (ETH). Shorting an asset usually involves borrowing a certain amount of it, selling it and waiting for it to tank in the markets. Once it does so, you rebuy the borrowed amount at a cheaper rate, and you keep the difference.
The firm has even released a 41-page ‘thesis’ as to why Ethereum might stumble along the way and not continue gaining as many crypto-traders and enthusiasts had believed. Key to why ETH will struggle, is the persistence of technical issues, decentralization issues and possible regulation on surrounding ICOs that will be deemed as securities offering. Tetras believes the hype around the digital asset known as Ethereum, is not justified.
Timothy Young, a former entrepreneur who is shorting ETH through his San Francisco family office, Hidden Hand Capital, had this to say about his decision with respect to ETH:
“In the long term, I think they’ll solve a lot of scaling challenges. But in the short term, there’s a disconnect between the price and underlying technology. Just because something is a good idea doesn’t mean it’s a good investment.”
For those who have been keen followers of Global Coin Report, we have put forth the idea that Ethereum faces steep competition from coins belonging to projects that have solved the scalability and smart contract vulnerabilities evident on its platform.
To begin with, there is Tron (TRX) which has a new mainnet that was developed using Java programming language and is in the process of launching a Virtual Machine that will be compatible with that of Ethereum as well as other blockchain platforms in the near future. TRON can currently handle 2,000 transactions per second. The project plans on decentralizing the web 100%.
There is also Zilliqa (ZIL) that was created specifically to solve the security vulnerabilities on the Ethereum platform using a new programming language called Scilla on its own mainnet. ZIL currently handles 2,828 transactions per second with only 6 shards. The mainnet that is yet to be launched aims at increasing the shards.
In conclusion, the Ethereum platform needs to evolve with the times and solve the two problems on its platform as outlined above. Such issues are the reason why institutional investors and individual investors are shorting the digital asset.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Global Coin Report and/or its affiliates, employees, writers, and subcontractors are cryptocurrency investors and from time to time may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.
Image courtesy of Naoki Nakashima via Flickr
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