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Is Ethereum A Bubble?

Everything you should know about Ethereum

11Sep

What happens to every bubble? It pops. A continuous expansion followed by a fail is precisely what defines every economic bubble. Ethereum experienced colossal growth during the spring and summer of 2017. That is why lately, the project of young Vitalik Buterin has been subject of great debate, with many calling it a bubble. Will it actually collapse and confirm the view of some unbelievers, or prove itself as a successful decentralized platform?

Ether’s pump on ICO

The burst of so-called ICOs was the single primary reason that Ethereum gained wide-spread acceptance. Thereafter, the price of Ether coin has rocketed up swiftly and intensely.

What is ICO?

An Initial Coin Offering is a new way of crowdfunding, provided through the blockchain. It’s a good way for startups to raise funds by selling their tokens (stocks, as formerly). In the meantime, people have a good opportunity to make profits by buying tokens and selling them if the price pumps later. Basically, it is the same as a stock market, but you have tokens instead of stocks and automated blockchain instead of brokers.

The role of Ethereum in ICO

Have you ever heard Ethereum being called a cryptocurrency? If you have, than it was probably a mistake. Ethereum is a decentralized platform that runs smart contracts, while Ether is a cryptocurrency token spread among the network.

Due to its smart contracts, Ethereum turned out to be a perfect platform for providing various ICOs. The process was not really a regulated one, although, it wasn’t bothering anyone: startups began raising millions of dollars; private investors gained great profits through trading tokens, while Ethereum itself happened to be in great demand among crypto holders. In the beginning of February 2017, the market cap of Ethereum had reached the record point of $1 billion. That’s where the essential pump started. Eventually, the price of 1ETH reached $400 from $10. The growth turned in thousands percent. So, you can imagine the earnings of people who, at any rate, had invested in Ethereum before it turned mainstream.

How is Ether’s price evaluated?

Do you know what defines the price of Bitcoin? The two main measures are:

  1. Demand of Bitcoin tokens on the market;
  2. Supply (it also includes the cost of mining Bitcoins).

With Ethereum, the situation is much the same:

  1. Demand of Ether tokens on the market;
  2. Demand of certain ICOs;
  3. Supply (the cost of mining is included here as well).

As far as the funding of a certain ICO is provided through Ethereum, it, of course, affects the network accordingly, and provides more work for the nods of the blockchain. Eventually, it makes Ether tokens increase in price.

Fun fact: Vitalik Buterin, the inventor of Ethereum, sold 25% of his Ether funds just before the massive upsurge, when the price of one token was only about $7. This fact shows that even the inventor had no clear idea what would happen to the price after some time passed.

Was this sudden upsurge the first indicator of a bubble?

Those who raised their funds in thousands times didn’t care whether it was a bubble or not, they only saw the real profit they gained. Especially this made others think that Ethereum is actually a bubble.

Yet, if one has no understanding of how cryptocurrency works, they will likely come to the conclusion that Ethereum is some pyramid scheme. However, people who understand cryptocurrency know that such behaviour is peculiar for it.

Take a look at Bitcoin. People who bought it in 2010, are millionaires now. Considering the fact that Ethereum’s functionality is broader, such upsurge makes even more sense.

Moreover, every pump is followed by a dump. And that’s what happened to Ethereum. After the record point of $400 in the middle of June 2017, the Ether coin is still undergoing a strong correction. So, the current (September 6th) price of one token is $347, according to CEX.IO - one of the top Bitcoin and Altcoin exchanges, based in London, UK.

Ethereum is not a pyramid scheme. All the right reasons were present for such price increase. It wasn’t an imitation. Still, it doesn’t prove that Ethereum is not a bubble that can popin one moment.

Future trends of Ethereum

Now that you know the main aspects concerning Ethereum, it’s time to find out what most people expect from it.

Price increase in the autumn

The correction lasts a long time by now, while the amount of transactions in the network continues to grow. By the time traders are back from their summer vacations (this is not a joke), the intensity on the cryptocurrency market will again increase, along with the Ether price.

However, certain barriers for Ethereum have recently appeared. One of them is China, who put in place a law banning any ICO. That’s why experts predict that, theoretically, the price increase can be shifted for a while.

ICOs proved to be advantageous for all the parties involved in the process. The increased demand proves this fact. Although it still lacks regulation, that’s why certain people have different views on this. However, the tendency to regulate has already been triggered, so we’re on the right path.

So, is Ethereum a bubble?

It may seem weird that the larger half of the article is left behind and we just moved to the main topic. It turns out that this issue is far from being an easy one, so you should do a lot of research in order to come up with an objective opinion. Now, you’ve passed the researching part and it is time for a final conclusion.

Ethereum is not a ponzi scheme

Basically, Ethereum belongs to one person. That is why certain people feel doubtful about it. Especially, after the hard fork that was triggered by Vitalik himself. But it’s important to understand that this is the way it works. There is no complete decentralization even with Bitcoin, the first cryptocurrency whose inventor is unknown. So, it’s mostly the question of trusting a certain organization or not. The demand shows that the credibility is high enough.

Is it worth believing in the success of Ethereum?

This is probably the most difficult question, because no one knows the answer, even the inventor. According to the given information, you should make up your own opinion.

Expert predictions for Ethereum by the end of 2017 are exclusively positive. The popularity grows along with the amount of transactions in the network. Ethereum is also set to switch to the PoS algorithm, which is of a very important significance.

Nothing changes the fact that Ethereum stands next to Bitcoin. It has taken the basis of what Bitcoin introduced in 2009 and enhanced it. In this way, Ethereum brought the world a new notion of smart contracts and showed us that blockchain has much vaster capabilities than providing transactions only. The scope of the project is so wide that claiming it a bubble is the same as making doubt of the whole concept of decentralized technologies, namely the blockchain.

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