Is Ethereum Out of Gas?

When Vitalik Buterin spearheaded the creation of Ethereum in 2013, it was borne out of frustration with the inflexibility of Bitcoin. Buterin had been writing for online publications about Bitcoin since 2011. An incredibly gifted student of mathematics and computer programming, Buterin saw that the decentralized protocol enabling Bitcoin was capable of more than simply facilitating payments. Blockchain technology could be used to empower all manner of decentralized and trustless interactions, from denoting the ownership of both real-world and digital assets to facilitating peer-to-peer gambling and providing next-generation systems for identifying identity and reputation systems. Blockchain could also be used for what would become known as “smart contracts”, where transactions are executed automatically whenever specified parameters are fulfilled.

To do all of this, Bitcoin required a programming language. This programming language could then be used to create decentralized applications (DApps) that opened as many new possibilities as Tim Berners-Lee’s invention of the World Wide Web brought to the Internet. But adding this new layer to Bitcoin required the consensus of the Bitcoin community. And when Buterin failed to find that consensus, he started working on Ethereum.

Since then, Ethereum has exploded into prominence. The value of an ETH token rose from under $10 in January 2017 to almost $1400 by January 2018. Much of this explosion in popularity was fuelled by Ethereum’s killer app of ICOs – initial coin offerings, whereby upstart projects could their vision and receive seed funding in the form of ETH.

Many of these ICOs were used to fund platforms designed to compete directly with Ethereum. The most successful ICO was a project that has often been referred to as ‘the Ethereum killer’ – EOS, which generated an incredible $4 billion through a year-long uncapped ICO.

As well as paving the way for dozens of competing blockchain networks, the massive popularity of ICOs in 2017 has created problems for Ethereum in other ways. Data from SANBase suggested that 57 projects cashed out more than 125,000 ETH in funding in mid-July to mid-August 2018 alone, with a then market value of around $400 million. Moving ETH into fiat currency creates sell pressure. This sell pressure is often cited as one of the main motivators behind ETH’s declining value: from the all-time high of almost $1400 in January to less than $200 in September 2018.

Perhaps even more damaging, a study from Statis Group alleged in July 2018 that 80% of ICOs were outright scams. Some of these ICOs are obvious jokes or blatant nonsense, such as Fit Vitalik – issuing a token to motivate Buterin to get in better shape – and the appropriately-named Ponzi Coin. Others are less obviously fraudulent. Just over a week ago, the team behind Oyster Pearl – a massively-hyped decentralized cloud storage and advertising revenue solution – announced its founder Bruno Block had built a backdoor into the project’s smart contract, allowing him to issue himself 4 million fresh PRL tokens. A Reddit user has identified even more serious vulnerabilities built into the smart contract underpinning FunFair, alleging these vulnerabilities allow the creator to issue new tokens and take tokens directly from users’ accounts.

While its impossible to peg exact causes to price movements in a market as volatile and open to manipulation as cryptocurrency, Ethereum’s recent dip back to sub-$200 levels may well have been caused by the Oyster Pearl controversy. But it’s not all doom and gloom: Forbes wrote glowingly of a subsequent 5% uptick in ETH’s valuation, while more recent headlines are focusing on the breaking of a $230 resistance level and a possible return to serious upward momentum.

But $230 is still a long way from Ethereum’s all-time high. Is January’s peak ever likely to be eclipsed? Or is Ethereum a project that’s run out of gas – replaced by upstart next-generation projects that have evolved the DApp and smart contract concepts in ways that make them true ‘Ethereum killers’?

The Competitors

While Ethereum’s US Dollar all-time high came in January 2018, it’s value relative to Bitcoin peaked at 0.15 BTC in late June 2017. Through the latter half of the 2017 bull run, many supporters were talking of the oncoming “flippening” – the moment Ethereum overtook Bitcoin to become the world’s biggest cryptocurrency. But Ethereum fell back from this BTC high almost immediately, halving to 0.07 BTC by August 2017. And its fallen continuously over the past few months, staying at around 0.03 BTC since September 2018.

During this period, XRP has several times surpassed Ethereum in market cap to become the second most valuable cryptocurrency. At the same time, many projects that launched as ERC20 tokens have migrated to their own mainnets. And many of these projects claim to be far better suited to becoming the dominant DApp platform than Ethereum.

EOS and TRON both claim to be much faster than Ethereum and cheaper to use. Like Bitcoin, transactions on Ethereum are verified through a Proof of Work (PoW) consensus mechanism that relies on transactions being sent to miners, who then receive a fee for adding the transaction to Ethereum’s blockchain. EOS instead uses a Delegated Proof of Stake (DPoS) consensus model, where token holders vote for 21 block producers who then verify all the network’s transactions. While this model compromises on decentralization, it greatly speeds up the transaction verification process and reduces transaction fees. And TRON claims to be faster than both – 200 times faster than Ethereum, 100 times faster than EOS, and with deployment of smart contracts costing a fraction of what it would on the other two platforms. NEO allows for feeless transactions, though it has been criticized for being heavily centralized. IOTA’s Tangle theoretically allows for near-instant transactions.

Other networks also claim to be much more accessible to developers than Ethereum. Ethereum has its own coding language for smart contracts, Solidity, while most of its competitors incorporate existing languages that are already widely used. Lisk uses Javascript, while EOS and TRON are compatible with a range of languages. This theoretically makes it much easier for new developers to migrate to these platforms. Unfamiliarity with the Solidity coding language has also been given as an excuse for why projects like Oyster Pearl are able to flourish with huge vulnerabilities built into the smart contracts they operate on.

Data shared by Kevin Rooke on Twitter showed that EOS DApps surpassed those on Ethereum in both daily volume and transaction volume in September – perhaps not coincidentally, around the same time ETH’s price seemingly flatlined relative to both Bitcoin and the US Dollar. Similar claims of having more active users than Ethereum have been made by TRON. VeChain is continually announcing partnerships with enterprises that will use its platform as their go-to blockchain solution.

First mover’s advantage has given Ethereum a far deeper development community than any other project, but other networks are clearly gaining ground. It has also proven itself over a much longer period than other networks. EOS has been with near constant negative headlines since the mainnet launch, mostly centered on issues arising from its unique consensus mechanism.

Being first is rarely a guarantee of success in rapidly-evolving tech spaces. If Ethereum is to remain at the front of the pack, it’s going to have to adapt.

The Evolution

Just over a week ago, Vitalik Buterin delivered a keynote speech at the Devcon 4 conference in Prague. During this speech, he outlined the roadmap for Ethereum 2.0.

YouTube video

Key to Ethereum’s evolution is a switch from pure PoW to Proof of Stake (PoS). This change, dubbed Serenity, will allow holders to verify transactions based upon the share of ETH tokens that they hold. Much has been written of the massive energy consumption of cryptocurrency mining, and this wasteful and environmentally damaging process has given many critics cause to question cryptocurrency’s long-term viability. Utilizing a PoS consensus model also incentivizes the holding of ETH tokens, which may help to reduce some of the constant sell pressure created by ICOs using Ethereum as a source of funding. The change won’t be immediate, with a hybrid of the current PoW and Serenity’s PoS update being used once Serenity goes live.

Other key steps on the roadmap to Ethereum 2.0 include the introduction of sharding. Speaking at BeyondBlock 2017 in Taipei a year ago, Buterin described sharding as essentially creating mini “universes” that operate independently from whilst being connect to the main Ethereum blockchain. Transactions can occur within these isolated sharded “universes” without requiring the verification of the entire Ethereum blockchain. This should solve the problem of massive network congestion that CryptoKitties showed would seemingly inevitably accompany the use of the Ethereum network for high numbers of small transactions necessary for blockchain gaming and other applications.

It may still be some time until sharding is in active use on the Ethereum network. Plasma has long been touted as a shorter-term solution that can increase Ethereum’s transaction-processing capabilities. Plasma works by enabling transactions specific to one DApp or environment to be conducted without interacting with the root chain, allowing for offline and off-chain transactions that can be processed without awaiting broadcast across the entire Ethereum network. There are teams working on several different plasma variants, but as a recent article by CoinDesk explains, each implementation is wrestling with unique problems pertaining to its execution of the ill-defined plasma concept. The same article explains that zk-snarks, a technology first used in crypto by privacy coin ZCash, is now being hyped as Ethereum’s best shot at increasing network throughput to 500 transactions-per-second in the immediate future.

Buterin has also mentioned that Ethereum 2.0 should include some measure of smart contract security approval, which should make it much harder for frauds like the Oyster Pearl exit-scam to be executed. Buterin has also spoken before of other improvements that could be made to the ICO model, including adding functions that allow users to trigger refunds if a majority feel it is warranted.

And the final stage of Ethereum’s evolution will be the project moving beyond the control of Buterin himself. He has stated many times that his goal is to create a project that is truly decentralized and requires no figurehead. Buterin’s esoteric genius has been in getting Ethereum to this point, but sooner or later every major project like this outgrows the individual that created it. The fact Buterin is actively encouraging this process is a very good sign for Ethereum’s future success.

The Future

There is a clear vision for Ethereum’s future development and steps are being taken to compete on all fronts with the projects that have launched in its wake. And it’s worth noting that creating a successful DApp platform doesn’t have to be a zero-sum game: in September, NEO founder Da Hongfei shared a stage with Ethereum Special Projects Lead Virgil Griffith, with the two discussing many ways in which the projects could collaborate.

The hype that fuelled Ethereum’s growth a year ago may have disappeared, but the project is far from out of gas. With a clear roadmap in place for its future development and a far larger development community than any other project, Ethereum’s future prospects look incredibly bright. It may still be too early to say with real certainty who the eventual winners and losers of the DApp platform wars, but Ethereum still seems like the strongest contender.