Hayes writes that the trough in ether’s price recently was caused by investors who are dumping the coin after realizing that it has passed its peak. He says ether could very well have a 2-digit valuation in the future. As of this writing, the cryptocurrency is trading at $211.32 per pop and has a market valuation of $21.5 billion.
Ether’s (Non) Utility
The other criticism of ether comes from the founder of MIT’s cryptocurrency project. In a Techcrunch post, Jeremy Rubin takes aim at ether’s utility within Ethereum’s ecosystem and argues that ether's collapse is inevitable. He writes that Ethereum does not really need ether to power transactions within its network. (The cryptocurrency is gas for transactions within Ethereum’s blockchain. In simple words, this means that each transaction on Ethereum’s blockchain costs a certain amount of ether. If enough ether is not reserved for the transaction, it may not be conducted at all.)
There are various problems associated with using ether on Ethereum’s blockchain. For example, startups face problems setting an exchange rate for their token’s value with respect to ether due to the volatility in cryptocurrency markets and the economics of smart contracts. In the latter case, setting value at parity may result in high gas fees while a depreciated value may make their internal token worthless. According to Rubin, Ethereum’s blockchain can also function without ether. Startups can eliminate ether use by using token incentives to draw investors and users or using the tokens themselves as gas for transactions in Eethereum’s blockchain. The exchange rate for tokens in the latter case could be determined using a weighting system on Ethereum’s blockchain, writes Rubin.
Are The Arguments True?
Several arguments raised by these critics can be applied as a whole to cryptocurrency markets. For example, prices for several cryptocurrencies in the last year have been driven by speculation rather than the fundamentals of their platforms. Thanks to smart contracts and cryptokitties, ether, in fact, is among the select cases of cryptocurrencies actually being implemented in a real-world case scenario. (See also: Cryptokitties Are Still A Thing. Here's Why). Consider the case of Tron, whose valuation jumped on the basis of a test platform.
But a cryptocurrency is only as useful as its network effects. Just like their fiat counterparts, coins are worthless unless they have a velocity and are used for practical considerations. It is here that ether seems to be on slippery ground. If Rubin’s argument for ether’s non-utility comes to pass, then the cryptocurrency’s value could very well plummet to zero. There are dissenters, however.
“In essence, I think there is some natural base level of reservation demand that will always be there for a unit of exchange that makes a powerful blockchain tick. And it's hard not to imagine that this level of demand increases if and when Ethereum moves to a proof-of-stake consensus mechanism,” writes Michael Casey, senior advisor for blockchain research at the MIT Digital Currency Initiative.
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