September was a tough month for crypto investors, especially those betting big on Ethereum, the tokens tied to the Ethereum blockchain.
After a drop of just 16% in June, Ether is down 13%, the second-largest monthly drop in the past year. Bitcoin fell 7% in September.
It is difficult to link short-term price movements to a specific event, and the cryptocurrency is expected to return to its historical recovery over the past 12 months. Ethereum, the second most valuable cryptocurrency after bitcoin, is still up nearly 830% over the past year.
Investors are currently buying in the fall of September. On Friday, the first day of October, both Ethereum and Bitcoin are up over 9%.
ether 12 month price chart
However, the September roller coaster marked a particularly rocky extension of the Ethereum ecosystem, giving investors and developers a reason to worry.
Network speed and high transaction fees remain an issue. The August “London” upgrade should reduce transaction fee volatility, but with limited effectiveness.
in the meantime, A rival blockchain called “Ethereum Killer” takes advantage of Ethereum’s challenges.
Ethereum also unexpectedly split into two separate chains in late August, when someone exploited a bug in software that most people used to connect to the blockchain. This exposed the network to attack, but this is not the first time.
“There is no doubt that all of these factors can have some effect on speculation,” Matty Greenspan, founder and CEO of Quantum Economics, said in an interview. where did it go. “But keep in mind that Ethereum has had a very good response so far this year and the entire market seems to be consolidating at the moment. So, we are trying to look deeper into these short-term moves. I won’t.”
Nevertheless, Ethereum, which serves as a key component of crypto projects of all kinds, including non-fungible tokens (NFTs), smart contracts, and decentralized finance (DFI), has some to overcome in order to ward off new competition. . Big obstacle.
Ethereum unexpected split
A central premise of Ethereum security stems from the fact that there is only one set of virtual books. That is, you cannot make coins out of thin air. The ledger must work because the decentralized nature of the blockchain means that there are no rules-keepers or banks sitting in the middle of the transaction acting as an accountant.
Ethereum’s developers were naturally wary since August when a bug caused the chain to split.
“This fork temporarily created two separate transaction records on the Ethereum network, which are like a parallel book,” he said. Matt Hogan, Chief Investment Officer at Bitwise Asset Management, creator of the first crypto index fund.
For some time it was unclear whether the split would lead to a “double pay attack”. This attack can use the same token multiple times and cancel the transaction. Smart contracts that monitor assets worth billions of dollars may also be at risk. Smart contracts allow people to build applications on Ethereum using self-executing code, eliminating the need for third parties to handle transactions.
It was difficult to execute such an attack because it was clear which node was on the right side of the partition and which was not. “But in theory there was a risk,” Heughan said.
The good news for miners and exchanges was that most of them upgraded their software as recommended and the issue was resolved relatively quickly, said Tim Beiko, coordinator of the Ethereum Protocol Developers. Is.
Austen Bunsen, co-founder of Quicknodes, which provides blockchain infrastructure to developers and businesses, said it was a “responsibly disclosed vulnerability.”
“It reminds us that blockchain and Ethereum in general are new and destructive technologies in particular,” says Hngan. “They can do amazing things—transactions of $1 billion in minutes and program money like software—but they are not fully mature.”
insects keep happening
The long-term problem with Ethereum is that random glitches like this keep happening.
In April, the Ethereum blockchain contained a bug in one of the software programs used to access it. And in November, following the Geth upgrade fault, several of Ethereum’s DeFi apps were temporarily shut down, splitting the chain in two.
Geth means Go Ethereum. Operators and miners can choose the software to access the Ethereum blockchain. Most use gas. It occupies 64% of the network.
When the Ethereum blockchain broke a few weeks ago, this was it Geth had a bug in the consensus mechanism. This makes it the only source of truth for transactions, so anyone can see the same thing, regardless of the software they are using.
The developer found a bug, released a new release with a fix, and publicly asked everyone to update. Many users upgraded, but others did not. Ethereum diverged when an unknown actor misused the bug. In other words, it was divided into two series: those who updated the software and those who did not.
“Ethereum demands decentralized libs with “many customers, but as a result, they are inconsistent,” said Nick Carter, co-founder of blockchain data aggregator Coinmetrics.
If software programs don’t communicate with each other, you’ll have a problem with your network.
Bitcoin takes a very different approach. It relies on a secure software program for the node to access the blockchain. Bitcoin developers have long sought to avoid hard forks. As a result, all major software changes are opt-in rather than pushed to the user. According to Carter.
“Ethereum prioritizes rapid development, but at the cost of a set of more vulnerable software implementations,” Carter said.
Some crypto experts attribute the success of Ethereum to the advantages of its pioneers. According to the State of the Dapps website, 78% of the majority of NFT and DeFi apps, or dApps, run on Ethereum.
Due to the growing popularity of rival blockchains, this is beginning to change.
Even before this latest blockchain split, users were complaining about Ethereum’s massive congestion and high transaction fees. It hit a record $70 earlier this year, jumped from $20 to $46, and just this week is back at $32...
At current prices, the pricing keeps some users away.
They are looking at Cardano, the platform used to create dApps, and blockchains such as Solana, whose native coins have grown by almost 4,800% since September 2020. Launched last year, Solana is getting a lot of attention in the NFT and DeFi ecosystem because it is cheap and fast. Use more than Ethereum.
solana process 50,000 transactions per second, and its website, the average cost per transaction is $0.00025. Ethereum can only process 13 transactions per second, and transaction fees are much higher than Solana.
Institutional money is flowing. Solana has closed a $314 million private token sale led by Andreessen Horowitz and Polychain Capital.
“We are rapidly diversifying our stake into other cryptocurrencies and promoting alternative blockchains such as Argoland, Solana and Cardano,” said Bespoke Growth, investors focused primarily on Ethereum. Partners CEO Mark Pekin said.
Bunsen told CNBC that Solana has made great strides in being a usable blockchain, but is not decentralized enough to satisfy the larger crypto community.
In addition, it is not affected by bugs. Last month, Solana was hit by a 17-hour outage after a denial of service attack termed a flood of transactions caused by bots.
According to Bunsen, the list of so-called Ethereum killers is long, including blockchains such as Matic and Polygon that complement Ethereum, as well as Cardano, which is known for its security.
“I think some of those Ethereum killers will do that,” Bunsen said. “But they don’t kill Ethereum.”
Ethereum also has its own upgrade while working. We have been building Ethereum 2.0 for several years and expect it to be ready by the first quarter of 2022.
The change has moved Ethereum to a less energy-intensive mining process. According to Vitalik Buterin, the founder of the networkYou can speed up to 100,000 transactions from more than 7,000 times per second.
If successful, Ethereum 2.0 will be “a major upgrade in terms of throughput in the Ethereum network and a huge win for the environment in general,” Bunsen said.
Look: What does the Ethereum upgrade mean for Ether and miners: