Could Ethereum really go to zero?

Ethereum’s digital token, ether (ETH), has lost over 70 percent of its value year-to-date and is down by over 85 percent from its mid-January all-time high of $1,432.88.

In light of Ethereum’s scaling challenges combined with the rise of competing smart contract computing platforms, some industry experts are suggesting that Ethereum’s value could drop much further from its current levels. This article explores their rationale — and examines contrary points of view.

The competition is stepping up

Brave New Coin’s Taxonomy of Cryptographic Assets defines ‘Platform Cryptographic Assets’ as distributed protocols that integrate high-level programming capabilities. Ethereum has popularized this category because of its ability run smart contracts and host developers running Dapps.

It has benefited from its first-mover advantage in the smart contract sector and is well established as the market leader in this segment of the crypto markets.

Nonetheless, Ethereum is increasingly coming under pressure from competing platforms that have learned from Ethereum’s shortfalls and are adapting their networks to meet those needs.

Notable mentions in the list of Platform Cryptographic Assets or potential "Ethereum Killers" are EOS, NEO, the Stellar Network, Cardano, and Tezos.

While these platforms possess different levels of technological improvements over their pioneering predecessor, all of them pose a potential threat if they manage to attract enough developers to their community and secure commercial user adoption of their technology.

The Stellar network (XLM) in particular has emerged within this space because of its notable partnerships with organizations like IBM, connecting blockchain based applications to traditional financial systems.

Additionally, Stellar and other platform cryptographic assets like EOS, have offered alternatives to the ‘traditional’ blockchain consensus & governance methods used by Ethereum, providing intuitive solutions to issues like network bottlenecks and infighting surrounding network updates.

Still, Ethereum has one of the largest developer communities, boasts the most Dapps (decentralized applications), and has become the go-to platform to launch new digital tokens in the ICO market.

Ether’s questionable utility

In an article for TechCrunch titled ‘The Collapse of ETH is Inevitable,’ Stellar advisor and Bitcoin Core contributor, Jeremy Rubin, argues that "there’s no value proposition for ETH."

Rubin says that ETH is not needed to run smart contracts on Ethereum, which makes the cryptocurrency’s utility effectively zero. He suggests that instead of using ETH as "gas" to fuel decentralized applications on the Ethereum network, Ethereum-based tokens could be used to pay miners for the smart contract execution instead. This would make ETH effectively redundant in the Ethereum ecosystem.

Ethereum founder Vitalik Buterin responded in a post on Reddit, stating that Rubin’s arguments would hold true to Ethereum as it is today.

However, Buterin states that with the network’s proposed updates the utility of ETH within the network would be firmly cemented and Rubin’s arguments for an ETH collapse will no longer hold true.

Can Ethereum overcome its scaling issues?

The biggest argument as to why Ethereum could fail is the scaling issues the network is facing. The Ethereum network has experienced periods of congestion during the fundraising periods of high-profile ICOs as well as during the "CryptoKitties boom" in late 2017.

Ethereum boasts one of the largest developer communities in the cryptocurrency industry.. According to ConsenSys’s Andrew Keys, the Ethereum community has 30 times the amount of developers than any other blockchain project.

To combat Ethereum’s scalability issues, the Ethereum community is working on implementing vital upgrades to the network. Namely, a move to a Proof-of-Stake (PoS) consensus mechanism and the introduction of sharding.

Should its developers manage to successfully implement these upgrades to the network, Ethereum will likely manage to maintain its market-leading position, which could even result in new highs in the value of ETH.

Cryptocurrencies can go to zero — but Ethereum probably won’t

The recently published article ‘The Top 10 cryptocurrencies, now and then‘ shows that even the most promising cryptocurrencies that boast a position in the top ten most valuable projects can drop to zero. In fact, more than half of the largest blockchain projects of 2013 have effectively disappeared in the past five years.

While this may suggest that even Ethereum’s fate could go down that route, it is currently highly unlikely that the value of ETH will drop to anywhere near zero despite its existing challenges and increasing competition.

Ethereum’s massive developer community is working on solving Ethereum’s most pertinent challenges. Given Ethereum’s track record of innovation, overcoming challenges (such as the DAO hack), and its backing from major industries, it would be a stretch for ETH to drop to single digit value.

Additionally, it is unlikely that the ICO market will suddenly move onto other smart contract platforms in the near to medium-term. While some token sales have been conducted on the Stellar Network, Ethereum Classic and NEO, for example, the vast majority of ICOs are still being held on the Ethereum network.

While Buterin may prefer "his" network to be used for more than launching fundraising campaigns for blockchain projects, Ethereum has been providing a value-adding service for the entire cryptocurrency community as the de facto fundraising network.

Moreover, as more institutional investors and high-net-worth individuals enter the cryptographic asset space it is most likely that the first digital assets they will purchase will be those with the highest market capitalizations as they provide the most liquidity. Hence, after bitcoin, ether is the next most likely to see new investors inflows. Especially in light of the CBOE’s recent announcement of its intent to launch Ethereum futures soon.

The same also goes for new retail investor money coming in as most "buy cryptocurrency" apps by default support bitcoin (BTC) and ether (ETH) as they are the most valuable and liquid cryptos in the market.

Finally, even if ether did drop to below $100, as Ethereum bear and BitMEX co-founder Arthur Hayes suggested, investors will likely step in to buy the popular and liquid cryptocurrency at a discount in anticipation of the next potential crypto market rally.

Fundamentally, though, the success or failure of Ethereum will depend on its developers’ ability to implement lasting scaling solutions as well as continue to work closely with businesses to ensure that Ethereum remains the go-to blockchain solution for enterprises.