Over the last few years, Ethereum has introduced blockchain powered decentralized applications (dApps) to the world. Ethereum’s visionary leader, Vitalik Buterin, has grown it from a crazy idea to one of the most valuable crypto projects in the world. Even its native token, Ether, has cut the record and ranks No.2 by its total market cap with the ETH to USD price of over $700.
While Ethereum is only 5 years old, that’s ancient in the blockchain world. New blockchain projects are popping up all the time all over the world and are looking to dethrone Ethereum as the go-to smart contract and ICO platform. Ethereum has a lot of experience, funding and community support behind it. But will that be enough to keep it at the top of the crypto food chain?
Let’s take a look at the good and the bad of Ethereum. What Ethereum is doing at the top, and what problems it will have to solve to stay there.
The Good News
After Bitcoin brought us blockchain and distributed transactions in 2008, Vitalik Buterin saw that some key features were missing from the protocol. Unable to get support from the Bitcoin community to upgrade it, he started his own project, Ethereum. As a new project, it could learn from some of the mistakes of Bitcoin.
Improvements Over Bitcoin
The new project introduced some revolutionary new features, including:
- A Turing complete scripting language - Solidity;
- Self-executing “Smart contracts”;
- Shorter block times of ~15 seconds rather than ~10 minutes;
- The Ethash algorithm for fairer mining;
- Much lower transaction fees (in general);
- A new transaction fee system called “gas.”
These innovations make Ethereum capable of much more than Bitcoin, and it has grown into a powerful platform with some key advantages over newer projects.
It’s an Established Project
Success and failure of projects on the internet, especially blockchain projects, are determined mainly by network effects. This is the idea that a network service becomes more valuable as more people use it. The increased value attracts even more users, and the value of the service grows further in a self-reinforcing cycle. This is why many online industries are dominated by one winner-takes-all project, e.g., internet search (Google) and social media (Facebook).
As a blockchain system, popularity also means more users and more miners. This makes the network distributed and more secure.
Ethereum is certainly enjoying the benefits of network effects right now. A strong platform attracts users, investors, miners, and great developers, which all, in turn, make the platform even better, more secure and attractive. Any project looking to truly compete with Ethereum will have an uphill battle to overcome this dominant position.
Ethereum already has some great Distributed Applications (DApps) built on it. Games, such as Cryptokitties, are addicting players with true ownership of digital assets, and there are also blockchain casinos with provably fair odds.
Relatively Stable Currency
Ether (ETH), the cryptocurrency of Ethereum, has a massive market capitalization and is relatively stable compared to other cryptocurrencies. Any kind of stability is rare in the cryptocurrency world, and emerging platforms will have to go through the inevitable volatility period while getting established.
Tools for Developers
Ethereum has a thriving developer community and some great tools available for development. There are command line tools, test networks, and IDEs.
The Bad News
Unfortunately, it’s not all good for Vitalik and the Ethereum community. The project had faced difficult challenges right from the start, including when $50 million of Ether was stolen just as the project was getting started. This caused a split in the community that still exists today. Right now, Ethereum is wrestling with some of its most difficult challenges yet.
Probably the biggest problem facing Ethereum is finding a way to scale its technology to many users. At the moment, Ethereum can only handle about 15 transactions per second for the entire network. That’s nowhere near the level needed for a global scale application platform.
These scaling problems present themselves when the network gets congested, such as when Cryptokitties exploded in popularity. Wait times and fees skyrocket, and the user experience deteriorates.
The problem is that Ethereum is focused on staying very decentralized. Accurately keeping tabs on who owns what and what’s happened, without a central authority and censorship is an extremely difficult task.
Application developers are very aware of this problem. There are some potential solutions in sight, but they are far from ready or proven, and it will likely be a while before Ethereum will scale well. In the meantime, there is an opportunity for new projects like EOS, NEO and Stellar to jump in with new ideas and technologies to steal some market share from Ethereum.
A New Programming Language
Although Ethereum’s Turing complete scripting language Solidity is mentioned as an advantage over Bitcoin, it also has its downsides. Solidity isn’t really used for much outside of Ethereum. That means that developers need to learn a whole new programming language to use Ethereum and that it’s more expensive to hire developers too.
Other platforms are taking a different route. For example, EOS smart contracts are coded in C++ and other popular languages. With NEO you can use basically any programming language. A successful platform that allows developers to code as they like will have an advantage over Ethereum.
Again, Ethereum’s programming language has caused the platform some problems. Solidity is a complete programming language. That’s great for creating powerful smart contracts, but it’s also a huge weakness.
Having a fully functional programming language means that security vulnerabilities are inevitable in Ethereum. This is fact in the programming world, and it means that as long as Ethereum uses Solidity, the security breaches will continue.
Other projects are tackling this problem in a different way, by using Turing incomplete smart contracts to reduce some of the opportunities for attack.
Only Time Will Tell
Ethereum still holds a strong position in the blockchain space. A proven service, strong community, innovative technology, and wealth of experience mean it will likely stay the most important dApp platform for a while. But, it has some big challenges to overcome too. How it deals with these will determine if it remains the most innovative blockchain project.