What does the future hold for the value of Ethereum (ETH)? We've explored some possibilities here.
Ethereum is a decentralised blockchain platform on which decentralised applications (dapps) can be built. It allows developers to create smart contracts, which automatically execute tasks when specific conditions are met, and runs using a cryptocurrency token known as Ether.
As the world’s second-largest cryptocurrency after bitcoin (BTC) in terms of market capitalisation at the time of writing, Ethereum has attracted plenty of attention around the world. However, before deciding whether or not you should buy any ETH, it’s essential that you fully understand the factors affecting the value of this cryptocurrency and what they could mean for the price of ETH in the weeks and months ahead.
|Launch date||30 July 2015|
Ethereum price prediction
Cryptocurrencies have a well-deserved reputation for volatility, and a look back at a graph charting the performance of ETH over the past year will show substantial fluctuations. With this in mind, it’s extremely difficult to make an accurate prediction of where the price of Ethereum or any other cryptocurrency is headed in the future.
However, what we can do is take a closer look at the factors working for and against the potential growth of a cryptocurrency. This will help you form a clearer understanding of the risks of buying digital currency and how the price of Ethereum will change in the coming weeks and months.
What could drive Ethereum’s growth?
- Use cases. Ethereum’s supporters have pointed to its many potential real-world use cases as factors that could drive growth. The platform allows developers to build and deploy dapps across a diverse range of industries, including everything from shipping and logistics to token systems, banking, file storage and reputation systems.
- Dapps. There is already a large number of dapps that have been built and deployed on the Ethereum network. These include worldwide supercomputer Golem, prediction markets tool Augur, exchange and payment platform OmiseGo and decentralised cloud platform Storj. The success (or otherwise) of such dapps will be an important factor determining ETH’s price, as will the creation of new applications on the platform. Not only can they add to the credibility of the Ethereum platform, but there’s also the fact that creating and deploying dapps requires the purchasing of ETH.
- ICO popularity. The Ethereum platform is a popular choice for startups launching ICOs, many of which allow users to purchase new tokens using ETH, potentially increasing demand for ETH.
- Accessibility. Ethereum is the world’s second-most traded digital currency and is easily available on a wide range of crypto exchanges. This makes it easy for investors to access and increases Ethereum’s credibility in the eyes of those outside the crypto community.
- Casper and other upgrades. At some stage in 2018 or 2019, Ethereum will shift from a Proof of Work to a Proof of Stake model under the Casper upgrade. It will also implement other solutions designed to make the network more scalable, such as “sharding” (explained further down this page). If these upgrades achieve the desired results, this could help Ethereum to continue to grow by better equipping it to handle increased transaction volume.
- Commercial partnerships. The Enterprise Ethereum Alliance aims to connect Fortune 500 enterprises, startups, academics and technology vendors with Ethereum subject matter experts. Its list of members includes a host of big names, including Microsoft, BP, JP Morgan, ING, Intel, Credit Suisse and Santander.
- Supply. There is no cap on the total supply of Ethereum, with a maximum annual issuance of the currency of 18 million ETH per year. This means ETH’s relative rate of inflation decreases every year and is designed to eventually stabilise and reach an equilibrium. However, the annual issuance rate following the implementation of the Casper update is expected to be much lower.
What could hold Ethereum back?
- Competitors. Ethereum will face competition from an increasing number of alternative smart contract platforms in coming times. Ethereum Classic (ETC), NEO (NEO), Stratis (STRAT), Lisk (LSK) and Waves (WAVES) are just some of the competitors you’ll need to consider when comparing platforms.
- Scaling issues. While Ethereum’s popularity is a good thing for its proponents, it has also produced a range of problems as the platform has struggled to cope with increased traffic. This has caused slower transaction times and higher processing fees, though there are plans in place to overcome these obstacles.
- Smart contract security concerns. Vulnerabilities in the code of Ethereum smart contracts have led to several incidences of hacking, so security will be an ongoing concern for anyone using the platform moving forward.
- Increased regulation. Reports of threatened crackdowns on cryptocurrencies by governments around the world could potentially have a negative impact on the price of all digital currencies.
- Dodgy ICOs. Some critics have suggested that the launch of unsuccessful or scammy ICOs on Ethereum could affect public perception of the platform and negatively impact on its widespread adoption.
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What’s coming up in Ethereum’s roadmap
To get a better idea of what the future holds for Ethereum, we also need to take a look at the projects and upgrades scheduled for completion in the Ethereum roadmap.
Perhaps the biggest update due to arrive at some stage in 2018-2019 is Ethereum’s switch from a Proof of Work platform to a Proof of Stake algorithm. Known as Casper, this update aims to improve transaction processing times and reduce transaction fees on the Ethereum network.
It will also make Ethereum miners redundant and replace them with “stakers”. These users will stake their ETH tokens in special wallets and receive dividends from network fees based on how much ETH they stake.
However, Casper is still in development, so whether or not it achieves its aims remains to be seen.
There are also a couple of other key updates planned for the future. Speaking at BeyondBlock Taipei in November 2017, Ethereum inventor and co-founder Vitalik Buterin outlined his vision for the future of Ethereum. As well as the shift to Proof of Stake, Buterin mentioned other improvements scheduled for the Ethereum network, including:
- Sharding. This process involves dividing the blockchain into several smaller component networks, allowing transactions to be processed in parallel and therefore designed to increase Ethereum’s processing speed.
- Smart contract security. In order to address security concerns surrounding smart contracts, Buterin announced that Ethereum will eventually introduce formal verification for smart contracts. A new smart-contract programming language, Viper, is also being developed to allow for the creation of safer applications.
In the crowded cryptocurrency market, Ethereum will also face competition from a variety of other blockchain projects. The performance and development of those competitors could have positive or negative implications for the value of ETH.
Some of Ethereum’s main competitors include:
- Bitcoin (BTC). While bitcoin and Ethereum serve two fairly different functions, the two are often compared to one another due to the fact that they are the world’s two largest cryptocurrencies. It’s also worth pointing out that the price performance of bitcoin has often had a significant effect on the value of other cryptocurrencies.
- Ethereum Classic (ETC). This open-source blockchain platform is actually based on the original Ethereum code and was born in 2016 following the infamous The DAO hack and a subsequent disagreement among the Ethereum community.
- NEO (NEO). Often referred to as the Ethereum of China, NEO is a blockchain platform for the development of digital assets and smart contracts. It’s also one of the world’s top 10 cryptocurrencies in terms of market cap.
- Stratis (STRAT). A software platform written in C# and .Net, Stratis aims to offer a blockchain integration solution for businesses.
- EOS (EOS). Designed as a platform for the creation of scalable dapps, EOS aims to offer a user-friendly interface that provides ease of accessibility to blockchain technology for everyone. It also regularly features in a list of the top 10 cryptocurrencies by market cap.
- Waves (WAVES). Waves is a blockchain platform that allows its users to issue their own cryptocurrencies and build applications.
Beyond 2019: What does the future hold for Ethereum?
In the next 12 months, the main focus for Ethereum will be on solving the problem of scalability. If this can be successfully achieved, the project is well placed to seek out further growth opportunities in the future. Having earned itself a strong position in the crypto sphere thanks to the many potential real-world uses for its technology, not to mention partnerships with some big players in the corporate world, Ethereum looks like a digital currency with plenty of potential.
However, whether or not those scaling issues can be overcome remains to be seen, while there’s also the fact that there are plenty of alternative smart contract platforms that will battle Ethereum for market share. Ongoing upgrades and continuing development are needed to help the platform rise to the challenge thrown down by the competition.
Cryptocurrencies are complex and highly speculative, and buying any form of digital currency comes with a high level of risk. It’s essential to understand and appreciate those risks before making any purchases.
Ethereum’s myriad potential use cases in the real world make it a project many are watching with great interest, and the battle to solve scalability issues to improve transaction speeds and lower fees will be crucial.
Competition from other projects could also play a part, though at the aforementioned Taipei blockchain conference in November 2017, Ethereum’s co-founder Vitalik Buterin seemed unconcerned about potential threats from competitors, saying, “The Ethereum killer is Ethereum, the Ethereum of China is Ethereum, the Ethereum of Taiwan is Ethereum… 2.0.”
Whether this statement holds true or not remains to be seen.