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Reasons Behind Ether's Decline

2018-04-06 12:33:04.0

Ether, the second largest cryptocurrency in terms of market capitalization behind Bitcoin, lost more than 70% of its value since its historical peak on January 14, 2018. Ether’s market capitalization dropped by nearly 30% over the same period.

Because there is a high level of speculation in the crypto market, most of the short-term price swings are not necessarily due to the headlines.
But, although the fundamental investors remain calm and optimistic about the future of the major cryptocurrencies, there are rising doubts that the debasement of Ether could partly be due to some fundamental motives. 

'Rent fees' could be discouraging
EDCC (Executable Distributed Code Contract), most commonly known as ‘smart contract’, is certainly a major advantage while using Ether, as it offers more security and privacy for sharing information and making transactions.
But the rapid expansion of Ethereum’s userbase and the significant rise in activity is about to become a major issue in terms of cost and performance for the Ethereum network. 

Not only that the increased activity slows down the network, but the actual mechanism does not offer a solution for financing the long-term storage of the individual EDCC data.

Lately, the creator of Ethereum Vitalik Buterin proposed that users pay ‘rent fees’ to store data on the network. Rent fees would be either charged for data exceeding the upper limit of stored data yet to be determined, or data would be ‘put to sleep’ until users ‘pay-to-resurrect’ data by submitting a Merkle proof to prove the state of the data at the time of deletion. In other words, users could purchase data on a second-layer market in the future in case of need.

Apparently, the latest proposals see resistance from the community of users because the structure of costs could be discouraging for many users, even though Vitalik reassures that the eventual implementation of a sharding system could pull the costs significantly lower in the future.
But again, nothing is sure and investors dislike uncertainty. 

Plasma, Plasma Cash too slow to come
Plasma and Plasma Cash are new updates on Ethereum’s platform to address issues of security and scalability by removing unnecessary data from the main chain, like Bitcoin’s SegWit. In other words, only completed transactions would appear on the main blockchain, relieving the network and allowing transactions to be faster and less energy consuming.

Plasma, which was originally proposed in August 2017 and Plasma Cash, which became public in March 2018 are promising, but apparently, the implementation is not fast enough to boost enthusiasm among traders.

In fact, some heavily criticize Ethereum for being idle when it comes to development.

Ether is promising in term
The use of blockchain technology is recent and issues emerge as users adopt these new and powerful technologies which may change the way of communication and exchange in the near future. 

In this respect, Ethereum certainly has the potential to become one of the most widely used platforms across the globe. 

Therefore, many long-term investors remain on hold, or ‘hodl’, to avoid unnecessary sell-off during speculative price movements. Low prices could be interesting entry opportunity for medium to long-term investors.

Ipek Ozkardeskaya
Senior Market Analyst
MBAex Analyst