{"id":270524,"date":"2021-10-24T04:56:24","date_gmt":"2021-10-24T04:56:24","guid":{"rendered":"http:\/\/yorunoteiou.com\/?p=270524"},"modified":"2021-10-24T04:56:24","modified_gmt":"2021-10-24T04:56:24","slug":"cryptocurrency-ethereum-is-flourishing-but-risks-linger","status":"publish","type":"post","link":"https:\/\/yorunoteiou.com\/?p=270524","title":{"rendered":"Cryptocurrency ethereum is flourishing but risks linger"},"content":{"rendered":"

By Gertrude Chavez-Dreyfuss<\/p>\n<\/p>\n

NEW YORK, May 7 (Reuters) – Ethereum has outperformed major digital currency rivals this year, bolstered by the surge in decentralized finance (DeFi) and the anticipation of a technical adjustment this summer, but it faces hurdles that could stall its rise.<\/p>\n<\/p>\n

With a jump of more than 350% in its price this year, ethereum has the second-largest market capitalization after bitcoin, but not as much cache and perhaps more operational challenges that could prevent it from eclipsing its major rival.<\/p>\n<\/p>\n

In the crypto world, the terms “ethereum” and “ether” have become synonymous.<\/p>\n<\/p>\n

Technically, ethereum is the blockchain network in which decentralized applications are embedded, while ether is the token or currency that enables or drives the use of these applications.<\/p>\n<\/p>\n

Ethereum’s market cap on Friday was $410 billion, second to bitcoin’s at more than $1 trillion, according to data tracker CoinGecko.com.<\/p>\n

It hit a record high of $3,610.04 on Thursday and was last up 1% at $3,524.<\/p>\n<\/p>\n

Bitcoin, meanwhile, has risen a more modest 97% this year. Since hitting an all-time high of just under $65,000 in mid-April, bitcoin has actually fallen roughly 18%.<\/p>\n<\/p>\n

A rise in institutional interest has increased ethereum demand, but supply has been limited.<\/p>\n<\/p>\n

The token’s supply in exchanges in April hit its lowest in nearly 2-1\/2 years, according to Kraken Intelligence, a research blog from cryptocurrency exchange Kraken.<\/p>\n<\/p>\n

“It’s more than just a coin. It’s a whole ecosystem that allows other applications to be built,” said Bradley Kam, chief executive officer of blockchain domain provider, Unstoppable Domains.<\/p>\n<\/p>\n

At the heart of ethereum’s ascendancy is DeFi, which refers to peer-to-peer cryptocurrency platforms that facilitate lending outside traditional banking institutions.<\/p>\n<\/p>\n

Many sites run on the ethereum network, using an open-source code with algorithms that set rates in real time based on supply and demand. The value locked – the total number of loans on DeFi platforms – was $79 billion as of Friday, DeFi Pulse data showed, up nearly 600% from $11 billion in October.<\/p>\n<\/p>\n

DeFi, however, has its problems.<\/p>\n<\/p>\n

Dune Analytics research showed 2%-5% of transactions<\/a> on ethereum-based decentralized exchanges failed due to complications such as slippage or insufficient “gas” prices, which are the fees required to successfully conduct a transaction on the ethereum blockchain.<\/p>\n<\/p>\n

Between April 15 and April 21, for instance, roughly 1.1 million transactions were made on Uniswap, a DeFi protocol used for exchanging cryptocurrencies.<\/p>\n<\/p>\n

Of those, 241,262 failed, representing the largest number of transaction failures across the entire ethereum network, data from analytics platform Etherscan and Dune Analytics showed.<\/p>\n<\/p>\n

“DeFi is destined for meteoric growth, but that growth inherently comes with risk,” said Alex Wearn, chief executive officer at crypto exchange IDEX.<\/p>\n<\/p>\n

“Issues such as failed transactions and front-running are not subtle, costing users millions of dollars every day,” he said, referring to the practice of getting a transaction first in line in the execution queue right before a known future contract.<\/p>\n<\/p>\n

“These major … problems limit the appeal of these products for a wider audience and ultimately hinder the ecosystem’s growth.”<\/p>\n<\/p>\n

Wearn estimates that more than $285 million were lost in DeFi hacks so far this year.<\/p>\n<\/p>\n

Proponents say DeFi sites represent the future of financial services, providing a cheaper, more efficient and accessible way for people and companies to access and offer credit.<\/p>\n<\/p>\n

TECHNOLOGY BUMPS<\/p>\n<\/p>\n

Ethereum has also been plagued by the network’s inability to scale to meet demand without incurring high transaction fees as well as slow execution of transactions, market participants said.<\/p>\n<\/p>\n

The first phase of an upgrade called Ethereum 2.0 launched last year is aimed at addressing the network’s tech issues on speed, efficiency, and scalability.<\/p>\n<\/p>\n

However, John Wu, president of AVA Labs, an open-source platform for financial applications, pointed out that the planned migration to Ethereum 2.0 has been in the works for years.<\/p>\n<\/p>\n

“The timelines have consistently been delayed, so it’s hard to feel comfortable with that unknown,” he said.<\/p>\n<\/p>\n

Ethereum also faces stiff competition from networks such as AVA Labs’ Avalanche and binance – apk per lo scambio di criptovalute<\/a> Smart Chain, which are also compatible with ethereum’s assets and applications.<\/p>\n<\/p>\n

Data from AVA Labs showed users have transferred more than $170 million to Avalanche from ethereum since February.<\/p>\n<\/p>\n

ANOTHER TECHNICAL ENHANCEMENT<\/p>\n<\/p>\n

Still, hopes of a technical adjustment called EIP (ethereum improvement proposal) 1559, which is expected to go live in July and is seen reducing the supply of ethereum, has provided a lift for the digital currency.<\/p>\n<\/p>\n

EIP-1559 aims to reduce the volatility of ethereum’s fees by introducing a mechanism to burn some of those transaction fees, which should slow the token’s issuance, analysts said.<\/p>\n<\/p>\n

The impact on ethereum’s price could be similar to a bitcoin halving event, in which an adjustment cut bitcoin’s supply and propelled its price to record highs, analysts said.<\/p>\n<\/p>\n

“There’s a lot of numbers going around the market about the potential impact that has like a halving-type magnitude with bitcoin,” said Richard Galvin, co-founder and chief executive officer of crypto fund Digital Asset Capital Management.<\/p>\n<\/p>\n

“They’re all pretty positive drivers that have, I guess, seen a pretty strong revaluing.”<\/p>\n<\/p>\n

(Reporting by Gertrude Chavez-Dreyfuss in New York Additional reporting by Tom Wilson in London Editing by Alden Bentley and Matthew Lewis)<\/p>\n","protected":false},"excerpt":{"rendered":"

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