By Lumai Mubanga. [email protected]
Editor note from Finmail: The title is slightly updated to reflect the content.
Ever heard of Bitcoin and Ethereum Bubbles? The Bitcoin bubble was followed by the Ethereum bubble. Recall that the Bitcoin hype was created by speculative trading and the alleged Chinese business men entry into the cryptocurrency market. After rising to a historical market value, the Bitcoin bubble “busted” resulting in some investment loses. Since then it has stabilized to reasonable market values.
What brought about the Ethereum Bubble and how does that impact future bubbles Investment opportunities?
In crypto space, a bubble is generally used to describe a limited time when a cryptocurrency gains exponentially in its value against major convertible fiat currencies. For example, the Bitcoin bubble happened when the value of the Bitcoin rose rapidly from $200 to $1000 per US Dollar and there after rose rapidly again close to $20,000 per US Dollar. Shortly thereafter, the value dropped rapidly again to lower values that we see today.
But how did the Ethereum bubble develop and what triggered it?
Recall that the success of Bitcoin as a cryptocurrency was partly because of the failures of earlier currencies like B-Money, DigiCash and others. By leveraging on the strengths of others and avoiding their weaknesses, Bitcoin hit the market with remarkable success. But this did not mean that Bitcoin was error free. It would be one of its weaknesses in its design that would yet again bring about the birth of another cryptocurrency. What could that weakness be?
Apparently, Ethereum developed because of Bitcoin’s failure to scale. Scalability refers to the ability of a technology to be used by an increasing number of persons. In the context of Bitcoin, it means the number of transactions that can be confirmed in a certain amount of time. It is noteworthy to state that Bitcoin blocks are created every ten minutes and can only hold up to 1MB of transactions. In 2015, Bitcoin blocks began to run out, processing an estimated three transactions per second, leaving many transactions from users unconfirmed. Scalability issues began to rise and this led to internal debates and questioning of decentralization system governance.
At that time, it only made sense to begin to look to alternatives that would not experience scalability constraints and would have a different and more positive public perception. Meanwhile, Ethereum has its white paper presented in late 2013. With Bitcoin experiencing scalability issues and low public trust and perception, it appeared the perfect time for Ethereum to bud.
As opposed to Bitcoin, Ethereum was created as a platform to execute peer to peer smart transactions which allowed for general computations. By 2014, Ethereum had gone through crowdsales and on July 30th 2015, Ethereum blockchain was launched. By the following year, the value of Ethereum was worth more than $1 billion.
As an alternative to Bitcoin, Ethereum proved useful and dependable in many ways although, it too had its own challenges. When it comes to investing in cryptocurrency, it makes sense to diversify. You just never know when the bubble will burst.