Ethereum had a good run in 2017, mainly due to the successful launch of numerous ICOs and smart contracts. The craze was huge in 2017 and many bought Ether to participate in ICOs’ token sales and this led to its rise to second place, in terms of market cap, behind only Bitcoin.
Ethereum is still currently the second biggest cryptocurrency platform. with a market cap of around $52 billion and at a price of $528, at the time of writing. The same ICOs, which were once the reasons for the stupendous success of Ethereum, could also crash it to rock bottom in 2018. We will have a detailed look at the reasons for this prediction and also see if Ethereum and ICOs can survive this death cross.
Ethereum was built with the intention of running computer programs on a blockchain, and these programs are validated by thousands of computers across the globe. The programs can perform a variety of functions like making decisions, sending ether, and storing data. The Ether is sent to the respective end-user only when a particular condition is met. So, unlike Bitcoin or other cryptocurrencies, where the transaction is direct, Ethereum validates the user based on certain criteria defined in the program of that smart contract, and then transfers Ether only when the desired requirements are met.
This has led to the development of thousands of smart contracts on top of Ethereum, with various use cases that could make our day-to-day life more efficient in a decentralized manner. These smart contracts are completely decentralized, and they don’t require any trusted third party to validate their transactions since they are on the Ethereum blockchain. Smart Contracts helped Ethereum to grow and attain 2nd place in the overall cryptocurrency market cap.
The ICO Craze
In 2017, many ICOs mushroomed and most of them build on Ethereum’s blockchain as an ERC20 token. Typically, companies who want to build dApps (distributed applications) on its blockchain approach the public for crowdfunding. If the idea appeals to people, and they get impressed by the whitepaper and the development team behind it, then they have often decided to fund them in Ether tokens.
In return, the investor is usually rewarded with that company’s ERC20 token, which automatically uses smart contracts. The number of tokens allocated are normally based on a formula mentioned in the whitepaper. Oftentimes, the early adopters, who participated in the ICO, are rewarded more heavily than those who buy it on the open market after the ICO has ended. This is how ICOs attract investors.
The people who buy these tokens expect them to grow in value over time by hoping the company performs well and their product becomes a success. However, many of them have turned out to be scams trying to lure investors using their whitepaper and heavy promotions. Despite this abuse, ICOs still attract millions of dollars in investment, in the form of Ether, since people still tend to be easily enticed, and continue to invest huge sums of their money into these projects.
Strict ICO Regulation by Several Countries
Many countries, in order to protect their citizens from falling prey to scam ICOs, have incorporated strict regulations. Some countries, like China and Korea, have even banned ICOs completely. The reason for banning them is mainly to protect their citizens from getting defrauded.
Many ICOs, after raising their funds, do not develop any products and the investor loses a lot of money. The legality of ICOs is a subject of serious discussion among many nations, and some also want them to be classified as securities. Recently, a company’s ICO was shut down by Hong Kong’s government for selling unregistered securities.
The US government, after watching all these developments, has hinted at a tighter regulation for ICOs. SEC chief Clayton, during a Senate hearing, said that “Every ICO I’ve seen is a security“. Notably, he answered with a strong “Yes” when a reporter asked him if he viewed them as a violation of the law. He further confirmed that digital assets coming from an ICO are clearly securities under US law.
Will Ethereum & Other Tokens Crash in 2018?
Before going further into the serious implications of this development, we need to look back at the history of the Ethereum blockchain and the way it was created. Ethereum was created in 2014 by Vitalik Buterin, a Canadian-Russian programmer and writer. Ethereum is often referred to as the “King of ICOs” and is used by others to fuel many ICOs. In fact, Ethereum itself, was created out of an ICO.
Moreover, Ethereum had its own ICO and it was paid for in Bitcoin, because in those days, it was the only way to raise funds. So, we can say that Ethereum was the first ICO, and it gave birth to hundreds of other ICOs. This raises a serious question of whether Ethereum, and other tokens built on top of them, are securities or not. If they are considered to be securities, then they have to be registered and regulated formally like any other stocks on the market right now. Currently, none of them are registered as securities.
Ethereum and ICOs have to be unlisted from exchanges and listed on the stock market if they are declared as securities. People who bought these tokens and participated in these sales could also be forced to liquidate their holdings since they are holding something that is illegal. We have seen several times on what would be the end result if a particular coin is unlisted from an exchange. There are many examples of coins whose price hit rock bottom after they got unlisted. So, Ethereum and ICOs are in a grave situation, and the implications could be much worse than anyone can predict. The million dollar question is “If Ethereum and other ICO tokens will crash hard and hit rock bottom in 2018?”.
Should Ethereum Holders Be Worried?
The above situation is really very serious and Vitalik might be a worried man now. Along with him, all other Ethereum and ICO investors might also be quite concerned. Moreover, experts predict that even if Ethereum hits rock bottom in 2018, it would be a positive thing in the long run. That’s if it is brought into the regulated environment and traded as a security. The reason for this is that Ethereum and ICOs would then be traded on Nasdaq and other well known American exchanges. This would be quite beneficial since big money from big players could come in should this happen. So, it might be the best option for investors to buy the dip, if it hits the bottom and turns out to be a valuable asset in the long term.
Please note that this article must not be considered professional advice on cryptocurrency investments, or any other investment for that matter. It is in no way meant to encourage any type of investment or investment-related decision. The only purpose of this article is so to serve as a source of information, so that people are inspired to learn more about cryptocurrencies.