Wednesday saw a slight Ethereum price rally, in which it reclaimed a quarter of the total cryptocurrency market cap, while Bitcoin continued to struggle. In this minute-by-minute marketplace, the variances in price are relatively minor compared to flash crashes and spikes of earlier months. But the elephant in the room right now is the looming August 1 Bitcoin fork. The outcome of this event is significant – the adoption of the Hard Fork will see the creation of a separate Bitcoin blockchain. The adoption of the Soft Fork will see the adoption of SegWit (a theoretical refinement of the block approval process).
Whatever happens on August 1, disruptions are guaranteed. CoinBase (along with many other marketplaces) sent out an email to its customers warning of a suspension of bitcoin deposits, purchases and sales starting four hours before the activation of either fork.
Such suspense is reminiscent of Y2K, a fabled doomsday scenario that was big when most cryptocurrency programmers and miners were merely twinkles in their parents’ eyes. It spoke of calamitous world events that would occur the moment millions of computer clocks rolled their two-digit calendars over from 99 to 00, ostensibly introducing the millennium, but practically reverting networks and machinery everywhere to 1900. Predictions were made about planes falling out of the sky, power grids going dark, and chaos everywhere.
It didn’t happen, and then everyone scoffed at the chicken-littleness of it all. Except that much of the badness could have happened, if a global army of techs worldwide hadn’t put in millions of extra hours to rewire the systems in time.
Nothing is more disappointing, it seems, than an anti-climax. If things don’t go boom, even if we are in the middle of the explosion, it’s boring and inconsequential.
The August 1 Fork event feels that way. It’s a significant chapter in the history of cryptocurrency, primarily because it will help define the future of not only Bitcoin but of all its cousins. Principles such as scalability, processing speed and cost, and the governance of the blockchain ledger – including splitting into two or more copies of itself – have huge implications for a technology that is being groomed to inherit the entire world economy. It’s not just about Bitcoin.
Ethereum is Not Money
The Fork will inevitably draw attention to the cryptocurrency world – most humans on the planet who have even heard of blockchain remain dubious as to its viability, and growing pains like August 1 don’t make it any easier.
So, the Ethereum price rise of this Wednesday might be a simple recovery from the hard fall it – and other cryptocurrencies – experienced following the loss of patience the markets showed to underwhelming ICOs and a lack of viable usable products. But the overall expectation is that Ether will continue to grow in value.
It is important to remember, however, that Ether is not really money. It was not created to be money in the same way Bitcoin was. Vitalik Buterin himself described it as a type of ‘fuel” for running smart contracts and apps on Ethereum blockchain.
It was not created in finite supply like Bitcoin was. This has significant impact on how its valuation is to be defined. The limited inventory of Bitcoin guarantees an increase in value – assuming it stays on as an accepted currency. When there are no more bitcoins to be mined the growing demand will make each sliver worth more and more.
But Ethereum has no such end point. Its value lies with its functionality and with peoples’ belief in it, which, ironically, is the basis of most regular currencies.
The moment when Ethereum surpasses Bitcoin in market share is called “The Flippening.” It is still a long way off, but should it happen, and if Ethereum does indeed become the dominant form of virtual currency, it will have a new and untested lineage. Regular old money was based on gold. Later it was based on a country’s GDP, or in the case of fiat currency, simply by law.
But Ether will be based on its usefulness and value to the modern blockchain centered world.
It would be a highly worthwhile exercise to define money once again in this way. As the fuel or lubricant of its blockchain, it follows in the footsteps of gold, whose universal lustrous appeal was matched by its malleability and pure usefulness. Gold is still a safe haven today, although ironically it is said there is more gold to be mined in mountains of discarded cellphones than in actual mountains.
The Ethereum price rise of Wednesday appears relatively inconsequential, except for the fact it proves that Ether is still alive and kicking. The world is holding its breath as August 1 approaches, and the lesson may be one of the power of rumor and word to lift and drop currencies by the hour.