Ethereum’s Ecosystem Creaks as ICO Gold Fever Increases
Exchange downtime and network congestion have plagued the Ethereum network over the past 24 hours. In the wake of two almost-simultaneous ICO token sales, many are asking if Ethereum is ready to handle the kind of tasks it was designed for.
Initial coin offerings (ICOs) for the Status and Civic projects resulted in over 10,000 ethereum transactions pending. The network has been chewing through them at its usual speed of one new block every 12 seconds, but nearly 12 hours later there were still 6,000 in line.
Ethereum wallet provider MyEtherWallet expressed concerns that transactions weren’t coming through:
We have over 3k of these in the last 24 hours. This isn't the Ethereum we wanted…. ? https://t.co/ffvdz48K5S
— MyEtherWallet.com (@myetherwallet) June 21, 2017
Some in the cryptocurrency community are reminding us that Ethereum is still in its early days. What will happen when it needs to run the full suite of distributed apps (Dapps) and contract features as intended?
— Bitcoiner (@AnselLindner) June 21, 2017
Can We Blame the ICOs?
Some accused Status of designing its crowdsale poorly. The project had attempted to “democratize” the ICO process to allow more smaller investors to participate, by releasing tokens for sale over a longer period of time. However this could potentially lead to buyers resending transactions repeatedly, causing excess activity.
Status developers admitted that Ethereum is unable to scale just yet, but said “human behavior” was the real reason for flooding the network.
On the other hand, the Civic token crowsdale used a queue system to process requests. It put an order in line, while displaying number of places ahead of it and estimated time to execute. This kept waiting transactions off the network to stop it becoming clogged.
Buyers could still technically try to jump the queue by sending ETH directly to the contract, but that option wasn’t advertised. Civic CEO Vinny Lingham also advised buyers to use bitcoin instead of ETH.
Lingham also criticized Status for moving its ICO timing to one that clashed with Civic.
Everyone Likes Ethereum… Too Much
“Ether… might be getting too popular for its own good,” said Bloomberg’s Camilla Russo. She noted other ICOs for SOMN and Gilgam had also taken place in the past week. Backlogs from Ethereum’s regular crowdsales created a backlog that caused Bitfinex and Shapeshift to temporarily suspend ETH transactions.
Exchange BTC-e allowed trading, but suspended ETH withdrawals:
Due to the unstable operation of the Ethereum network due to the network load, the ETH withdrawals is temporarily unavailable #btce
— BTC-E (@btcecom) June 21, 2017
Most seriously, the GDAX exchange also suffered a “flash crash” on its ETH-USD platform. This saw ETH prices plunge from over $300 USD to 10 cents.
GDAX is still investigating what caused the crash, but some have speculated it was a trader or company cashing in the proceeds of an ICO.
Later, GDAX VP Adam White posted an update that said so far there was no indication of wrongdoing:
“On 21 June 2017 at 12:30pm PT, a multimillion dollar market sell was placed on the GDAX ETH-USD order book. This resulted in orders being filled from $317.81 to $224.48, translating into a book slippage of 29.4%. This slippage started a cascade of approximately 800 stop loss orders and margin funding liquidations, causing ETH to temporarily trade as low as $0.10.”
GDAX also said it would honor properly executed orders. If the activity was ICO-related and in accordance with the rules, it’s possible Ethereum’s ICO activity is affecting other areas of the ecosystem besides its own blockchain.
Get That ICO Done Before It’s Too Late!
ICOs are a huge and lucrative bandwagon right now. The gold rush probably won’t last forever, so projects are rushing to get their share before investor novelty wears off.
Ethereum-based projects are competing for attention as much as bandwidth. Even if the network can somehow handle the additional traffic, it will be harder and harder for new ICOs to get attention. The pool of investor and trader money available will shrink.
ICOs like Brave’s BAT token and Bancor gained publicity with their massive crowdsales. That kind of mania definitely won’t last forever — though no-one’s really sure how long it could. For the record, those sales also caused significant Ethereum transaction backlogs.
The ‘Alternate Cryptocurrency’ to Bitcoin?
Meanwhile, mainstream media still regards ETH as an “alternate cryptocurrency” to bitcoin, and reports mostly on the price. This is although the main use case for ETH right now appears to be buying new ERC20 tokens.
There’s still space for digs at Bitcoin’s clunky transaction speed, though:
Sorry, having a Bitcoin moment https://t.co/TcEeSErkOz
— Vlad Zamfir (@VladZamfir) June 21, 2017
All jokes aside though, Ethereum will have to address its own congestion issues to retain users and value. One point in its favor — there aren’t any serious competitors. While other smart contract and Dapp networks exist, if they ever become popular they’ll face similar problems.
Can Ethereum actually handle the kind of activity it wants? Let’s hear your thoughts.
Images via Twitter, Pixabay