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Ethereum: Death Through Economic Abstraction?

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Cryptocurrency entrepreneur Jeremy Rubin caused quite the stir last week when he declared the collapse of Ethereum to be inevitable. In a TechCrunch article that appeared on Sept. 2, Rubin argued that Ethereum’s scalability issues and failure to adopt more secure contract authoring practices would eventually lead ether to be upstaged by its competitors. Ethereum co-founder Vitalik Buterin took to Reddit on Monday to issue a lengthy response to the article.

Death by Economic Abstraction

The core of Rubin’s argument centers on “economic abstraction,” a term used by the Ethereum community to describe gas payments in a non-ETH asset. Economic abstraction is basically paying smart contract fees through an ERC-20 token instead of Ethereum. In Rubin’s view, allowing smart contract fees to be paid in ERC-20 tokens will eventually make Ethereum redundant, leading to its price collapse.

To illustrate this point, he used the example of “BuzzwordCoin,” a fictional decentralized application that will pay gas in ether. According to Rubin, requiring every BuzzwordCoin transaction to also depend on Ethereum for fees creates significant risk, third party dependency and downward pressure on the underlying token price. In other words, if a user had to sell BuzzwordCoin for ether ahead of time to facilitate a BuzzwordCoin transaction, then the selling will happen before the transaction needs it.

Rubin adds the following:

“Instead of paying for Gas in ETH, we could make every BuzzwordCoin transaction deposit a small amount of BuzzwordCoin directly to the block’s miner’s address to pay for the contract’s execution. Paying for Gas in a non-ETH asset is sometimes referred to as economic abstraction in the Ethereum community.”

Vitalik Responds

In a lengthy Reddit response, Vitalik Buterin partially agreed with Rubin’s analysis but said Ethereum is “likely not doing “full economic abstraction.””

“In Ethereum as it presently exists, this is absolutely true, and in fact, if Ethereum were not to change, all parts of the author’s argument (except the part about proof of stake, which would not even apply to Ethereum as it is today) would be correct.”

To address economic abstraction, Buterin clarified that developers are considering two proposals that require ETH to be paid at the protocol level. The two proposals – modified fee market and storage maintenance fees – would basically make gas payments in ether mandatory.

Buterin said economic abstraction can still happen at the user level but block proposers would still need to “cough up ETH.”

ETH/USD Price Update

Ethereum declined sharply on Wednesday as part of a wider market pullback. At the time of writing, the ether price was down 9.9% at $259, according to CoinMarketCap. The second-largest cryptocurrency by market cap briefly traded above $300 over the weekend but was unable to hold that critical  level. The panic sale has put ether at a weekly loss of more than 11%.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 664 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Ethereum

Ethereum Price Extends Slide as ETH Mining No Longer Profitable

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Ethereum’s slide accelerated on Wednesday, with prices falling below $200 for the first time in 11 days as crypto markets booked heavy losses across the board. A profit crunch in the ether mining business is also adding to the growing headache over the protocol’s future.

ETH/USD Update

Ether’s price has declined sharply in the last few hours, more than offsetting a stable overnight session that saw values hold relatively steady. Over the past 24 hours, Ethereum has dropped 9.4% to $189, according to CoinMarketCap. That’s the lowest level in over a month. The selloff was accompanied by a notable uptick in daily trade volumes, with more than $1.7 billion worth of ETH trading hands on virtual currency exchanges. BitForex, LBank and ZBG were the biggest markets for ETH trades.

The value of ether also fell sharply against bitcoin. At the time of writing, ETH/USD was priced at 0.0311, down 5.1% compared with Tuesday.
At current values, Ethereum has a total market capitalization of $19.8 billion, which is roughly $1 billion higher than XRP, the third largest cryptocurrency by market cap.

Mining Ethereum No Longer Profitable

The business of mining ether and other cryptocurrencies using graphic processing units (GPUs) is no longer profitable, according to analysts at Susquehanna, a global quantitative trading firm.

In a note to clients, the firm said mining ether using high-priced GPU cards produced zero profits as of November. Last summer, mining a single unit of ether generated $150 in profit. Ether’s year-long bear market and the substantial drop in the network’s hash rate have contributed to the dwindling profit margins. In general, higher hash rates boost miners’ incentive for finding the next block.

As one might expect, declines in the crypto-mining business have negatively influenced sales at leading GPU makers. Nvidia Corp, a leading chipmaker, has seen its cryptocurrency-related revenue plunge by $100 million quarter-on-quarter. According to Susquehanna, Nvidia’s crypto-related revenue in Q3 is “likely close to zero.”

“We estimate very little revenue from crypto-related GPU sales in the quarter, consistent with management’s prior commentary that they were including no contribution from crypto in their C3Q18 outlook,” Christopher Rolland said in the note, as quoted by CNBC. “3Q18 mining profitability continued to decline, as Ethereum prices have fallen more than -70% since the beginning of 2018.”

The crypto market downturn has forced Nvidia to pull out of the mining business. Colette Kress, Nvidia’s CFO, acknowledged earlier this year that the company now expects “a negligible contribution” from cryptocurrency-specific products going forward.

As Hacked reported in the spring, Nividia’s first-quarter chip sales to crypto miners reached $289 million, far exceeding estimates.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 664 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

Crypto Update: Selloff Accelerates as Bitcoin Brakes Support

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The bearish period continued so far today in the cryptocurrency segment with several majors falling below key short-term support levels. Bitcoin violated the $6275 level, Ethereum fell back below $200, while Ripple is now under the $0.50 price level again. The smaller coins are also under clear selling pressure, and our trend model continues to overwhelmingly negative picture, especially with regards to the long-term time-frame.                

BTC/USDT, 4-Hour Chart Analysis

Bitcoin hit its lowest level in a month, dropping below the $6275 support and likely setting up a test of the $6000 level and putting the key long-term support zone near $5850 in danger as well. The total value of the market declined by more than $5 billion due to the selloff, and bulls would need a quick recovery to avoid another leg lower in the bear market following the lengthy consolidation period.

Bitcoin faces strong resistance at $6500, $6750, and $7000 while below $5850 the next major support zone is found between $5000 and $5100. Traders should still stay away from opening new positions, with our trend model still being on a short-term sell signal.

XRP/USDT, 4-Hour Chart Analysis

Ripple also followed the broader market lower, and the now it’s clearly below the $0.51 level, with the recent weakness warranting a downgrade to neutral in our trend model concerning the short-term time-frame.

While the long-term outlook is still neutral, given the segment-wide trends, traders and investors should remain cautious with new positions even in the case of a renewed buy signal in the coming period. Support below $0.51 is still found between $0.42 and $0.46, while further resistance is ahead near $0.54 and $0.57.

Litecoin Nears Bear Market Low as Ethereum Tests $200 Again

ETH/USD, 4-Hour Chart Analysis

Ethereum dropped below the key $200 support/resistance level again after last week’s failed rally attempt, and now the coin is once again on sell signals on both time-frames in our trend model. While the second largest coin is well above its bear market low, which is found near $170, but given the strong bearish long-term trend, odds continue to favor a test of that and possibly the $160 support as well.

With that in mind, traders and investors should still stay away from the coin ETH, with strong resistance zones ahead near $235 and $260, and with further support found at $180

LTC/USD, 4-Hour Chart Analysis

Litecoin is still among the weakest top coins and it’s getting closer and closer to the bear market low near $47, with a breakdown being very likely in the coming weeks. The $44 price level is the next main support, while in the case of a recovery above $51, the next strong resistance zone is found near $56, with another zone above that at $54.

EOS/USD, 4-Hour Chart Analysis

EOS fell below the key $5.35 support/resistance level amid the broad selloff today, and now it’s on a short-term sell signal again, with the long-term trend clearly being negative. Now, a test of the $5 level seems likely in the coming days, and a break below that could set up a move towards the strong support zone near $4.50.

That said, the consolidation period could still continue, and the coin might still avoid a new bear market low, which could point to an ongoing long-term bottoming process.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 394 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Selloff Continues Despite Another Pop Higher In Ripple

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The cryptocurrency segment continues to trade under clear selling pressure, with most of the majors drifting higher for several days now. Volatility remains low, with light trading activity across the board, and even the most bullish currency, Ripple being in a choppy period despite the periodic burst of activity.

XRP/USDT, 4-Hour Chart Analysis

While the overall picture in the segment is still overwhelmingly bearish, Ripple remains on a short-term buy, and it managed to recover above the key $0.51 level yesterday following a very quiet but bearish weekend. XRP still faces strong resistance near $0.54 and $0.57, and our trend model is only neutral with regards to the long-term time-frame.

Support below $0.51 is found in the key zone between $0.42 and $0.46, and although the broader trends in the segment warn of the continuation of the bear market, traders could still play the short-term trend.

BTC/USD, 4-Hour Chart Analysis

On a negative note for bulls, Bitcoin has been showing weakness in the past days, and now, the most valuable coin is back near the $6275 support level, threatening with a crucial move towards the $6000 level and possibly the key long-term zone near $5850.

The coin is still on a neutral long-term signal, while being on a short-term sell signal, but a move below the long-standing trading range would be a bearish signal for the whole segment. Traders and investors should still not enter new positions here, with strong resistance levels ahead at $6500, $6750, and $7000.

Stellar Relatively Strong Amid Broad Altcoin Decline

ETH/USD, 4-Hour Chart Analysis

Ethereum continued to drift lower towards the $200 support/resistance level that has been dominating trading for months now, as the second largest coin is still stuck in a steep long-term downtrend. The coin turned lower last week before triggering a short-term buy signal, and now, it’s on the verge of a renewed sell signal, given the weakness of the recent days.

Traders and investors should still stay away from ETH, until at least a short-term trend change, with strong resistance zones ahead near $235 and $260, and with further support found at $180, $170, and near $160.

LTC/USD, 4-Hour Chart Analysis

Litecoin continues to be one of the weakest of the majors, and it fell below the $51 support level again following last week’s failed rally attempt. LTC is on sell signals on both time-frames, and a test of the bear market low near $47 seems likely, with a possible drop to the next major support zone near $44 in the coming weeks. Further resistance levels are ahead at $56 and $64 and traders and investors shouldn’t enter positions here.

Stellar/USDT, 4-Hour Chart Analysis

Stellar remained strong from a technical perspective despite drifting lower together with the broader market. While the coin failed to exit its long-standing trading range, the short-term uptrend remains intact, and it is well above the crucial support/resistance zone surrounding the $0.24 price level.

The coin is trying to form a short-term swing low near the $0.2650 support, and despite the bearish segment-wide trends, traders could play the short-term trend here, with resistance zones ahead near $0.2850, $0.30, and between $0.3325 and $0.3475.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 394 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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