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Risks abound with Ethereum and its Application Developers

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Ethereum is a public, peer-to-peer network with its own unique digital currency called Ether. It was created by Vitalik Buterin in 2014 and it aimed to be a platform on which smart contracts can be built and executed. The Ethereum blockchain is modeled in a way that would enable it to store different categories of data. The computer programs operating on the Ethereum blockchain accesses and uses this data. These computer programs are called decentralized apps, or “Dapps”.

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Risks with Ethereum

Figure 1: Understanding Dapps

Applications of Ethereum

Several innovative applications are being developed using the Ethereum blockchain. These are:

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  1. Improving the quality of web
  2. Establishment of virtual web
  3. Managing unique identity
  4. Shaping business models
  5. Micro-blogging
  6. Empowering artists
  7. Crowdfunding

Risks being faced by Ethereum and its applications

Even though the blockchain technology has earned a significant amount of popularity in recent times, there are several issues that it has been facing:

Infectious licensing:

One of the major issues that application developers face while using Ethereum is that of open-source licensing. Most of these developers do not pay heed to the risks of using open-source software. This particular risk of open-source licensing is unique to Ethereum as it is non-existent in the case of Bitcoin. Utilizations of Ethereum entail a number of business and legal issues. One of the most pivotal issues that an Ethereum based app developer is likely to face is that of the right to own and use Ethereum. The Ethereum Foundation declares that Ethereum is both open-source and free after the definition of the Free Software Foundation. This implies that the application developers will be granted the licenses to operate, copy, distribute and upgrade the software. After this point, however, uncertainty arises. That is because “free” software does not necessarily mean that the software would be free of cost. These restrictions are particularly disruptive and complicated in the case of the business model of Ethereum.

Open source software is divided into two broad categories namely permissive and restrictive. Unlike the permissive licenses which have minimal restrictions imposed on them, the restrictive licenses limit a licensee’s ability to distribute modified versions of the works under commercial or non-open source terms. Restrictive licenses also termed as copyleft licenses or “viral licenses” as these have the potential to “infect” a software product with the terms of the open-source software of the underlying copyleft programs. This leaves a licensee unable to distribute a modified or derivative version of the works. Hence the use of open-source software is laden with risks which need to be mitigated before the licensing any open-source product. The gravest form of risk that may arise out of the use of open source software is that an application developer may put the entire proprietary value of a project in jeopardy.

Conflicting views:

The Ethereum foundation currently uses a wide range of open source licenses, each of which corresponds to different components of Ethereum. The foundation has not yet decided on one definite open-source license which will be used to design the core of the Ethereum in the future. The Ethereum Foundation has stated that the core of Ethereum will be released under the three most liberal licenses namely Mit License, Mozilla Public Licence, and LGPL. However, the latter two are actually weak copyleft licenses. Currently, cpp – Ethereum’s core libraries are licensed under GPL which is a strong copyleft license.  This results in a conflict with the foundation’s indication that the license of the final core of Ethereum has not yet been finalized. The uncertainty regarding the finalization of the licensing scheme poses significant threats to the developers.

Technical risks:

  • Grayscale Investments report that there is no guarantee that the Ethereum Foundation’s proof-of-stake model named Casper will match up to the security and scalability level of the verified proof-of-work models.
  • Long-term security loopholes and some fundamental flaws are likely to be discovered in its applications.

Resource and cash flow risks:

  • The scarcity of funds is likely to be a limitation for Ethereum.
  • It has not succeeded in attracting sufficient VC investment.

Competition risks:

  • The existing market share and future business prospects of Bitcoin poses a major threat to Ethereum. Bitcoin already has established a strong foothold in China. And then you have NEO.
  • The threat of a potential new entrant in the market is another risk that Ethereum faces.

Regulatory risks:

  • Governments could restrict the market of cryptocurrencies.
  • Governments could demand permission system or provide institutional support to a rival system.
  • Governments could intervene in the issuance of assets, initial public offerings or crowd shares.

Barriers to adoption:

  • The PR mechanism of Ethereum is inefficient.
  • A large section of the general population is not familiar or interested in the concept of Dapps.
  • Ethereum still has not earned a place on any major stock listing.

A few other risks are:

  • The irreversible transaction of cash makes it a risky venture.
  • Ethereum is not accredited to any entity. Hence if somebody loses their Ethereum, the service provider can do nothing to refund him.
  • Finally, the size of its customer base determines its valuation. That means, if demand for Ethereum is generated from only a few people and businesses, its valuation will be diminished significantly.
  • Ethereum does not have a fixed supply cap. It is more volatile than other currencies as its valuation can move both up or down in a very short span of time. The 24-hour variance of Ether has been reported to be 11 percent.
  • A report from Grayscale Investments highlights that there are risks associated with large quantities of ETH being held by entities like the Ethereum foundation and the DAO hacker. The report has also cited issues with the fact that since a concentrated group of developers purchased 72 million of the 89.4 million ETH outstanding during the 2014 pre-sale, any fall in the ETH’s supply rate could result in concerns about the issue of centralization.

There are several risks abound with Ethereum.

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Analysis

Long-Term Cryptocurrency Analysis: Broad Correction Enters Next Phase

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The overbought BTC-led correction that has been the dominating technical process in the cryptocurrency segment in the last month or so continued in earnest today, amid the intensifying regulatory steps concerning the sector. The three-week-long consolidation that followed the initial mini-crash concluded with a sharp sell-off overnight rearranging the long-term charts, while likely kicking off another volatile period.

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While most of the crash lows held up today in early trading in the majors, especially in the case of the late leaders like Ethereum and NEO, some of the relatively weaker coins are already trading below the December minimums. We expect most of the majors to follow Dash and LTC, the weakest of the largest coins, lower and trade below the previous lows, as sentiment will likely swing to a bearish extreme.

The $11,300 level has been in the center of attention throughout the session today and the most valuable coin experienced heavy trading around the level as expected. As the daily MACD is still in neutral territory, the coin could be in for another leg lower, but after the 40% correction and the rather lengthy consolidation, investors could be looking for entry points during the move near the key support levels at $10,000, $9000, and the stronger levels at $8200 and $7700.

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BTC/USD, Daily Chart Analysis

As Ethereum is in a different part of its cycle the long-term momentum readings are still overbought, and that could mean a more protracted correction for the second largest coin. That said, following a multi-month consolidation like the one in Ethereum before, we still expect the token to outperform BTC from a long-term technical standpoint. ETH is now below the short-term trendline, and it’s likely to dip below $1000, and the prior top at $850. Further key levels are found at $740, $625, $575, and near $500.

ETH/USD, Daily Chart Analysis

Let’s see the outlook for the other major altcoins after today’s bloodbath.

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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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Analysis

Crypto Update: Chinese Crackdown Triggers Next Leg of Correction

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The cryptocurrency segment is crashing again, with double-digit losses across the board, and with several coins shedding around 30% in one day amid the widespread and heavy selling. The sell-off was triggered by reports on a new set of measures by the Chinese authorities limiting crypto trading, which added to the still looming South Korea related regulation worries. Bitcoin tested the mini-crash lows at $11,300 today in early trading, dipping slightly below that level before a strong bounce started.

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The most valuable coin is now between two crucial support/resistance lines, with the other ahead at $13,000, and as the downtrend is entering its more mature phase the $10,000 and $9,200 levels could come in play, with a possible dip to the support zone near $7,650.

BTC/USD, Daily Chart Analysis

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Interestingly, the coin is still hovering within the daily range of the crash of December 22nd, and that points to a very active and volatile period ahead near the low at $11,300, as automatic orders will likely get triggered on both sides of the market.

The short-term setup is bearish, and although it’s possible that the primary support level will hold, odds still favor another leg lower, following the exponential run-up at the end of last year that pushed sentiment into bullish extremes.

BTC/USD, 4-Hour Chart Analysis

Altcoins

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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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Analysis

Technical Analysis: Cryptocurrencies Start Week on a Quiet Note as NEO Shines

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The broad Bitcoin-led correction continued to dominate trading in the crypto-segment throughout the weekend, as the most valuable coin drifted sideways above the key technical level at $13,000, with dwindling trading volumes.

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BTC remains in a declining short-term pattern, although the digital currency still holds well above the mini-crash lows from December, spending almost a month now in the daily range of the year-end plunge. We still expect the largest coin to complete the current cycle with a move below the crash lows and the $10,000 level after the stellar rally of the previous months. Key support is still found near $13,000, with further levels at $11,300, $10,000, $9000, and stronger levels at $8200 and $7700

BTC/USD, 4-Hour Chart Analysis

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Altcoins also settled down across the boards with only a few coins registering strong activity. Ethereum and NEO have been among the coins making headlines, as the second largest coin continued to grind, higher still trading near its recent all-time high today. The price of the ETH token is moving in a short-term uptrend, in the face of the stretched momentum indicators, but we expect a meaningful correction soon, and long-term investors should wait for a more favorable technical setup before entering new positions, with key support levels at $1000, $850, $740, $625, and near $575.

ETH/USD, 4-Hour Chart Analysis

Ripple remained under heavy selling pressure in the meanwhile, as the oversold bounce of the weekend faded away and the coin got close last week’s lows again. As the short-term downtrend is intact, traders should stay away from entering new positions, while investors should wait for short-term sell-offs towards the main support levels at $1.50, $1.25, and $0.85 to add to their holdings.

XRP/USDT, 4-Hour Chart Analysis

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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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