Why do the dApps on Ethereum fail?
In 2014, a 20 year old Russian-born Canadian man named Vitalic Buterin conducted an ICO under the name of “Etherum”. He collected a considerable amount of money, about $18 million, but the interest was not that great at that time.
When Ethereum was launched in 2015 and its dApps, which was decentralized by Smart Contact, was introduced, the world was excited. A number of developers who saw the potential of this wonderful new world jumped into dApp development and used it to complete their own ICO.
The market value of Ethereum, which stood at $700 million in early 2017, skyrocketed 170 times over the past year to $12 billion as of early 2018. People who venerated the concept of decentralization were excited about the advantages of a Decentralized Autonomous Organization (DAO). People thought that it was unfair that companies such as Facebook and Google’s Youtube could use customers’ work to increase advertising revenue and take most of their profits and they believed that the blockchain and cryptocurrency would suggest the answer as an alternative. Apple's App Store and Google's Play Store have been making too great a profit, and the golden rule of decadence has started raising its head.
The market value of Ethereum, which stood at $700 million in early 2017, skyrocketed 170 times over the past year to $12 billion as of early 2018. People who venerated the concept of decentralization were excited about the advantages of a Decentralized Autonomous Organization (DAO). People thought that it was unfair that companies such as Facebook and Google’s Youtube could use customers’ work to increase advertising revenue and take most of their profits and they believed that the blockchain and cryptocurrency would suggest the answer as an alternative. Apple's App Store and Google's Play Store have been making too great a profit, and the golden rule of decadence has started raising its head.
The Reality of the Missed Mark of dApp
Many years later, however, the ecosystem of the DAO’s dApp is still hopeless. The result has been so poor that many app developers, and even the Ethereum developer community, have been implementing various other kinds of apps.
Some people are no longer waiting for performance improvement of Ethereum and are in a hurry to move to other platforms such as EOS and Cardano, where the situation is better. Simply put, expectations for Ethereum went up in smoke. As of September 2018, the value plummeted to $19 billion, which is one-fifth of its value at the beginning of the year.
Let's look at the reality of dApp. As of September 12, 2018, there are 1,844 projects registered at “https://www.stateofthedapps.com/”. What's surprising is that even the most popular dApps have only 2,000 daily users.
However, this lack of users is not the only problem with dApp, because other cryptocurrencies are also having to work through the same thing. Only 500,000 people use Bitcoin, which has a 10 year history. Ethereum, which was released three years ago, has only about 500,000 daily users. Among them, there are less than 50,000 dApp users.
Even Steemit, one of the most active social media services regarding Blockchain, is estimated to have only about 250,000 users a day.
One of the characteristics of digital services is the fast diffusion rate. This is due to the fact that the initial costs of new entrants are marginal and the network is effective. Youtube, Facebook, and Twitter have registered 50 million users in just two to four years. Pokemon Go was used by 50 million people within just 19 days.
Paxnet, which I founded in South Korea in 1999, is a security information community. Even though it started at a personal blog level, it has attracted 5 million users in just a year and has reached the world’s top 30 in terms of Alexa.
However, the cryptocurrency and dApps in Ethereum do not show explosive growth following the network effects characterized by digital products. Why?
3 Causes of Ethereum Price Decline
Experts interpret the price crash of Ethereum in three major ways:
- First, the breakdown of the cryptocurrency bubble and regulation of each country
- Second, the overall downturn of the ICO
- Third, the performance limits of Ethereum
After the cryptocurrency market peaked in January of 2018, it has remained on the decline. Bitcoin, the market leader, fell to ¼ of its peak price, and most other coins sustained an even bigger drop. There was also fatigue because a lot of regulations started coming from each country and coins were not able to penetrate into daily life as quickly as expected.
Ethereum was the biggest victim of the ICO downturn. A number of large ICOs were using ERC20 in the second half of 2017 and the first half of 2018. In particular, EOS had collected more than 3 billion dollars of Ethereum coin. Although demand for Ethereum has decreased as the ICO became stagnant, the ICO’s collection of Ethereum is still steadily changing into cash. And since there was more supply than demand, prices had no choice but to drop.
Most importantly, over time, Ethereum’s performance limit began to become apparent. The cost of actions in gas, which is a unit of measurement in Ethereum, has increased as many of the dApps move up to the Ethereum platform. Furthermore, developing a complex and sophisticated dApp with simple functionality is difficult in Ethereum’s Solidity Language.
Another big issue is that too many cryptocurrencies are jumbled together to use a single service.
Users’ disappointment grew as the schedule for the conversion from Proof of Work (POW) to Proof of Stake (PoS, Casper) was delayed. The dApps made up to this point have become more and more difficult to operate on Ethereum. In order to solve this problem, Vitalic Buterline’s team developed Casper (PoS) and presented theoretical solutions such as Plasma and Sharding, but there is a growing skepticism that implementation will be delayed and that it will be difficult to implement these changes within even a few years. This is the underlying cause of the declining price of Ethereum.
Current cryptocurrencies are slow and expensive, and the risk of theft and loss is so great that they are not yet ready to be opened to the public. In addition, it is hard to systematically work on UI/UX improvement for consumer satisfaction because there are no centrally managed organizations. No one can realize the potential of cryptocurrency unless they solve these root issues.
Solving the Trilemma Problem
Ultimately, the Trilemma problem needs to be addressed: “Security, Decentralization, and Cost and Scalability issues are difficult to meet at the same time.”
Although the PoW method of Bitcoin and Ethereum was secured and decentralized, it did not solve the speed and cost issues. For comparison, this would be like 9,000 computers at Bitcoin and 15,000 computers at Ethereum performing the same as a single computer.
EOS and Cardano, which are called third-generation cryptocurrency, have solved cost and speed issues by changing to the PoS method and reduced the Block Producer Server to 21 with EOS and 7 with Cardano, but the ‘Centralization problem’ has arisen. An attempt has been made to address this through the Governance structure, but it is not working well. It is also advantageous to early investors and wealthy people, so dictators appear due to the purchasing ability and collusion. Furthermore, since a sophisticated and complex dApp is almost impossible to develop, customers cannot wait around until a decent one comes out. This is the Blockchain Trilemma.
The Color team faced these problems a long time ago. The only solution is a completely different concept of a new paradigm. That is how we designed a new concept that would change the current paradigm and succeeded to produce Proof of Concept.
Color team call this the “4th Generation Cryptocurrency” and “Next Paradigm shift in Blockchain”.
(To be Continued)