Ethereum (ETH -0.57%) was born from the perceived limitations to adding functionality to Bitcoin. Launched in July 2015, Ethereum has skyrocketed nearly 93,000% in value since its public release, even though it remains more than 40% off its peak price.
Is the world's second-most-valuable cryptocurrency, with a current market cap of about $350 billion, fulfilling its potential as an incredible disruptor? I'm not so sure. Here are three reasons I'm bearish on Ethereum.
Huge promise
Let's first try to understand why there's so much hype surrounding Ethereum and its long-term potential. Thanks to the blockchain network having functionality for smart contracts, many bulls believe that Ethereum can disrupt numerous industries, particularly those that depend on expensive intermediaries, by giving power and value back to the users.
In other words, smart contracts can automate a lot of functions that are slow and cumbersome, and that might not add much value. The end result, as many hope, is a better and cheaper user experience.
Viewed in this light, it might be encouraging to see Ethereum's complex roadmap. With scalability, security, and sustainably as the top priorities, the network's developer community has laid out different sets of upgrades to accomplish certain milestones. The latest event, known as The Merge, changed Ethereum to a proof-of-stake consensus mechanism, significantly reducing its energy usage.
Viewed as the world's decentralized computer, Ethereum's ultimate goal is to change the entire structure of the economy, mainly as it relates to how individuals can have greater control in an internet-enabled world.
Reasons to be skeptical
It's easy to get caught up in Ethereum's promise. There are more than 250 million unique wallet addresses. It has the most total value locked by far of any other crypto, which measures the amount of assets locked in a specific DeFi protocol. And sure, there are thousands of decentralized applications.
But I view things with a critical perspective. I think Ethereum is still primarily used as a tool for financial speculation, not actual utility. Even if spot Ethereum exchange-traded funds get approved, it proves that investors only want price exposure, instead of using Ethereum tokens in some dApp setting.
And are dApps really better than services provided by well-known businesses? Marketplace and platform-like businesses, such as Meta Platforms, PayPal, Uber, and Airbnb, have billions of users combined who find value in what they have to offer. They work just fine as is.
Another reason I'm bearish is that I view Ethereum as another venture start-up, which defeats the entire purpose of crypto aiming to be decentralized and give power to the people. There are still a few head developers, most notably Vitalik Buterin, who have outsized influence on the direction of the network. And these founders stand to gain the most financially should things work out as planned.
The Securities and Exchange Commission said that Bitcoin is the only crypto that's a commodity, and that others are essentially securities. This supports the argument that Ethereum is just another profit-seeking enterprise.
And the last bear case rests on the belief that Ethereum is a solution looking for a problem. In fact, this is probably true for nearly all cryptocurrencies right now.
All of the focus and discussion centered on the complex technicalities of the underlying network sound exciting. However, one really has to question if more and more people will engage further with Ethereum and use its dApps in the future. I'm not confident in this outcome.
It might make some bullish Ethereum supporters uncomfortable to challenge their beliefs about the cryptocurrency. But I think healthy criticality is necessary to set realistic expectations about its future.
