Author: Mari Otagiri
Date of publication: 04/07/2023
In the previous article, we considered the positive factors for the future of Ethereum. Now, let’s focus on the negative factor of the future Ethereum market.
Factors to negatively affect Ethereum
The following factors are expected to be the concerns for future changes in the value of Ethereum:
No issue limit
Legislation surrounding Ethereum
High volatility
No issue limit
Ethereum doesn’t have an issuance limit. While Bitcoin has an upper limit on issuance, Ethereum increases the number of tokens as economics expands. Therefore, if it increases indefinitely, the price per token will become lower.
To solve this problem, Ethereum adopts a mechanism in which gas charges are burned. As a result, the more Ethereum is used, the more the number of Burn is burned than the number of newly issued tokens. In other words, it helps to preserve its value.
High mining reward
Furthermore, Ethereum adopted Proof of Works (PoW). It was necessary to pay ETH as a mining reward and there was a problem of huge energy consumption. To solve these problems, the “Merge” was carried out in September 2022 and Proof of Stake (PoS) was adopted. As a result, many investors believe that they succeeded in dramatically reducing the amount of Ethereum issued and increasing its scarcity.
The lack of an upper limit to issuance can be considered a problem. However, attempts have already been made to fix the problems and the number of issuances has decreased. So, it is important to continue to pay attention to trends.
Legislation surrounding Ethereum
Legislation is not properly developed to regulate DeFi and NFT services operated on the Ethereum chain. This is because innovative services are being progressively advanced. But every country is keeping an eye on those services, and legislation will eventually catch up.
If regulations are imposed and detract from the attractiveness of the service, demand could suddenly drop. For example, the SEC (U.S. Securities and Exchange Commission) is known for taking a tough stance on cryptocurrency staking. If the SEC bans ETH staking by general investors, many users may leave Ethereum.
In fact, US Coinbase CEO Brian Armstrong tweeted concerns about staking regulations, mentioning "I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen."
However, Ethereum is characterized by frequent updates. Even if some kind of regulation will adversely affect Ethereum, a new update will be possible to avoid it. Therefore, it is necessary to continue to pay attention to future updated information.
High volatility
Most cryptocurrencies, not just Ethereum, have very high volatility.
For example, even with Ethereum, the price has fallen by half in less than a month. This has happened many times, making it difficult to gain widespread trust as a currency.
To solve this problem, a new virtual currency, "Stablecoin" has appeared. In particular, its price is more stable than conventional virtual currencies. Also, more and more demand is growing for these stable coins. Overall, high volatility is a major risk factor for Ethereum.
The Future Outlook of Ethereum
There are both challenges and problems. In any case, Ethereum still has long-term issues to be solved and is still a work in progress. So, we need to keep an eye on the trends.