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Speculation is one of the most notorious features, or bugs, of the blockchain space. It has created a reputation for the field that was mostly earned thanks to developments in Bitcoin’s largest contender and probably its most ambitious project to date. Ethereum is designed to be a “shared computer” on the blockchain. A platform that makes the fundamental features of the new technology available to a variety of new projects for the development of decentralized applications or DApps.
One of the platform’s main features, Initial coin offerings, or ICOs, became a popular funding mechanism whereby these future applications would sell utility tokens under the promise that they would have a certain function in an upcoming release. However, most investors bought the aforementioned ERC20 tokens with hopes of gaining high returns on their volatile prices. This lead to a situation where ICOs became mainly speculative, catching the attention of regulators.
In response to the ICO mania, the Securities Exchange Commission ruled that these transactions should be registered as securities. A decision that was received with a mixed response by investors and blockchain enthusiasts alike. Some welcomed the SEC’s intervention, stating that it helps curb unhealthy market conditions. Other investors believe that it is a double-edged sword. They fear that regulations might impede the proliferation of new technology by not recognizing ICOs as an important new finance mechanism that could help develop innovative businesses.
These pressures placed cryptocurrencies in the backseat for many investors who were previously enthusiastic. Notable firms such as Asia’s Du Capital and its founder Peter Du are now cautiously optimistic about the outcomes. Du stated that “maintaining hundreds of billions of dollars in valuations supported by unsecured coin issuance was unrealistic and in the long-term, unsustainable. Ethereum as an infrastructure blockchain that other coins hinged on was a beneficiary and grew in valuation as a result, but without having the equivalent growth in infrastructure, ecosystem and mass adoptable applications.” He believes that “now that the SEC has issued stricter regulation on ICOs, the once skyrocketing valuations have come back down to Earth,” which is not necessarily a bad thing.
For Du, part of the blame should be shifted towards Ethereum’s notorious scalability problems. “Ethereum’s once-delayed upgrade is overdue and it comes at great cost, not just to its own project, but to token holders and other tokens that rely on it. We see this with other infrastructure coins too, such as EOS. In the medium-term, they risk marginalization, as new public and sector-specific blockchains up their ante.”
Seasoned investment firms such as Du’s have already shifted their attention to possible solutions. Proposals such as security tokens appear to be the most viable compromise in the current regulatory landscape. There are also promising outlooks on foreign investments, technical developments, and new platforms with better scalability.