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China has banned initial coin offerings (ICOs) and one of the world’s largest Bitcoin exchanges – BTCChina – has just announced that they will be ceasing operation on September 30th. The UK’s Financial Conduct Authority has also issued a warning on initial coin offerings and the SEC recently weighed in on the DAO fiasco from July last year. Clearly, there are some dark days ahead.

Regulation and government overreach is what drove networks to decentralization in the first place. It is precisely this type of “attack” that these networks are built to brush off. The weight of the world’s governments combined could never shut down a system like Ethereum or Bitcoin…

Technically that’s true, but this type of crypto-anarchistic rhetoric does not address the reality that government regulation could seriously devalue the price of Ethereum – and we are seeing that effect in full force today.

Regulation is one threat for investors – at least to the short term price of Ethereum – but given the climate it seemed fitting to explore other possible events that may negatively impact Ether before turning back – once again – to the fundamentals of this blockchain.

Superior Technology

Without picking up blockchain programming as a full time career, it’s difficult to truly understand the real weaknesses and strengths of the technology which supports this $23bn Ethereum ecosystem. Developers and business owners heatedly debate the “right” way to scale transcations, and critical vulnerabilities appear in even the most well-respected software. If the brightest minds in the industry get it wrong, how do we know who’s right? Blockchain is not the only distributed consensus tech out there; “Directed Acyclic Graph” (DAG) used in coins like IOTA and Byteball have their own advantages and disadvantages. In IOTA’s case, transactions are zero-cost and “The Tangle” (as its DAG is called) can handle thousands of transactions per second. It is quite possible that whilst Ethereum is a new and exciting technology, its usefulness for particular applications (such as transacting value, particularly “machine to machine”) may be usurped in the future.

ICO failure

“ICO” is now somewhat of a dirty word. It’s transpired that raising millions off the back of a whitepaper does not a product make. In fact, quite the opposite. Such an enormous pool of money disincentivizes work – entrepreneurs are entering markets and earning more than they could have ever made with an exit 5 years later. In the not too distant future, we will see projects that announce closure, drop off the grid or simply fail to deliver any type of working product. Whilst the current panic is being led by Chinese regulation (JPMorgan CEO, Jamie Dimon didn’t help), an eventual sell off in the ICO market is inevitable and potentially very damaging to the price of Ether.

Black Swan Events

There are always events that simply cannot be predicted. This goes beyond the unexpected multi-million dollar hacks and into the realm of fundamentally insurmountable bugs and quantum computing. If hash functions can collide then the entire security of Ethereum (oh, and pretty much everything else in digital existence) is undermined. It’s inherently hard to speculate on black swan events, but when you’re dealing with software you can bet that there’s something lurking out there. Our resilience simply depends on how catastrophic it may be.

If Ethereum Should Survive

These are uncertain times, but Ethereum’s price is well grounded on fundamentals. There are objectively beneficial advantages to using Ether over fiat currency in a growing range of applications. Here is some food for thought for investors looking to get excited about the tech at such a bearish time:

The crypto market has just witnessed the impact of sweeping regulation from one of the most influential countries in the industry. It is no surprise that the resulting panic has wiped billions of dollars from the market cap. As details come to light over the specifics of BTCC’s closure, it may also transpire that the Chinese regulators are just getting started. This drop could get a lot worse before it gets better, but as has been proven time and again, Ethereum lives on.

Nick was introduced to Bitcoin in 2011 while studying for a degree in economics and quickly spotted an opportunity for the cryptocurrency's use in online poker. Since then, the space has expanded beyond his expectations and in January 2016 he dedicated more time towards studying Ethereum and other blockchains. Nick is currently the sole author of this blog and writes on a range of topics from the technical to the financial. He also developed the Ethereum price tracker.