September was a bad month for crypto investors, especially those betting big on ether, the Ethereum blockchain’s token.
Ether fell 13% in June, the second-largest monthly drop in the past year. Bitcoin dropped 7% in September.
With the historic rally in crypto over the last 12 months, pullbacks expected. Ethereum, the second-most valuable cryptocurrency after bitcoin, has risen nearly 830% in a year.
People are buying the September drop. On October 1st, ether and bitcoin both rose over 9%.
But the September volatility reflects a rocky patch for the ethereum ecosystem, which has investors and developers worried.
The network’s speed and high transaction fees remain issues. The August “London” upgrade was supposed to reduce transaction fee volatility, but it hasn’t.
Ethereum killers exploit flaws.
In late August, it split into two chains due to a bug in the software most people use to connect to the blockchain. This wasn’t the first time the network was attacked.
“All of these factors could have an impact on speculation,” said Mati Greenspan, founder, and CEO of Quantum Economics. “But don’t forget that ethereum has appreciated significantly this year and that the market appears to be consolidating. So I wouldn’t try to decipher these short-term shifts.”
Still, ethereum, the primary building block for crypto projects like non-fungible tokens (NFTs), smart contracts, and decentralized finance (DeFi), faces formidable competition.
Unexpected Ethereum split
The fact that there is only one set of virtual books means you can’t create coins out of thin air. Because the blockchain decentralized, there is no central rule keeper or bank to act as an accountant.
In August, a bug caused the Ethereum chain to split.
To create the first cryptocurrency index fund, Bitwise Asset Management made two separate transactions on the Ethereum network.
Whether the split would lead to a “double-spend attack,” where the same token can be spent more than once, Hougan said, was unclear. Also at risk were smart contracts overseeing billions of dollars. Building applications on Ethereum with self-executing code eliminates the need for third parties to handle transactions.
It would have been difficult to execute such an attack because it was clear which nodes were on the right side of the split. “But theoretically,” Hougan said.
The good news for miners and exchanges is that most did as advised, and the issue was quickly resolved, according to Tim Beiko, the protocol’s coordinator.
QuikNode co-founder Auston Bunsen called it a “responsibly disclosed vulnerability.”
It reminds us that blockchains are new and disruptive technologies and ethereum in particular. Money is not fully mature, but they can settle $1 billion transactions in minutes and program money like software.
The longer-term issue for ethereum is random glitches like this.
An April bug in one of the software programs used to access the Ethereum’s blockchain. In November, a Geth upgrade went awry, causing the chain to split in two.
Go Ethereum called Geth. They can use any software to access the blockchain. Most use Geth, which makes up 64% of the network.
The ethereum blockchain split recently due to a bug in Geth’s consensus mechanism. As a result, everyone sees the same thing regardless of the software they use.
Developers found the bug, fixed it, and publicly advised everyone to update. Some users upgraded. Others did not. Ethereum forked when an unknown actor exploited the bug, separating into two chains: one for those who updated their software and one for those who hadn’t.
According to Nic Carter, co-founder of blockchain data aggregator Coinmetrics, Ethereum “sought the veneer of decentralization by having many clients.”