StellarX co-founder says Ethereum unsuited to ICOs

August 17, 2018
Chris Wheal

Stellar

A StellarX blog post is critical of Ethereum: Shutterstock

A co-founder of StellarX trading app has released a research project detailing why he believes that the Ethereum network is unsuitable for holding initial coin offerings (ICOs).

In a blog post the writer, who identifies himself by the name Christian, suggests that while Ethereum has several strengths entrepreneurs have applied the platform to the wrong applications. Unless these projects specifically adapt to these strengths, they will not last very long.

Christian says that he and others in the team spent $13,000 running an “at-scale” app for 10 hours on the Ethereum network and their work, results and methodology can be found on their Github.

Good, up to a point

Their research suggests that Ethereum is a great choice where developers are building a distributed computer program that doesn’t need a sole owner or centralized decision-making apparatus.

In addition, Christian says that most blockchain companies are only looking to issue digital tokens and process transactions, which is where, he believes, Ethereum will let users down. For example, if a company desires to issue a token, let users trade and experience transactions in real-time, the StellarX team regards Ethereum as the wrong choice.

“It’s slow and it’s really f*****g expensive and it fails to act like you want in both the ‘one account doing a lot’ and the ‘many accounts doing a little cases,” Christian writes.

Slowness and cost

Ethereum

The Cryptokitties launch exposed Ethereum’s shortcomings: Shutterstock

The report goes into the user experience in some detail, advancing its argument that the more people using the Ethereum app, the slower it goes. This happened with Cryptokitties, the first blockchain-based game to launch on Ethereum last November, which halted the system and caused a backlog of nearly 30,000 transactions.

According to Christian his tests found that transactions typically take eight hours to confirm. Improvements to the network such as Casper and sharding are promising but will be complex fixes layered over Ethereum’s almost “maximal” complexity.

StellarX also takes aim at Ethereum’s cost.The Ethereum app’s per-user costs rise steeply when it adds more accounts – in some cases by as much as 7,000%, when multiple users try to use the network across a number of accounts.

One StellarX experiment, which cost $1,445 for a single hour when Ethereum’s gas prices were low, saw the team run several basic tests that completed eight transactions per second. At that rate, those basic tests would cost $12.6m a year.

The team then compared these transactions to both the traditional PayPal model and a model where the company was built on Ethereum. Had the latter been true, StellarX concludes that 21% of the company’s 2017 net income of $380m would have gone to Ethereum network feeds.

ICO failures

Noting that more than 50% of initial coin offering (ICO) projects subsequently disappeared following their token sales, Christian comments “it’s not Ethereum’s fault that developers are asking from the tech what it was never meant to deliver. It’s the people chasing last year’s ICO dollars, regardless of what’s actually the right tool. Ethereum’s problems all start with misguided entrepreneurs. Don’t become another one of them.”.

Not surprisingly, StellarX’s co-founder recommends Stellar’s network as the solution if developers and entrepreneurs want to “build a business that sticks around,” as he claims it is optimised to issue digital assets and handle high-volume transactions.

 

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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