On Monday, a much-hyped startup called Bancor, which wants to do away with cryptocurrency exchanges using smart tokens, managed to raise $153 million in Ether in just three hours. This was the largest Initial Coin Offering—a way of crowdfunding a blockchain startup—in the network's history. However the huge number of transactions being carried out as people rushed to buy Bancor tokens caused the Ethereum network to grind to a halt.
In other words, the popularity of the Bancor ICO had caused the Ethereum network to essentially launch a distributed denial of service (DDoS) attack on itself.
DDoS attacks are characterized by overwhelming a network with traffic with the intent of eating up all its bandwidth and making it inaccessible to other users. On the Ethereum network, which consists of tens of thousands of nodes, shutting down the system with a DDoS is tough, but not impossible. Still, the Bancor team was quick to blame the network slowdown on "massive malicious attacks" on the network.
But as it turned out, these malicious attacks were actually just investors eager to buy Bancor tokens. This prompted Bancor to extend the ICO from a one hour window to a three hour window to allow pending transactions to process.
This was partly to appease a number of would be investors voiced their frustration as they waited several hours for transactions to process after repeatedly being dropped. But it also pissed off regular users who were trying to buy or sell ether for other reasons had to wait until all the Bancor transactions had started to clear or pay wildly inflated gas costs to bump their own transaction to the front of the line.
While the success of its ICO is good news for Bancor, it does raise serious questions about the scalability of the Ethereum network and has resulted in calls for a different way of doing ICOs.
Similar to Initial Public Offerings in the stock market, ICOs are a way for Ethereum-based startups to crowdfund capital for their company. Ethereum users can buy company-specific tokens with ether, which they hope will increase in price as the company begins using these tokens to perform their services. While ICOs have been around almost as long as the Ethereum network itself, the past few months have seen far more ICOs than ever before, a phenomenon that many credit for the meteoric rise of the value of ether.
The problem is that if the network can't handle the surges in transactions every time a massive ICO is going on, this will make it difficult for Ethereum to be used for pretty much any other practical purpose during that time. The ICO phenomenon is really just beginning, and it's safe to bet there will be even larger ICOs in the future (network congestion has also been an issue during other ICOs). This has led some Ethereum users to search for solutions to what is quickly becoming one of the network's biggest challenges—scalability.
One solution that is being offered up is called EOS, which aims to change the way ICOs are conducted to allow one day windows for token sales, among a number of other technical changes to allow for easily deployable decentralized applications.
Figuring out how to scale Ethereum and prevent repeated network outages like this week's Bancor crowdsale is also at the top of the to-do list for the network's co-founder, Vitalik Buterin.
"There are a lot of applications and contracts even now that are being built inefficiently," Buterin told Bitcoin Magazine . "One major example is that there are a lot of applications that make one separate contract for each user which means that for every single users, it adds several kilobytes of data that cost a few million gas [the way to pay for transactions on the Ethereum network]."
Vitalik is helping design the next version of Ethereum, called Metropolis, to address these types of scalability issues. In the meantime, ICO-related network congestion is likely to continue being a problem and points to the difficulty of creating a truly global computer.