Ethereum Flash Crashes By 96% After Status ICO Clogs Network

While Bitcoin, and recent Chinese and Korean momentum favorite, Litecoin, have been relatively stable for much of the day, Ethereum suffered dramatic losses on Wednesday, sliding from $360 to $260 before rebounding, in the process experiencing what may have been its first flash crash, when it plunged by 96% from $315 to $13 on massive volume, before rebounding.

As tends to happen without fail during volatile crypto-periods, the crash almost immediately took the Coinbase offline.

Over the past 24 hours, there were several warnings about “unstable operation” in the Ethereum Network, such as this one from the BTC-E exchange.

Due to the unstable operation of the Ethereum network due to the network load, the ETH withdrawals is temporarily unavailable #btce

— BTC-E (@btcecom) June 21, 2017

What catalyzed today’s crash?

According to one explanation posted on the Ethereum reddit, the reason was an ICO, or initial coin offering, gone very wrong. As user emansipater explained around noon, or shortly before the selling onslaught began, the catalyst for the selling was the “badly designed” Status ICO. Here are the detail:

I assume that (unlike all the price discussion here which is totally offtopic) you are referring to the transaction issues which have led several exchanges to pause ETH withdrawals. Here is what happened:

The badly designed Status ICO clogged up the network yesterday with a huge number of high gas fee transactions, most of which are failing but still filling up the blocks and preventing normal tx’s from getting in.

In addition, dwarfpool and perhaps others have set bad defaults on their client software that both actually cost themselves money and also prevent the network from automatically adapting to larger gas volumes the way it’s supposed to.

Furthermore, evidence is accumulating that f2pool was actively manipulating transactions bound for the Status ICO, which they participated in themselves, exacerbating the problem. Experts explained weeks ago that bad ICO designs are vulnerable to such attacks, but this appears to be the first time it was actually executed in the wild.

So now, even though the Status ICO is over, there are still a huge number of transactions clogging up the network and the only way to get transactions in is to pay huge fees (which most of the exchanges probably don’t want to do). Until it clears out, people are going to be missing ENS auctions, unable to withdraw from many wallets and exchanges, etc. etc. etc.

Or, as he summarized “badly designed ICOs, plus selfish and foolish miners = major delays and maybe even substantial losses for everyone else.” Judging by the ensuing flash crash, this was an accurate assessment.

The good news for ETH fans is that once the backlog of transactions clears up, the crypto should resume its previous ways.