Ether leads new crypto rally after blockchain upgrade
11:19, 6 August 2021
Ether (ETH), the world’s second-biggest cryptocurrency in terms of capitalisation, has stolen the spotlight from market leader bitcoin (BTC) this week as a major upgrade in the Ethereum blockchain has pushed the coin higher by about 17% in the past seven days. Bitcoin was up by about 4% in the same period.
On Friday, ETH went up by over 4% and its price even passed $2,800 (£2,011) for the first time since the end of May.
The Ethereum network upgrade, dubbed the London hard fork, included some significant changes in the blockchain’s functioning, including EIP-1559, which changed the miner compensation scheme.
The primary goal of this change is to make transaction fees of the Ethereum blockchain more predictable for users and one of the ways to do this is by destroying some of the ether coins instead of diving them to the miners that validate the transactions.
The primary consequence of burning some of the gas fees is that the ether supply will increase at a slower pace than before the upgrade, which should theoretically have a positive impact on prices.
ETH worth $12m burned already
Over 4,500 ETH has been burned already since the London hard fork was implemented, according to ultrasound.money, a website that tracks the evolution of the ETH supply.
At the current rate of over $2,750 per ETH, this translates into $12.5m worth of coins destroyed.
Network metrics show that 2.24 million ETH have been issued in the first seven months of 2021, which stands for an average of 10,418 ETH per day, according to a Bankless newsletter.
With 4,400 ETH burned in less than 24 hours since the network upgrade, this would result in a significant reduction of the new ether supply. Moreover, as miners will get lower amounts of ETH for their work, the sell-side pressure should also decrease. Miners are generally forced to sell the coins they earn as they have to cover high electricity and hardware costs, according to Bankless.
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One step closer to historic upgrade
The successful implementation of the London hard fork paves the way for a historic upgrade poised to take place early next year in which the Ethereum blockchain will switch from the current proof-of-work (PoW) validation model to a proof-of-stake (PoS) validation. This switch will reduce the amount of energy used by the Ethereum network by 99%, according to its founder Vitalik Buterin.
The London upgrade is “proof that the Ethereum ecosystem is able to make significant changes”, Buterin said in an interview with Bloomberg News.
The change to ETH 2.0 will be carried out by a process called the merge and is expected by early 2022 but could come as early as year-end, Buterin said. He added that he was more confident about the merge after the London hard fork.
A boost for the whole crypto market
The hype around Ethereum gave a fresh boost to the whole crypto market and the total market capitalisation went up by more than 4% in the last 24 hours to over $1.66trn.
Bitcoin (BTC), the world’s leading cryptocurrency, increased by over 6% to over $40,500.
Meanwhile, Uniswap (UNI), the native coin of the Uniswap blockchain, which hosts the biggest decentralised exchange based on ETH, gained over 8% in the last 24 hours and 26% in the last week. The price of Uniswap coins is strongly correlated to ETH.
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Read more: Ethereum price jumps in anticipation of significant network upgrade
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