Major upgrades to the Ethereum network could help the cryptocurrency soar even higher. Here’s a roadmap to the changes.

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Major changes are coming to the Ethereum network.

  • Ether has soared to record highs, in part because of growing interest in the Ethereum network.
  • But major changes are coming to the blockchain, which some investors say could send ether higher.
  • Developers are overhauling how fees work and plan to make it much more environmentally friendly.
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Ether – the world’s second-biggest cryptocurrency – soared to record highs above $3,600 in the week to Friday and had outstripped bitcoin with year-to-date returns of around 370%.

Analysts said a key catalyst has been growing interest from big players such as the European Investment Bank in the Ethereum blockchain network, on which ether runs.

Investors have been drawn in by the possibility of building decentralized financial contracts on the system and other applications such as non-fungible tokens, or NFTs.

But upcoming changes to Ethereum that aim to make the network bigger and more sustainable are also exciting investors, as they could send the ether price soaring even further.

Insider spoke to Ben Edgington, who is working on the upgrades for development company ConsenSys. He laid out the roadmap for the changes.

The ‘London’ upgrade will start to destroy ether coins

After tweaking how transaction payments work in April, Ethereum developers are preparing for a major overhaul to the fees system. The changes are due in mid-July, according to Edgington.

Under the current system, users send what’s known as a gas fee to miners as payment for transactions to be verified, in a kind of auction. Miners complete transactions, and create cryptocurrencies, by using computing power to solve puzzles on the network.

But when the network is busy – as it increasingly is – the auction system means users have to bid larger amounts and estimate the appropriate fee, leading to volatility and sharp price rises.

To address the problem, Ethereum’s developers have agreed to a major change, known as EIP-1559 in crypto jargon and set to take place during an event called the “London hard fork.”

Under the new system, gas fees will be replaced by a mandatory and automatically determined base fee, which would fluctuate according to network congestion. Users will be given the option of paying miners tips if they need transactions completing quickly.

But the most exciting part for many investors is that the network will start to destroy or “burn” some of the gas fee.

Edgington says: “Potentially, more ether will be burned that will be generated for miners.” He added that this could make the supply of ether decline over time, “which actually trumps bitcoin monetary policy, which is fixed.”

One analyst said earlier this year the burning of fees might lay the groundwork for “explosive growth” in the ether price.

Ethereum 2.0 aims to boost the network’s size and sustainability

Developers are most excited about the momentous changes collectively known as Ethereum 2.0, which aim to make the network bigger and more sustainable.

First up on the road to Ethereum 2.0 is what developers are calling The Merge: a complete change in the underlying mechanics of the network, which Edgington says will hopefully be completed by the end of 2021, or in early 2022.

Currently, computers compete against each other to solve complex puzzles to verify the network and mine ether in what’s called a “proof of work” system.

This makes the network secure, because it would take huge and costly amounts of computing power and energy to hack into – but is very bad for the environment.

Ethereum will instead be moving to a “proof of stake” system. This means people can validate transactions and mine according to the number of coins they hold and are willing to offer as a sort of down payment, Edgington said.

Each user that wants to verify transactions – and thereby earn themselves rewards – has to put up a sizable stake, for example 32 ether worth over $120,000.

The idea is that anyone wanting to attack the network would have to earn enough ether to pay more than the collective value of all the stakes to start altering the blockchain in a damaging way.

Edgington says there is already around $10 billion staked the proof-of-stake network, known as the beacon chain, which developers launched in December.

Ethereum developers are working hard to shift across the network onto the new system – The Merge – but it’s not without risks.

One developer has described the process as “replacing the engine of an airplane while it is still flying.” But they added: “The code in use will have been exhaustively checked, battle-tested, and checked again.”

‘Sharding’ aims to expand the network

Yet Edgington stresses that “moving to proof of stake is not a scalability solution.”

To try to expand Ethereum so that more applications such as NFTs, or decentralized finance contracts, can be built on it, developers will create new networks in a process known as sharding.

“This is like running 64 blockchains in parallel with the beacon chain to increase the capacity,” Edgington says.

Simply put, creating more blockchain systems and tying them together by linking them to the main beacon chain should expand the overall network and make it more efficient, as opposed to the current system where everything is done on one big network.

“I expect within a year of delivering the proof of stake we’ll have delivered the sharding solution,” Edgington says. “But nobody’s making a strict project plan, or deadline about this. It’s ready when it’s ready.”

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Why ether’s 349% rally this year is less hype-driven than previous bull cycles, according to one crypto researcher

Vitalik Buterin
Founder of Ethereum Vitalik Buterin during TechCrunch Disrupt London 2015

  • Ether hit a new all-time high above $3,100 on Monday.
  • Coindesk’s Noelle Acheson said the rally appears to be less-frothy and driven by more fundamental reasons.
  • Anticipation of a network upgrade and a better understanding of Ethereum’s role in decentralized finance is propelling the latest rally, she said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Ether’s current rally is less hype-driven and based more on fundamentals than in previous cycles as investors begin to understand Ethereum’s role in decentralized finance, according to Coindesk’s managing director of research Noelle Acheson.

The cryptocurrency built on top of the open source Ethereum blockchain hit a new all-time high above $3,100 Monday morning in its ninth straight day of gains.

That takes its year-to-date gains to more than 300%, far exceeding bitcoin’s 95% rise in 2021.

While Acheson said part of the price movement upward is likely driven by investors eyeing the round number of $3,000 and jumping in, it’s nothing like the momentum trading Ether saw from retail investors in 2017 during its last bull cycle.

“This time around there seem to be more professional investors involved…and the retail market is better informed about crypto more broadly,” Acheson told Insider.

When Ether reached $1,000 in 2017, just two years after the coin began trading publicly, it was very “inflated” given the fact that Ethereum network didn’t have that many applications built on top of it, she said.

“Now, Ethereum is powering decentralized finance, it’s powering stablecoins, it’s powering part of the NFT universe,” Acheson added, saying that the potential of the Ethereum network is better understood than four years ago.

Decentralized finance refers to a class of new applications that aim to replace traditional financial products – like lending and borrowing, trading, saving, derivatives, and options – through the use of decentralized tech, rather than relying on a company or bank. Ethereum was made for these “DeFi” applications to be built on top of the Ethereum blockchain.

Ether’s price is also going higher as investors prepare for the Ethereum network to undergo a massive upgrade to “Ethereum 2.0” that will improve the network and make it more scalable, Acheson said.

Though she emphasized that this upgrade and further institutional adoption doesn’t guarantee that the price of Ether will continue to go up.

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