Ethereum network upgrade that will destroy coins could cause ‘explosive growth’ in the ether price, experts say
Ether is the cryptocurrency on the Ethereum network. Photothek/Getty Images
An upgrade to the Ethereum network will change how transactions work and start to destroy coins.
The fall in supply could trigger “explosive growth” in the ether price, one expert said.
Ether has soared by more than 130% in 2021, but the cryptocurrency remains highly volatile.
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A change in the Ethereum network to cut the number of ether tokens in existence could set the stage for “explosive growth” in the world’s second-biggest cryptocurrency, experts said.
On Friday, Ethereum blockchain developers approved a major change to how the network runs, to come into force this summer.
It is set to overhaul the bitcoin rival’s auction system, under which users send tokens to pay for transactions to be completed by miners.
Under the changes, known as EIP 1559, users would send a base transaction fee to the network that would destroy or “burn” the ether tokens, reducing the number outstanding.
Cryptocurrency analysts have said that limiting ether, as the bitcoin system does, will put upward pressure on the price. That combined with the recent enthusiasm for crypto coins means the price could rise sharply, they said.
“What is most exciting to cryptocurrency traders is that now Ethereum will reduce the amount of outstanding ether by destroying some of the tokens every time it’s used to process some transactions,” Edward Moya, the chief market analyst at currency firm Oanda, told Insider.
“Ethereum’s never-ending supply was the least attractive part about it, and now optimism is growing that the world’s most-used blockchain will see a major shift in retail and institutional buying.”
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Justin d’Anethan, a sales manager at the cryptocurrency exchange Equos, told Insider that the proposed changes to the Ethereum network should “not only make the blockchain more eco-friendly” by making transactions more efficient, “but should also make it more scalable.”
“Add to this fewer coins in circulation,” he said, “and you have a recipe for explosive growth.”
However, crypto skeptics have argued that the surge in the prices of the world’s top cryptocurrencies has set them up for sharp falls.
The ether price has risen by more than 130% so far in 2021, taking it to $1,734 on Monday morning, well off a high of more than $2,000 touched in February.
It rose above $1,400 in 2018 before slumping to below $100 later that year.
The changes are set to come into force in July or August as part of a system upgrade known as the “London hard fork.”
Ethereum Is About to Surge as Supply Is Cut!
Bitcoin has had an incredible run over the past year. However, the second-most popular cryptocurrency Ethereum has actually outperformed it. ETH is up 811% compared to BTC’s 560% return over the past 12 months. Now, a culmination of two factors could help Ethereum sustain its outperformance.
Ethereum market potential
The collective value of all the Bitcoin in the world recently surpassed US$1 trillion (CA$1.27 trillion). Experts believe the market value could surge 10 times higher, as BTC siphons off market share from gold.
Unlike BTC, Ethereum is not digital gold or a store of value. Instead, it’s a token used for decentralized applications. Think of it as the fuel for a global virtual computer. That means Ethereum is akin to digital oil, rather than digital gold.
And the applications built on the Ethereum network have multiplied rapidly. Over the past few years, developers have replicated the traditional financial sector on this network. Users can now generate a fixed return on their savings, offer loans, and borrow money on the Ethereum blockchain.
The most popular application on Ethereum is the Non-Fungible Token (NFT). Users have been using this application to buy and sell digital art. The National Basketball Association (NBA) recently used this technology to sell collectible videos, game highlights, and stats on its NBA Top Shot marketplace.
As the utility of the network grows, Ethereum should become more valuable. However, the creators of Ethereum are close to updating the network to limit supply and make each unit even more valuable this year.
Supply shock
An upcoming update to the Ethereum network (called EIP 1559) will burn or destroy a set amount of ETH tokens. This should reduce the number of outstanding ETH over time, making each ETH more valuable as a consequence.
Growing demand from expanding applications coupled with this update that eliminates supply could make Ethereum skyrocket in 2021.
How to buy Ethereum
Canadian investors can buy and hold Ethereum directly on certain platforms such as Wealthsimple. However, these direct holdings do not qualify for the Tax-Free Savings Account (TFSA). Canadian investors may also be uncomfortable with the risk of holding digital assets directly.
Instead, you could bet on a proxy. Most crypto mining stocks, such as HIVE Blockchain, have Ethereum reserves on their balance sheet. There’s also a close-ended fund that tracks the price of ETH directly — The Ether Fund. Over the three months, these proxies have delivered 61% and 210%, respectively.
Adding these to your TFSA could be a great way to add some hyper-growth potential with no tax consequences.
Bottom line
There’s growing evidence that blockchain technology does have useful applications. Bitcoin is being used as digital gold. Meanwhile, Ethereum is being used as fuel for digital applications. While adoption grows, Ether developers are set to implement an upgrade that could cut supply. The price could skyrocket by the end of 2021.
Consider adding a small portion of your portfolio to this arguably speculative asset to avoid missing out.
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