Crypto Long & Short: Why Ethereum’s ‘London’ Upgrade Matters
In T-minus 10 days, the Ethereum blockchain will undergo its 11th backward-incompatible upgrade, also called a “hard fork.” This hard fork, dubbed “London,” contains five Ethereum Improvement Proposals (EIPs), each featuring code changes aimed at optimizing and improving the world’s second-largest cryptocurrency by market capitalization.
Of these five EIPs, EIP 1559 has been the most controversial among Ethereum stakeholders due to its radical redesign of the network’s fee market. Today’s Briefing features an edited excerpt from CoinDesk Research’s latest report, The Investment Implications of EIP 1559, that explains the risks and reward dynamics of this code change for investors.
This column originally appeared in Crypto Long & Short, CoinDesk’s weekly newsletter featuring insights, news and analysis for the professional investor.
Rewards of EIP 1559
One of the most common arguments against ether (ETH) as a store of value is its unbounded coin supply.
Bitcoin, the world’s first cryptocurrency, has a prescribed and capped supply schedule that fuels an important part of its narrative with investors as “digital gold.”
While EIP 1559 does not introduce a bitcoin-like supply cap on ETH, it does activate a mechanism to curb total supply growth over time by taking a variable amount of ETH out of circulation each time a transaction is executed.
Simulations of EIP 1559 as of June 8 suggest the activation of EIP 1559 over the trailing 365 days would have burned a total of 2,967,937 ETH for a net reduction of 76% in ether supply growth over that period.
In addition to creating a bitcoin-like narrative of limited supply to ETH, EIP 1559 is expected to improve transaction wait times and remove fee-market uncertainty that damp developer and user adoption of dapps.
Finally, EIP 1559 is expected to solidify ether’s role as a form of payment for using Ethereum’s computing resources and interacting with the network’s broad system of dapps by requiring payments of transaction fees on the network to be exclusively paid in the network’s native cryptocurrency.
Risks of EIP 1559
Any technology upgrade comes with risk, and the most salient risk posed by EIP 1559 comes with its proposed changes to reward dynamics and payouts to miners, who face reduced earnings for their work with the activation of EIP 1559. Instead of pocketing 100% of transaction fees, miners will only receive tips from users through an optional “inclusion fee,” paid electively by users seeking priority for their transactions.
Changing reward dynamics on its own won’t affect Ethereum’s ability to process blocks or computations. There is the potential, however, for disgruntled miners to leave the network, sabotage it or start a competing chain. If a large share of Ethereum miners exit or revolt, block times and network security would be negatively affected.
As for users and dapp developers, the benefits of EIP 1559 may not prove to be as efficient in practice as they are in theory. A failure to deliver promised fee-market efficiencies could result in user and developer disillusionment. If that occurs, Ethereum competitors such as Binance Smart Chain and Cardano, the two largest smart contract blockchain platforms by market capitalization after Ethereum at time of writing, will undoubtedly seize an opportunity to grab market share.
To gauge the subsequent rewards of EIP 1559 and its impact on users over the long term after activation, investors can view in real time the number of transactions styled in accordance to the EIP 1559 format as a way of tracking its usefulness in practice through privately maintained nodes or public block explorers.
Finally, the activation of EIP 1559 poses the risk of unforeseen bugs or malicious user behavior. A few have already been discovered during the process of testing EIP 1559 on public and private test networks.
Ethereum Price Prediction: ETH Breakout Aims For $2400, Time to Buy?
Ethereum price recovers quickly from a slump to $1,726.
A double-bottom technical pattern bolsters ETH as bulls eye $2400.
The parabolic SAR flipped from negative to positive reinforcing the bullish thesis.
Ethereum is exchanging hands 25% higher than the July 20 low at around $1,726. Recovery was quick and sharp, probably due to bulls’ congestion near the support area. It could also be that investors took advantage of the July 20 Ethereum price downswing that was experienced across the crypto and stock markets and entered the market while prices were lower and speculate gains towards $2400.
At press time, Ethereum price was trading at $2,162 while battling an immediate resistance at around $2,316. Note that a daily candlestick closure above this level will see ETH breakout upwards as bulls eye $2400, 15% above the current price.
Ethereum Price Nurtures a Double-Bottom Recovery Pattern
Ethereum price appears to have spelled out a double-bottom pattern on the daily chart after the sell-off was halted at $1,726. A double-bottom is an exceptionally bullish chart pattern that often results in a trend reversal.
Note that this pattern forms when an asset tests a support level twice without breaking below it. The two bottoms are usually separated by a moderate peak as shown on the Ethereum’s daily chart.
A breakout from this technical pattern will be confirmed when the Ethereum price jumps over the resistance immediate resistance at$2,316. If this happens, ETH could explore highs recorded at the beginning of June at around $2,897.
Ethereum Price (ETH/USD) Daily Chart
Apart from the technical chart pattern, the parabolic SAR flipped from negative to positive on July 23 adding credence to the bullish outlook. This bullish thesis is further accentuated by the Moving Average Convergence Divergence (MACD) on the same daily chart. Note that traders responded to the bullish crypto signal when the MACD line 12-day Exponential Moving Average (EMA) crossed over the 23-day EMA. The uptrend will gain more momentum once the MACD crosses the zero line into the positive region.
Note that a daily closure above the immediate Ethereum price barrier at $2,36 is crucial to sustaining the anticipated upward breakout.
Can the ETH Breakout Be Sustained?
Note that the flattening of the Relative Strength Index’s (RSI) indicates that the bullish momentum is slowing down. A cross over the midline towards the oversold region will trigger more well orders. If this happens, ETH’s bullish thesis will be invalidated.
Closing the day under the 50-day SMA at $2,86 will also curtail the recovery efforts and trigger another sell-off, resulting in another correction towards the $2,000 psychological level and $1,726 respectively.
If you are seeking to buy Ethereum, this list of crypto brokers might be helpful.
Looking to buy or trade Ethereum now? Invest at eToro!
Capital at risk
ETH price prediction: Ethereum will ‘grow exponentially’ as coin has ‘long term value'
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Make the most of your money by signing up to our newsletter fornow
Ethereum is one of the biggest digital currencies out there, second only to bitcoin. ETH has long been hailed to be the next big thing in cryptocurrency, with one leaked report from banking giant Goldman Sachs suggesting it will soon overtake bitcoin to become the dominant figure in the market. The price of ethereum right now stands at £1,587.95, up 2.28 percent in the last 24 hours and with a market cap of £185.52billion, according to Coin Desk at the time of writing on July 25.
And according to one expert, ethereum could just keep growing and growing as the years go on.
CEO and co-founder of Voyager Digital, Steve Ehrlich told Express.co.uk: “There is significant long term value of ethereum as its use-cases include banking, real estate, finance, collectibles and more.
“Given its increasing functionality, ethereum will continue to grow exponentially and has promising upsides in the next two to five years.”
Mr Ehrlich isn’t the only one who’s tipping ethereum for big growth in the next few years.
READ MORE: Bitcoin to ‘surpass all-time high’ after Musk’s Tesla announcement