Crypto Long & Short: Why Ethereum’s ‘London’ Upgrade Matters

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.

ETH price prediction: Ethereum will ‘grow exponentially’ as coin has ‘long term value'

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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

Ethereum’s Price Could Hit $17,800 by 2025, Expert Panel Suggests

The price of Ethereum could outperform the flagship cryptocurrency this year to surge by over 150% to $4,596, and its performance could be such that by 2025 one ether would be worth $17,810, according to a cryptocurrency experts panel.

The figures come from the average forecast from 27 out of 42 experts Finder surveyed that gave price predictions for the cryptocurrency. While the experts panel believes the price of ETH will more than double this year, they believe that by December 2025 it’ll be over $17,800 and that by December 2030 one ETH will have skyrocketed to $71,700.

The later price prediction is skewed by an outlier who believes ETH will trade at $1 million by then. Looking at the median price prediction, the forecast points to Ethereum trading at $20,000. That Price prediction was earlier this year made by former Goldman Sachs executive Raoul Pal, who based on Metcalfe’s Law saw ETH hit $20,000 this cycle.

BTC = ETH. Fact. Different assets, different ecosystems, same adoption, same behavioral economics = same same but different… pic.twitter.com/zeMyoDlX88 — Raoul Pal (@RaoulGMI) January 7, 2021

On Finder’s survey, Coinflip founder and chief advisor Daniel Polotsky gave forecasts in line with the panel average, expecting ether to hit $4,000 by the end of the year, before surging to $64,000 by 2030. In a statement, he said its price “largely follows Bitcoin’s halving cycles, although that relationship may begin to decouple as time goes on.”

Polotsky noted that as Ethereum continues to develop use cases “that Bitcoin cannot achieve” its price may grow at a faster rate than that of BTC. Morpher CEO Martin Fröhler and RealFevr’s head of blockchain Pedro Febrero revealed they see ETH top $10,000 by the end of this year.

Fröhler said that Ethereum has the “potential to power the future global financial infrastructure.” A total of 93% of panelists said ETH will eventually be more frequently transacted than the flagship cryptocurrency , and 56% see it retain its dominance n the decentralized finance (DeFi) space, despite all of its competitors.

CoinSmart CEO Justin Hartzman defended both of these positions. In a statement, Hartzman said:

People don’t like transacting with BTC since it’s more of a store of value. Ethereum, on the other hand, has built a full-on multi-billion dollar ecosystem so the frequency of ETH transactions is definitely going to be a lot more.

Addressing the so-called “flippening” – the possibility that Ethereum will overtake Bitcoin to become the number one cryptocurrency by market capitalization – 68% of respondents said they see it coming, with 58% of those seeing it within the next five years.

Forrest Przybysz, senior cryptocurrency investment analyst at Token Metrics, revealed he sees ETH at $8,000 by the end of the year, and believes the flippening will occur next year partly because of Ethereum’s move to Proof-of-Stake.

DISCLAIMER

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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