Countdown to the (re)evolution of Ethereum that will catapult ether again

evolution of Ethereum

The highly anticipated London update of the Ethereum network is getting closer and closer. Last week, the developers of the blockchain on which smart contracts are deployed and the majority of DeFi (for the acronym in English of decentralized finance) carried out various tests for the improvements of the algorithm that will be completed on August 4, the date announced for release. Analysts expect this event as a true milestone for ether – the native unit of this network – which has the potential to serve as a price catalyst. In addition, it leaves the second cryptocurrency by market capitalization ready for its authentic revolution.

The ether rallied this week after the falls of the past and has been consolidating the 2,000 dollars for some time, after a round trip that took it to the record on May 12, 2021 around 4,200 dollars. Then the selling pressure pushed it back to $1,700 towards the end of May and also in June. Despite the abysmal price difference with bitcoin, which trades around $33,000, more and more analysts and market participants are very bullish on this token, which currently has a capitalization of $253 billion, about 19% of the total. of the cryptoactive market, compared to the number one ‘crypto’, which maintains a 44% dominance.

In fact, analysts as reputable as those of Goldman Sachs believe that it will end up surpassing the creation of Satoshi Nakamoto and there are not a few who lend its uses beyond the speculative aspect. It is used to “feed” the Ethereum network, which is essentially a decentralized software platform, designed to run compiled computer code known as a smart contract. These smart contracts can be used to automate a wide range of functions, from very simple value exchanges, through insurance contracts to the processing of the activity of decentralized exchanges, which are managed by the decentralized network of Ethereum.

The complexity of the smart contract sets the transaction fees that are quoted in ether (known as gas fees). In this way, the price fluctuates depending on whether the transactions have a high economic value since people are willing to pay more for the transactions.

In addition to this, ether has also obtained a certain status of “safe haven” asset in the cryptographic universe, they explain from Wisdom Tree. “Because it is the second-largest cryptocurrency, its demand is very constant and, although it is not fixed, the expansion of its supply is very predictable and relatively docile compared to the standards of traditional currencies after 2008,” they argue.

In addition to the above, at the beginning of August, five Ethereum Enhancement Proposals (EIP) will be implemented, which includes the aforementioned ‘London’ optimization, among which EIP 1559 and EIP 3554 stand out, whose objective is to counteract various inefficiencies:

The EIP 1559 introduces a new fee structure that cheapens ethereum. This change in the protocol is very controversial because it aims to burn part of the tariffs and, therefore, reduce the income of the miners.

The EIP 3554 delays the Ethereum difficulty bomb until December 1. This mechanism will increase the difficulty of mining on the Ethereum network, effectively “freezing” the proof-of-work (POW) in preparation for Ethereum’s move to version 2.0, which involves the proof-of-stake ( POS for its acronym in English), less polluting.

EHTEREUM 2.0, 99.5% LESS CONTAMINANT

But these improvements that ‘London’ implies, are nothing more than a previous step for Ethereum 2.0, a true revolution that has the potential to catapult ether above bitcoin. Most importantly, the network will abandon traditional mining. That is, it will go from the Proof of Work (POW) protocol – solving mathematical problems to maintain the network – to the Proof of Stake (POS) protocol – based on criteria such as the number of currency and time on the web- as a consensus mechanism. The POS is more environmentally friendly and sustainable: it will consume 99.5% less.

Second, Wisdom Tree analysts mention the development of second-tier solutions to improve network scaling. “It is believed that these changes will help boost the use of the Ethereum network, allowing the platform to attract more users and projects,” they say.

Furthermore, the potential switch to POS is generating intense debate in the crypto sector regarding energy use. The POS protocol consumes much less power than the POW and as such, some speculate that this could favor the adoption of the platform.

“The launch of the new, more energy-efficient Ethereum 2.0 network will popularize the proof-of-stake consensus algorithm and make investment returns more attractive to both institutional and retail investors.” Bitpanda experts point out.