Ethereum, the second largest cryptocurrency by market capitalization, hit a new all-time high of $ 1,439.33. This is the first time since January 13, 2018 that the digital asset has exceeded the $ 1,400 level. Ethereum’s YTD gains are now 66.15% – more than 6 times the leading cryptocurrency, outperforming both Polkadot (DOT) and Chainlink (LINK). Despite a temporary correction, it’s still one of the top performing companies in the top 10 assets.
While there weren’t any obvious fundamental catalysts to propel the climb to a new all-time high, Ether has been on the verge of breaking key levels for over two weeks after rising to $ 1,350 on Jan 10. The exponentially growing market for decentralized finance was known to DeFi – which now has over $ 24 billion worth of crypto assets on its logs – likely contributed to the asset’s upward momentum too. Now as Ethereum moves closer to uncharted territory, all eyes will be on the second largest cryptocurrency as it hits its next major milestone, the $ 2,000 psychological mark. This fabled level is more than 50% higher than the current price (at the time of going to press), but 3 major events are planned to go live in 2021 to make this happen.
1. CME Ethereum Futures
The world’s largest derivatives platform, the Chicago Mercantile Exchange (CME), publicly announced its plans to introduce Ethereum futures by February 8th on December 16, provided that the US Commodity Futures Trading Commission (CFTC) approved it Approval received. Derivatives are essentially trading contracts that allow investors to bet on the future price of an underlying asset without actually having to own it.
This new cash-settled financial product – that is, all profits generated are paid out in US dollars as opposed to ether – comes three years after the introduction of Bitcoin futures, which is the most traded Bitcoin futures product in the world today and over 20% of all open contracts.
The arrival of Ethereum futures will ultimately bring more maturity to the crypto market and, although futures are not physically delivered, more liquidity. This is beneficial as it gives institutional investors in particular the opportunity to hedge spot positions, which reduces the overall risk and makes Ethereum a much more attractive investment.
2. Aether Burning and Foreseeable Fees
Any actions taken for Ethereum-based decentralized applications (dapps) or protocols will be treated as transactions that will be charged a fee to encourage miners to process. Currently, transaction fees are determined through an auction system, where users who add the highest fees to their transactions have miners processing them the fastest. This system causes a number of problems, namely unpredictable and often extremely high charges during periods of heavy congestion. Network congestion occurs whenever trading activity increases significantly. For example, when the price of Ethereum changes dramatically and thousands of traders suddenly want to enter or exit the market at around the same time.
EIP 1559 is a proposal to improve Ethereum that the co-founder of the project, Vitalik Buterin, along with developers Eric Corner, Ian Norden, Rick Dudley and Matthew Slipper made to make changes to how Ether transaction fees are presented to users as managing the supply of Ethereum. EIP 1559 proposes removing the current auction-style fee system in favor of an algorithmically determined base price called “BASEFEE”. The BASEFEE aims to introduce a uniform fee for all ether-centric platforms and services that increases and decreases depending on network activity. This means no more fee differences between ERC-20 compatible wallets, protocols and exchanges. However, the EIP includes an option that allows users to tip miners if their transaction needs to be processed faster. The second function of EIP 1559 that is likely to have the greatest impact on the future price of Ethereum is the introduction of burning ether. Burning means completely removing tokens from existence, which leads to a decrease in circulating supply. EIP 1559 plans to burn the BASEFEE so that the vast majority of the ether used to process transactions is destroyed and not passed on to network validators.
The idea is that this will encourage steady deflation of the ether, which in turn should help prop up prices over time.
The EIP is expected to go into operation sometime after the Berliner Gabel, which could take place as early as February.
3. Introduction of Ethereum 2.0 Phase 1
Ethereum is in the process of moving from a proof-of-work blockchain to a blockchain that works with a proof-of-stake consensus mechanism, with the aim of becoming a faster, more efficient and more scalable platform. The Ethereum 2.0 upgrade consists of four separate phases – phase 0, phase 1, phase 1.5 and phase 2 – each of which lays the technical foundation for the next phase until the last phase is completed.
In phase 0, the Beacon Chain was implemented on December 1, 2020 – a new blockchain layer that coordinates the activity between individual Ethereum shard chains.
Phase 1 is the next stage in the development of Ethereum and will include the launch of 64 splinter chains. All transaction activities in the network are ultimately distributed to and processed by these separate blockchains. The advantage of this new system is that transactions do not have to be validated by the entire network, but only by a single shard chain. This will significantly reduce the time it takes to confirm transactions and means that the entire network will be able to handle significantly higher volumes without suffering from the current congestion.
While there is no confirmed date for the start of Phase 1, it is expected to arrive sometime this year.
