Six years ago, the Ethereum cryptocurrency came out at less than $1 per Ethereum unit. Its price this morning reached $2,708.03.
The world’s second-largest cryptocurrency (Ethereum) has started a new hard fork. If you are a cryptocurrency enthusiast, you must have heard of Ethereum 2.0 and the London hard fork. This article will explain the importance of all this for cryptocurrency traders in a simple way.
The London Hard Fork includes five proposals to improve Ethereum, most notably EIP 1559 and EIP 3554, intended to address various shortcomings. EIP 1559 introduces a new fee structure to make Ethereum less bloated. This protocol reduces miners’ revenue. This mechanism will gradually increase the difficulty of mining on the Ethereum network.
The most significant change will be in transaction fees, including the new deflation mechanism. This change comes due to EIP 1559, which is included in the London Update and EIP 3238.
For example, if the Ethereum network fee is $30, sending Ethereum worth 30 euros is not worth it. These high fees make the network less attractive, especially to new investors. EIP-1559 proposes a new transaction pricing mechanism that will establish a base fee for each block transaction fee.
The base fee for each block changes on demand. Soften the fluctuations in base fees that will help attract more users to the ecosystem.
At the same time, the blockchain will burn fees and thus reduce the overall supply of ETH. This effect will create deflationary pressure on ETH. In other words, the supply of ETH will become as limited as the supply of Bitcoin. If the supply of cryptocurrency is limited, then its demand will grow over time, which can lead to an increase in the price.
In short, Ethereum is an innovative contract platform and the first mover in the field. The majority of DApps and DeFi tokens are built on its network. Lower fees increase the demand for Ethereum and affect its price.
Ethereum Cryptocurrency 2.0
Hard Fork London will prepare the network’s evolution into what’s called Ethereum 2.0. Eth2.0 will mark the complete transition from the consensus Pow model to PoS.
Currently, the Ethereum network can process 15 to 45 transactions per second. According to Vitalik Buterin, co-founder of Ethereum, “When the blockchain finally moves, we could see 2.0 eventually, and the network speed is reaching around 100,000 transactions per second using sharing and other tactics.”
Ethereum will be added to circulation by the consensus of its owners and not by miners, miners will slowly be pushed out, and mining Ethereum will become economically unprofitable.
Currently, Ethereum holders hold about 6.5 million coins with a total value of about $15 billion. Cardholders get a bonus of about 6.5% per annum.
The commissions for all transactions on the Ethereum network will be burnt out and out of circulation. In other words, in a good scenario for the accelerated use of the Ethereum network, that would turn into deflation.
Ethereum is the beating heart of the cryptocurrency economy called Defi. It is a decentralized economy with a current value of about $70 billion, and it is only in its infancy. In short, it is the economy of the future in which everything we know about our lives may be transformed into a beautiful decentralized world.
Even banks in the US and Europe are already adopting the Ethereum cryptocurrency. Banks that pay low interest rates to their customers are already making predictions. They are simply sure that there is no natural way out of the realm of cryptocurrency that they can compete in this economy.
Today’s interest rates on digital dollars range between 4-8% per annum (no risk). In some stations more than the capital market, these interest rates are equal to the average return in the capital market with large risk differentials in the capital market.
What about the citizens of third-world countries whose local currencies have eroded due to inflation? What would happen if they found out that they could get interested in dollars without risk? All these strange questions, for some, are already happening on the Ethereum network.
Now because of all of the above:
Banks are under pressure to make the investment affordable for their customers before they do it themselves and withdraw their money from the bank.
Ethereum price forecast
The price of the Ethereum cryptocurrency is expected to rise to $3,382 in 2022. In the long-term, experts predict that the price will increase to an average of $5,852 in 2025 and $8,488 in 2028.
Wall Street giant JP Morgan has predicted that Ethereum’s shift to Proof of Stake will spur global adoption of cryptocurrencies. Additionally – this transition will help generate $40 billion in value by 2025. After this change, Ethereum could become the most popular digital and replace Bitcoin in market capitalization.