With the cryptocurrency market cluttered, rosy prospects are pouring into Ethereum, the second-largest market capitalization. It is the “hard fork” that is expected from the 4th to 5th that is drawing attention due to positive factors. Some predict that this work, which improves the efficiency of the Ethereum network, will also have a positive impact on coin prices in the mid to long term. Of course, some argue that prices cannot be guaranteed to rise as there are so many variables that determine the cryptocurrency market price.
Hard fork is simply a functional upgrade operation. Blockchain is a kind of computer software, so it needs constant maintenance. Jung Soon-hyung, CEO of blockchain technology company Onder, said, “The difference is that manufacturers unilaterally prepare software updates for smartphones and consumers follow them, but in blockchain, they proceed with discussions and agreements of unspecified participants.”
If there is no disagreement, the hard fork ends with a simple improvement, but if opinions are divided, it can lead to an extreme decision that divides by creating a completely different kind of cryptocurrency. Ethereum also has a precedent of being separated into the current Ethereum (ETH) and ETC (Ethereum Classic) in the wake of a hard fork in 2016.
Ethereum’s hard fork is called the London Hard Fork because it was decided at a developer’s meeting in London, England. It is expected to take place between 10 p.m. on the 4th and 2 a.m. on the 5th in Korean time. Instead of setting a time, it is based on the creation time of a specific block, so only the approximate time point can be predicted.
What’s the difference?
Hard forks cannot be a boon in themselves because they take place in the blockchain industry from time to time, and the content is important. The London hard fork reflects five EIP (Ethereum Improvement Proposal) with each serial number. The core of these is ‘EIP-1559’, which introduces a new fee system.
If you want to use the Ethereum network, you have to pay a fee called “gas bill,” which mostly goes to the miner’s share. There was a problem that the commission would be unnecessarily expensive because the structure was that the higher gas costs would result in faster transactions would be made faster.
When EIP-1559 is applied, the base fee is introduced to the gas ratio and the priority fee is added when the network is crowded. Miners are given only express fees, and basic gas costs are incinerated and eliminated. Bloomberg predicted that this would reduce the amount of cryptocurrency supply by about 4% annually. This is why some say “one of the most interesting and important upgrades in Ethereum history” (Kyle Samani, co-founder of Multicoin Capital).
Transaction price growth rate, Bitcoin overtaking
In conclusion, Ethereum users’ transaction costs are reduced, but miners lose money. “There was a strong backlash because the income of the miners was decreasing,” CEO Chung said. “The logic of the foundation is so solid that it is not accepted.”
Expectations for Ethereum have risen significantly in the cryptocurrency market this year. Industries compare Bitcoin to “coin’s gold” and Ethereum to “coin’s crude oil.” This is because Ethereum serves as a platform for developing blockchain application services such as Depi and NFT.
The U.S. Coinbase said in a report on the 26th of last month, “The rate of increase in Ethereum’s trading volume surpassed Bitcoin for the first time in the first half of the year.” As a result of analyzing data from 20 cryptocurrency exchanges around the world, Ethereum transactions in the first half of this year amounted to 1.4 trillion dollars, up 1,461% from 92 billion dollars in the first half of last year. During the same period, the company overwhelmed Bitcoin by 489% from $356 billion to $2.1 trillion. “Ethereum continues to create use cases that Bitcoin cannot achieve,” said Daniel Polotsky, founder of Coinflip.
“You can’t expect a price surge.”
In theory, a decrease in supply is the driving force behind a rise in prices. However, since hard forks have been known for a long time, they have been “shelfed” in price. According to Upbeat, the price of Ethereum, which was 820,000 won earlier this year, soared to 5.41 million won at one point in May before falling to around 3 million won.
Industries say that most cryptocurrency prices, including Ethereum, should also consider that they are higher-order equations that are not only linked to the movement of “jangju” bitcoin but also macroeconomic indicators such as interest rates and liquidity. Bitcoin supplies up to 21 million units, but Ethereum is also a constantly increasing structure.
Apart from a series of hard forks, Ethereum is set to transform itself into Ethereum 2.0. The biggest change is the transition of the Proof of Work (PoW) method to the Proof of Interest (PoS) method. PoW is mining high-performance computers like Bitcoin, which has been criticized for fueling waste of electricity. PoS is less harmful to the environment by earning more rewards as it holds more cryptocurrency. CEO Chung said, “It will not be easy for Ethereum to outperform Bitcoin with a ‘unit price’, but if scalability increases steadily, it is not impossible to outperform Bitcoin with a ‘market gun’.”