Ethereum breaks free: Several reasons contribute to ETH’s all-time high drive

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Following a turbulent April, Ethereum reached new all-time highs. Developers and researchers investigate the conditions behind the ETH price increase.

Following a recent downturn in cryptocurrency prices, Ether has risen to fresh all-time highs as a result of a series of significant events and indicators. Overall, 2021 appears to be a pivotal year for the Ethereum blockchain, as engineers move on the network’s convergence with Eth2, which would see the blockchain abandon its initial proof-of-work consensus algorithm in favour of the lauded energy- and cost-efficient proof-of-stake consensus.

Although the technical information may not be of interest to many day-to-day Ether (ETH) consumers and traders, the recent market activity of ETH, along with a series of notable events, indicates that the momentum that led to ETH reaching a new all-time high at the end of April may continue for some time.

The price of ETH has increased by around 15% in the last week, making it the world’s second-largest cryptocurrency by market capitalisation, touching a staggering $312 billion. On April 28, the price of ETH rose further after it was revealed that the European Investment Bank is launching a “digital bond” selling on the Ethereum blockchain.

These bonds have a large valuation, estimated to be about $120 million over two years, and are managed by financial services heavyweights Goldman Sachs, Banco Santander, and Societe Generale. The shares, most notably, have been registered explicitly on the Ethereum blockchain.

The Ethereum ecosystem celebrated another milestone toward the end of April, as major decentralized finance platforms Uniswap, Compound, Maker and other leaders are on the way to surpassing the $73-billion mark for the net value locked into their smart contracts on the Ethereum blockchain. This marks an $18-billion increase in one month.

Jordan Stoev, head of crypto and trading at financial services company Skrill & Neteller, said that Ethereum’s users and active wallets are at all-time highs, demonstrating “strong network effects in the ecosystem,” which leads to rising gas prices and a higher market valuation for ETH. According to Stoev, the growing success of DeFi networks and decentralised apps is a key factor drawing investors to Ethereum:

A combination of factors, it seems

Analysts seem to be in agreement that a multitude of factors has influenced Ether’s most recent push to new all-time highs. Simon Peters, a market analyst at eToro social trading platform, told Cointelegraph that the popularity and success of DeFi platforms and other Ethereum-powered applications and use cases are driving institutional investors to gain exposure to ETH. “Underlying this is demand from institutional investors, while they may now have some exposure to Bitcoin, institutions are now diversifying their exposure, and Ethereum is the natural next pick,” he said.

Johannes Rude Jensen, product and project manager at eToroX Labs, further highlighted the EIB’s Ethereum-based bond issuance as an important milestone in the adoption of blockchain technology within the traditional banking sector. Jensen told Cointelegraph that blockchain-based bond issuance has gained traction as a climate-friendly answer to the costly reconciliation processes in analog traditional bond markets. “By choosing Ethereum, the EIB is signaling the intention to play an increasingly active role in perpetuating EU policy on climate and innovation, in line with ECB’s recent emphasis on green banking,” he said.

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Jensen agreed that the move is indicative of that by major banks and financial institutions toward using public blockchains for more traditional financial products in the future. This further signals at the general trend of open standards in corporate banking:

“Having a single, consolidated source of data in the bond markets will reduce dependencies on intermediaries, which is likely to reduce cost and support risk mitigation in pre-issuance and post-trade processes.”

Jordan Stoev, head of crypto and trading at financial services company Skrill & Neteller, said that Ethereum’s users and active wallets are at all-time highs, demonstrating “strong network effects in the ecosystem,” which leads to rising gas prices and a higher market valuation for ETH. According to Stoev, the growing success of DeFi networks and decentralised apps is a key factor drawing investors to Ethereum:

“As opposed to previous cycles, when ICOs and speculation were main drivers of Ethereum growth, this cycle has legitimate use cases, like DeFi and NFTs and others, that people are actually using. Highly anticipated upgrades like EIP-1559 and Eth2 are also expected to drive Ethereum usability, speed and price even higher ,and investors want to get in before they happen.”

One step closer to London

This month also saw the continuation of Ethereum’s evolution into a proof-of-stake future, with the new Berlin upgrade introducing a pair of significant Ethereum Improvement Proposals to the blockchain protocol.

With Berlin operational since April 15, the environment has had some time to assess the impact of the four EIPs included in the most recent update. According to Ethereum analyst Viktor Bunin, EIP-2929 will finally “guarantee a maximum size of the Merkle proof required to verify a particular block,” but will actually seek to accomplish two primary goals.

“It mitigates Ethereum’s largest remaining DoS vector, where an attacker could slow down the network by sending transactions that accessed storage in a way that was very cheap but took a long time for nodes to process,” he claims. Bunin went on to say that, in the end, the “EIP brings us closer to stateless clients, which would allow devices like cell phones to interact with Ethereum without needing to run a full node.”

Bunin also said that the change in gas prices brought on by EIP-2929 may have a negative effect on certain smart contracts that relied on previous gas cost estimates. Mattison Asher of ConsenSys, who conducts research on Ethereum, nonfungible tokens, and decentralised finance, highlighted EIP-2930’s position in offsetting the gas increases triggered by its preceding EIP, telling Cointelegraph:

“EIP-2930 mitigates some of the gas increases coming from EIP-2929 by introducing a transaction type that contains an access list, a list of addresses and storage keys that the transaction plans to access. Accessing these variables will be cheaper than accessing variables outside of the list. Effectively, this reduces some of the potential gas increase in EIP-2929.”

The following plan, EIP-2565, would also provide fee-cutting steps for basic cryptographic functions. As Bunin explained, this would make functions like signatures, verifiable delay functions, SNARKs, and other executions less costly. Asher summarised the significance of this EIP in lowering the gas costs associated with several functions needed to use and build on Ethereum.

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EIP-2718 provides a method for accelerating the addition of support for various transaction modes. This is a beneficial enhancement that can significantly minimise the uncertainty of many smart contract contracts and their parameters. Bunin also stated:

“You could have a transaction type where someone other than the transaction sender can pay for the gas. Today, each new transaction type would need to be added individually, which becomes very complex over time, but EIP-2718 creates what can be thought of as a meta transaction type, serving as the envelope for future transaction types, making it easier to add and support them.”

Laying important blocks for Eth2’s integration

There’s often some notable community reaction to the latest improvements being made to Ethereum’s protocol, but the average user is unlikely to have noticed much change to the way they use ETH or interact with the blockchain through normal transactions.

According to Bunin, the improvements brought on by these four EIPs may take some time to be adopted by Ethereum developers operating on different decentralised applications that may benefit from the latest proposals. “One of the proposed transaction types is a layer-one multi-signature type. Since Bitcoin has this functionality but Ethereum does not, multi-signature contracts on Ethereum can only be generated using smart contracts like Gnosis Safe.”

According to Nick Johnson, the lead developer of the Ethereum Name Service — a wallet naming tool — a critical feature of EIP-2929 in the incremental move to Eth2 would be to “make’stateless Ethereum’ more viable by reducing the maximum number of reads and writes that are possible in a transaction.” Stateless methods are a critical component of the Eth2 roadmap.”

Meanwhile, Bunin cited EIP-2565 as a critical basis for Ethereum’s potential ability to implement advanced cryptography. “Justin Drake coined the term ‘moon math’ to describe the advanced cryptography that allows Eth2 to become a reality. Among them is the idea of using shards as a storage availability framework for layer-two scalability solutions.” As a result, he believes that “very promising solutions like zk-rollups are dependent on Ethereum layer one supporting advanced forms of cryptography, so this EIP goes a long way towards that.”

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Upcoming London hard fork is hot under the collar

The Berlin hard fork was adopted with no fanfare from the cryptocurrency world at large. Bunin claims this is primarily due to the absence of any contentious EIPs in the update, as opposed to the looming Ethereum London hard fork, which includes the contentious EIP-1559. This, he claims, “will change how users pay for gas, which will improve the user experience and begin burning a portion of the ETH spent on transaction fees.” Around the same time, Eth2 will get its first upgrade, dubbed Altair.”

Bunin delved into the upcoming changes to the Ethereum network in his latest update for Bison Trails. The key takeaways are the 3.5 million ETH that is locked into the Eth2 smart contract, currently valued at around $6.5 billion or 3% of the total amount of ETH in circulation. There are currently 110,000 validators and counting.

Johnson emphasised the value of smart contract functionality enhancements as well as the effect of the London hard fork on transaction fees. “It will also enable smart contracts to obtain the ‘base fee’ — effectively, the gas cost of the current block — allowing projects such as gas-price derivatives and tokens to be realised.”

In her correspondence with Cointelegraph, Sajida Zouarhi, a senior product manager for ConsenSys’ Besu mainnet client, provided an outline of the next steps in Ethereum’s development as well as the promising strides achieved in the march towards Eth2. “The London hard fork is the next step. Notable EIPs include 1559 (Basefee) and 3238 (Ethereum Difficulty Bomb Delay),” which will lead to “merge and sharding, which is Ethereum’s transformation from proof-of-work to proof-of-stake.” She continued, saying:

“The goal is ambitious, but all core developers are dedicated to it. Early prototypes have already been implemented by multiple client teams, including Teku and Besu. We are currently testing them on a cross-client devnet. Things are moving forward very quickly and look good so far.”

Bunin’s final takeaway emphasised the Ethereum network’s general resilience — notwithstanding high fees generated by the burgeoning DeFi sector and expanded network use during the continuing bull run — as a positive indication of the ongoing transition to a proof-of-stake-powered future. “Eth2 development is moving quickly in 2021, with multiple efforts underway to get us to the Eth1Eth2 merge as soon as possible.”

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