The battle for Ethereum's breakout: Several factors are driving ETH to new all-time highs

Original source: Babbitt Information

Original article by Kyle & NBSP;

The battle for the Ethereum breakout: How many factors are driving ETH to record highs.  

After a downturn in the entire cryptocurrency market, ETH has surged to an all-time high supported by a number of important events and indicators. Overall, as Ethereum developers continue to work on network integration with ETH2, 2021 will be a critical year for the Ethereum blockchain, which will allow Ethereum to move away from the PoW it is currently using in favor of energy and cost efficient PoS.

While the technical details may not touch many everyday Ethereum (ETH) users and traders, Ethereum's recent price action and a number of major events suggest that the driving force that led ETH to its all-time high at the end of May is here to stay for some time.

Ethereum's price has risen about 15 percent in the past week, and it is also the world's second-largest cryptocurrency by market capitalization, with a record market value of $312 billion. On May 1st, the price of Ethereum continued to rise on the news that the European Investment Bank will launch a "digital bond" sale on the Ethereum blockchain.

Financial services heavyweights Goldman Sachs, Santander and Societe Generale are managing the bonds, which are worth about $120m over two years, with considerable value. On top of that, the bonds have been registered directly on the Ethereum blockchain.

At the end of April, the Ethereum ecosystem hit another milestone as major decentralized financial platforms Uniswap, Compound, Maker, and other head projects are working to push the net value of smart contracts locked up on the Ethereum blockchain past the $73 billion mark. That marks an increase of $18 billion in one month.

Another factor driving the price to an all-time high was record interest in open interest in Ethereum options contracts, which hit an all-time high and were worth about $4.2 billion in April. As previously reported, $930m of these options are due to expire at the end of this month, allowing the buyer to purchase ETH at a price already agreed with the seller of each particular contract.

1. Put the factors together

Analysts seem to agree that a variety of factors have influenced Ethereum's recent all-time high. Simon Peters, a market analyst for the eToro social trading platform, told Cointelegraph that the popularity and success of the Defi platform and other etherium-driven applications and use cases is driving institutional investors to gain exposure to Ethereum. "This is demand from institutional investors, and while they may have some exposure to Bitcoin right now, institutions are diversifying their exposure now, and Ethereum is the natural next step," he said.

Johannes Rude Jensen, Product and Project Manager at Etorox Labs, further highlighted EIB's Etherium-based bond issue as an important milestone in the adoption of blockchain technology in traditional banking. Jensen told Cointelegraph that blockchain-based bond issuance is getting attention as a climate-friendly solution that simulates the costly settlement process in traditional bond markets. "By choosing Ethereum, the EIB is signalling its intention to play an increasingly active role in making the EU's climate and innovation policies permanent, in line with the ECB's recent emphasis on green banking," he said.

Jensen agreed, a move that foreshadows how big banks and financial institutions will use public blockchain for more traditional financial products in the future. This further illustrates the general trend towards open standards in corporate banking:

"Having a single, unified data source in the bond market will reduce reliance on intermediaries, which may reduce costs and support risk mitigation in pre-issue and post-trade processes."

Jordan Stoev, head of crypto and trading at financial services provider Skrill&Neteller, highlighted that Ethereum's users and active wallets are at an all-time high, proving "strong network effects in the ecosystem" that are causing gas prices to rise and the market to increase the value of ETH. Stoev told Cointelegraph that the growing popularity of the Defi platform and decentralized applications was an important factor in attracting investors to Ethereum:

"Contrary to previous cycles, when ICOs and speculation were the main drivers of Ethereum's growth, this cycle has legitimate use cases that people actually use, such as DEFI and NFT, etc. Much anticipated upgrades such as EIP-1559 and ETH2 are also expected to drive Ethereum's availability, speed and price higher, And investors want to get in on these things before they happen."

2. One step closer to the London Hard Fork upgrade

The recent Berlin upgrade introduced several significant Ethereum improvement proposals to the Ethereum blockchain protocol, and Ethereum's move toward PoS continued this month.

Since launching Berlin on April 15, the ecosystem has had some time to assess the effectiveness of the four EIPs that form part of the latest upgrade. Ethereum analyst Viktor Bunin told Cointelegraph that EIP-2929 will eventually "guarantee the size of the maximum merkle proof required to validate a particular block," but is ultimately designed to achieve two main goals.

According to him, "it mitigates Ethereum's biggest DoS attack vector, where an attacker can slow down the network by sending a transaction that access storage, which is very cheap but takes a long time to process on the node." Bunin further added that ultimately, "the EIP brings us closer to a stateless client, which will enable devices like phones to interact with Ethereum without having to run a full node without trust."

Bunin also added that the gas cost changes attached to the EIP-2929 could adversely affect certain smart contracts that rely on previous gas cost data. ConsenSys' Mattison Asher, who works on Ethereum, NFT and decentralized finance, emphasizes the role of EIP-2930 in balancing the growth in gas caused by the previous EIPs, and tells Cointelegraph:

"By introducing a type of transaction that contains an access list, a list of addresses that the transaction plans to access and a list of stored keys, This mitigates some of the gas increase from EIP-2929. Accessing these variables will be cheaper than accessing variables that are not on the list. It effectively reduces some of the potential gas increase in EIP-2929."

The next proposal, EIP-2565, would also introduce some fee reduction measures for specific encryption features. As Bunin explained, this will reduce the cost of implementing features such as signing, verifiable delay functionality, SNARK, and other implementations. Asher summarized the importance of this EIP in reducing the gas costs associated with many of the features required for Ethereum to utilize and build.

EIP-2718 introduces a way to speed up support for different types of transactions. This is a useful improvement that will radically reduce the complexity of some smart contract transactions and their parameters. Bunin added:

"You can have a transaction type, making the deal from a person other than the sender can pay the cost of gas. Now, each new transaction type need to add separately, as time goes by, it becomes very complex, but the EIP - $2718 created can be considered to be transaction type, as a later transaction type of shell, Make it easier to add and support them."

3. Laying an important foundation for the ETH2 integration

The community usually reacts visibly to the latest enhancements to the Ethereum protocol, but it is unlikely that the average user will notice a significant change in the way they use ETH or interact with the blockchain through normal transactions.

As Bunin told Cointelegraph, the changes brought about by these four EIPs may take some time to be developed by Ethereum developers on various dApps, who may take advantage of the new recommendations. "One of the proposed types of transactions is the Layer1 multi-signature type. Bitcoin has this capability, but Ethereum does not, so it has to be created on Ethereum via smart contracts (such as Gnosis Safe)."

Nick Johnson, lead developer of the Ethereum Domain Name Service, a wallet domain name tool, told Cointelegraph that the important feature of EIP-2929 in the gradual transition to ETH2 would "make stateless Ethereum more viable" by reducing the maximum number of reads and writes. The stateless approach is a key part of the ETH2 roadmap."

At the same time, Bunin pointed out that EIP-2565 is an important foundation for future Ethereum integration with advanced cryptography. "Justin Drake coined the term 'moon math' to describe the advanced encryption techniques that make ETH2's dream come true. At the heart of this was thinking about using sharding as a data availability Layer for Layer 2's extensibility solution." Thus, according to him: "A very promising solution like ZK-Rollups depends on Ethereum Layer1, which supports advanced forms of encryption, so the EIP goes a long way towards that goal."

4. Heat rises for the upcoming London hard fork

Berlin's hard fork was implemented with little reaction from the wider cryptocurrency community. According to Bunin, this is mainly because the upgrade does not include any controversial EIPs, unlike the impending Ethereum London hard fork that contains the divergent EIP-1559. According to him, "This will change the way users pay for gas, which will improve the user experience and start consuming some of the transaction fees. Around the same time, ETH2 will undergo its first upgrade called Altair."

Bunin looked at the coming changes to the Ethereum network in the latest update of Bison Trails. The key point is the 3.5 million ETH locked into the ETH2 smart contract, currently worth about $6.5 billion, or 3% of the total ETH in circulation. There are currently 110,000 validators and growing.

Johnson highlighted the impact the London hard fork will have on interchange fees and the importance of upgrading smart contract capabilities. "It will also make it possible for smart contracts to capture the 'base fee', which is the gas cost of the effective current block, which will enable projects such as gas price derivatives and tokens."

ConsenSys Besu Senior Product Manager for the Mainnet Client, Sajida Zouarhi, outlined the next steps in Ethereum's evolution and the positive progress toward ETH2 in a communication with Cointelegraph. "The next step is the London hard fork. Notable EIPs are EIP 1559 (Basefee) and EIP 3238 (Ethereum Difficulty Bomb Delag), which will then lead to" merging and sharding, which is Ethereum's transition from PoW to PoS ", she adds:

"The goal is ambitious, but all the core developers are committed to it. Multiple client-side teams, including Teku and Besu, have implemented early prototypes. We're currently testing it on cross-client DevNet.

Bunin's final point highlights the overall stability of the Ethereum network -- despite the high fees driven by the emerging DEFI field and the increased use of the network during the ongoing bull market -- as a sign that the Ethereum network is gradually moving towards a POS-based future. "ETH2 is growing rapidly by 2021, as multiple efforts are being made to get us into the ETH1 ETH2 merger as soon as possible."

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