Ethereum’s hard fork delivers the goods for short-term speculators

Ethereum’s August hard fork has yielded a warm reception from crypto investors, with the world’s second most popular cryptocurrency rising from the ashes of May over the last week.

eToro market analyst and crypto expert Simon Peters said, “Ethereum is on the march, heading above $3,000 over the weekend, before trading down slightly above $2,900 this morning.”

At the time of writing, ethereum’s price sits at $3,151.

Mr Peters described ethereum’s recent rise from a 2021 low of $1,776 as “stunning” and attributed the recent spike in trading activity to the recent network upgrade known as the London hard fork.

Named after the location of the most recent international developers’ conference for the cryptocurrency, ethereum’s latest hard fork includes a set of five proposed upgrades for the network.

Each EIP recommends a different change to the way that ethereum network works, but not every adjustment to ethereum’s codebase is equally exciting.

For investors, the most talked-about measure here is of EIP-1559. This proposal means that a small proportion of each transaction fee made using the network will be burned, removing it from circulation.

Over time, this change is expected to reduce the supply of ether and drive the price upwards.

As put by Arcane Research, “As the ethereum network burns more of its tokens, investors expect ether to accelerate gains as the reduction of supply will increase the perceived value of ETH already in existence.”

Another significant inclusion in the London hard fork is EIP-3554, which promises to pave the way for ethereum’s eventual transition from a proof-of-work model to a proof-of-stake model by setting in stone a ‘difficulty’ bomb in December.

When the December deadline rolls around, the difficulty of mining ethereum will increase exponentially at a rate that the hardware of miners cannot keep up with.

The idea here is that making mining obsolete will sideline any potential opposition to the network’s broader transition to a proof-of-stake model, making the shift inevitable.

Mr Peters called the hard fork “the single biggest upgrade to the Ethereum network since 2015”, highlighting its potential to transform the story around the cryptocurrencies’ environmental impacts.

Environmental impacts have become a flashpoint in the discussion around cryptocurrencies over the last few years, with Tesla dropping its support for bitcoin over it.

While some groups like the Crypto Climate Accord have sought to shift the entire cryptocurrency industry towards renewable and sustainable resources by 2030 as a way of offsetting the network’s carbon impact, others have looked to build new, and modify existing, cryptocurrencies in a way that reduces emissions.

Ethereum creator Vitalik Buterin has previously said that EIP-1559 could reduce emissions caused by the network by 99 per cent.

Speaking to nestegg, Apollo Capital’s Matt Harcourt said the firm was “pleasantly surprised that the market is having such a positive reaction to the London upgrade given all of the regulatory uncertainty that has been dominating crypto headlines during the past week or two”.

Mr Harcourt said, “Before the hard fork officially happened, it seemed as though it could have been a classic ‘sell-the-news’ moment due to the strong price action in the weeks leading up to it.”

In this instance, “people who ‘sold the news’ were wrong because they overestimated the public awareness of the hard fork and EIP 1559 (in the weeks before) and underestimated the short-term increase in perceived value of ETH caused by the fork”, he explained.

“Non-fungible tokens such as crypto punks have also been exploding in value, popularity and attention. I am sure that this is having a positive impact on the price of ETH too,” Mr Harcourt added.

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About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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