Ethereum upgrade leads to huge crypto rebound

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The main goal of upgrades is to make Ethereum transaction fees more predictable

Crypto asset prices have fallen in recent weeks, driven by a near doubling in ether prices following a key Ethereum protocol upgrade.

Prices for ether, the native cryptocurrency of the ethereum blockchain, have jumped more than 85%, from their low of around $ 1,700 on July 20 to a high of $ 3,200 on August 10. During the same period, bitcoin jumped 60%, from less than $ 29,000 to over $ 46,000.

Ether price

After the big rally, bitcoin and ether are roughly halfway between their recent lows and all-time highs set in April and May respectively.

Bitcoin price

EIP-1559

While it is too early to tell if the crypto correction is over, the price rally is a welcome development for the bulls. Prior to this run, much of the talk in the market was about whether crypto asset prices would fall even more than they did in a long bear market similar to the crypto winter of 2018.

That type of chatter is gone for now, replaced by bullish enthusiasm centered around EIP-1559, an Ethereum protocol upgrade that went into effect last week. The main goal of upgrades is to make Ethereum’s transaction fees more predictable by replacing a first-price auction mechanism with a fixed fee (called a base fee) and an optional tip.

While all transaction fees previously went to Ethereum miners, in the new system the base fee is burned (taken out of circulation) and only the tip goes to the miners. Analysts say that a user who pays the base fee and a negligible tip has a high probability that their transaction will be added to the blockchain.

Essentially, the protocol now calculates market clearing transaction fees, rather than having each individual user try to figure it out for themselves.

User experience was the main boost for EIP-1559, but the impact of upgrades goes beyond just the cost. Base fees are burned to prevent miners from making off-chain deals that could hamper the goal of more predictable transaction costs. But the side effect of the design is to reduce the growth in the ether supply, which many investors see as bullish for the token.

According to the Ultra Sound Money site, since the upgrade last week, nearly 20,000 ETH has already been burned, or $ 62 million at the current price of ether.

Resurgence of NFT

Along with EIP-1559, a resurgence of interest in non-fungible tokens (NFTs) most of which exist on the ethereum blockchain has also fueled the rise of ether.

As ETF.com reported earlier this week, the value of one of the original NFT projects, CryptoPunks, has skyrocketed lately, with even the cheapest punks changing hands for six figures.

OpenSea, a marketplace for NFTs, has seen volume on its platform reach all-time highs in recent days. Now, under Ethereum’s new rules, much of the transaction fees associated with this volume are burned.

Move at a run

Even though Ethereum has recently dominated the crypto headlines, bitcoin is still the most valuable cryptocurrency in the world, with a market cap of $ 870 billion compared to $ 370 billion for ether. The debate over the energy consumption of bitcoin networks, ignited by a tweet from Elon Musk, has died down for now.

Instead, the focus is once again on whether the continued adoption of digital gold by retailers and institutions can push prices back to their highs around $ 65,000 and beyond.

The crypto space tends to evolve at the same pace, so the short-term fate of bitcoins may depend more than anything on Ethereum developments.

This story originally appeared on ETF.com

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