The world’s second-biggest cryptocurrency, Ether (ETH), has had a great year. Over the last year, the value of ETH has quadrupled, making it more valuable than ever.
In this way, Ether has outperformed the rise of the most popular cryptocurrency, Bitcoin, and has become a bigger part of the overall cryptocurrency market by value. ETH’s value has risen in tandem with changes to Ethereum’s core protocol, which set the groundwork for its transition to a proof-of-stake consensus protocol in 2022. The wider cryptocurrency markets have had a good year.
Ethereum Improvement Proposals (EIP) have been a big deal for a lot of people in the Ethereum community. These proposals have been important for “The Merge,” which will happen in 2022 when the proof of stake Beacon Chain is set to be launched.
There were a lot of EIPs added to Bitcoin after the London hard fork, which was the most talked about upgrade. EIP-1559 caused a lot of controversy because it changed how miners and users earned and paid fees. There were both good and bad things about the upgrade.
The built-in ETH burn mechanism was a big help. It destroyed a part of the Ether that was used to pay a transaction fee. When the London hard fork was done, some miners didn’t like that the fees were going down. The deflationary action of the ETH burn mechanism was a good thing, though. It is thought that this EIP and its deflationary mechanism will help the value of ETH rise over the next few months and years.
The Altair upgrade came after London at the end of the year. It was the first update to the Beacon Chain since it was launched in December 2020. People who work on the Ethereum ecosystem could run a test run of “The Merge” with this move.
Another reason why Ether has done so well in 2021 is because of the growing decentralized finance (DeFi) industry, which has attracted a lot of money from people. People who use Ethereum’s blockchain run a lot of the biggest DeFi platforms, which has led to more people using it and the value of ETH.
Reap what you sow
As a blockchain platform, Ethereum has become very popular because it has a lot of smart contract functionality. Smart contracts let people make their own tokens, apps, and platforms on the blockchain. This allows people to make their own tokens, apps, and platforms.
While ETH is the “lifeblood” of the Ethereum ecosystem, the projects and applications running on the blockchain are mostly to blame for the value that comes from them. It is said that you get what you put in. The ecosystem is benefiting from a blockchain system that has allowed seeds to grow into valuable and popular DApps and platforms, which in turn have helped the ecosystem grow.
Ben Caselin, the head of research and strategy at cryptocurrency exchange AAX, gave us some ideas about why Ethereum has had a great year. ETH has been used in a wide range of ways this year: “We’re talking about stablecoins, DeFi, GameFi, meme coins, digital bonds, central bank projects, yield farming, liquidity pools, and the metaverse,” said Caselin.
Further, he said:
“Ethereum carries each of these sectors and the associated capital with outsized market share. Ethereum’s value is established differently based on the activities it powers, while Bitcoin grows steadily as it sees adoption as a base-layer savings technology for a new global economy. Each moves somewhat in unison but they are fundamentally driven by different forces and conditions.”
Mattias Nystrom, the community manager for the Ethereum layer-two payments platform Golem Network, talked to Cointelegraph about what he learned.
Nystrom said that the total amount of work done on the Ethereum network this year was what made it so successful. It’s not just payments that make Ethereum different from Bitcoin. It’s because of the technology that makes it unique. As Web 3.0 moves closer to mainstream use, this is starting to spread.
There are so many different ways to use Bitcoin and Ether that it’s hard to compare their performance, a crypto analyst and the founder of Quantum Economics told CoinNewsDaily. However, he said that the latter has seen a clear rise in value over the last year:
“Bitcoin and Ethereum are about as different as any two assets can be, aside from the fact that they’re both digital currencies. They have vastly different functions within their respective networks and each has unique buy and sell pressures.”
Following what we looked at back in November, the final step in Ethereum’s transition is over. It will now move to the Ethereum 2.0 chain, which uses less energy than the Proof of Work (PoW) consensus algorithm and is more secure.
In December 2020, the Beacon Chain went live. This started the creation of the PoS Eth2 chain, which now has more than 8,600,000 ETH staked and a little less than 270,000 validators on it. These “validators” will take over the work of the current miners in Eth2. They will process transactions and keep the blockchain running smoothly. In order to become a full node validator, a user must put 32 ETH into the pool. Smaller amounts can be put into the pool, too.
One of the most anticipated Ethereum Improvement Proposals went live in the middle of 2021, and it was a big deal. EIP-155 was the subject of a lot of debate because of the changes it made to how miners and users earned and paid fees.
People didn’t like how a part of the Ether used to pay the transaction fee was burned away. Miners didn’t like it because fees are part of their incentive to keep the network running.
The good thing about the London hard fork was that the ETH burn mechanism made prices go down. As a result, some of the ETH in each transaction is destroyed, which means that more ETH is being taken out of the ecosystem. This process is supposed to make ETH more valuable and scarce, which will make it more valuable.
Caselin thinks that the implementation of the London upgrade has helped investors feel more positive about the cryptocurrency. He also points out some important differences between Ethereum and Bitcoin:
“The London Upgrade reiterated that the Ethereum project is well and alive and continues to be under construction — this is attractive to investors and speculators. It is better than some projects that have ranked high in the charts, but have little to show for in activity and providing actual services. The burn mechanism speaks to a narrative around inflation and borrows from the logic Bitcoin relies on.”
Greenspan, on the other hand, was more objective in his assessment of the recent EIPs that have been part of the planned merge between the current Ethereum blockchain and the Beacon Chain, which is expected to happen in 2022: The upgrade may have had an effect on how tokens work inside, but I don’t think it has had a big effect on how people feel about them.
There have been many technical changes to the Ethereum ecosystem and a lot of different applications running on its blockchain, which show that it can be used for many different things. This is why the value of ETH rose so much this year:
“ETH is built uniquely different from BTC and has shown much more technical progress in 2021. The crypto community knows for a fact that Ethereum is a more versatile asset with an entire ecosystem behind it and more room to scale and create ambitious, valuable projects over a longer period of time.”
Markets still fragile
A new COVID-19 variant was found by South African researchers in December, and global markets reacted very quickly to the news. Traditional markets shook, and this shook the cryptocurrencies markets as well.
BTC, ETH, and a lot of other major cryptocurrencies lost money because of this, and there was even more bad news: Inflation has been rising in the United States. Caselin gave a cautious look at the future, pointing out how the market reacts to big news and economic events, and how this could help BTC more than ETH in the long run:
“Markets have always moved to the tune of news stories and events of economic significance, but longer trends are mostly driven by the fundamentals. […] We may not be in a bear market just yet, but there is every reason to believe that the growth we have seen over the past two years marks only the beginning. Long-term holders are still buying.”
Events in the United States are a sign of things to come and the reason for the recent market downturn, Greenspan said, but he also said that it’s not clear what will happen in the long run for the cryptocurrency markets.
“While the Fed was printing money, social media was buzzing ‘brrrrr’ memes, now that liquidity is drying up, there’s a lot less noise from the peanut gallery. Possibly by the end of the year, we’ll get to see how deep this pullback actually goes. Or not.”