Will Ethereum’s Altair Upgrade Push Ether Over the Top?

28 Oct, 2021
Will Ethereum’s Altair Upgrade Push Ether Over the Top?

Wednesday’s much-anticipated Ethereum upgrade is creating a stir in the crypto marketplace, as its native currency Ether (ETH), is hovering near its all-time high set in May.

“The gains come ahead of an upgrade due Wednesday that is expected to make the Ethereum network faster and more scalable, and could lead to lower fees for users,” Bloomberg reports. “Ether has soared almost 1000% in the past 12-months -- outstripping Bitcoin’s 380% jump -- in part because of the network’s popularity for applications like decentralized finance and non-fungible tokens.

The upgrade, called Altair, is the next step in the network’s move toward switching from the proof-of-work protocol to the proof-of-stake protocol.

The full transition, which is being called Ethereum 2.0, is expected to be completed next year.

What’s at stake?  Actually, it’s staking.

To understand all the hubbub around Ethereum’s upgrade, look under the hood. The Ethereum network is a workhorse. It’s the first blockchain to provide developers with the ability to create “smart contracts” that essentially allow contracts to be executed without the need for a live body.

The smart contract capability, along with scalability on the blockchain, is highly in demand.

“Ether works in a similar way to Bitcoin, but Ethereum is different,” The Economic Times explains. “It is a worldwide software platform with no host, on which developers are building thousands of blockchain-based applications.

“This means these applications can all run without being controlled by a company. Examples include cryptocurrency exchanges, insurance systems, and new kinds of gaming.”

High demand has created congestion on the network, which has led to higher “gas” fees that continue to be a major sticking point for developers.

Ethereum’s “proof of work” (PoW) protocol, which involves many miners who compete to validate a block on the blockchain, has also come under scrutiny for its energy-guzzling.  Ethereum 2.0 will move from proof of work to “proof of stake (PoS),” a protocol that selects one miner with a “stake” in the blockchain to validate the transaction.

The decision to move to PoS has created a lot of excitement among Ethereum fans, who believe the switch will help catapult Ether well past Bitcoin as the dominant cryptocurrency. That moment, known as “the flippening” is a hot topic among traders.

“This upgrade brings light-client support to the core consensus, cleans up beacon state incentive accounting, fixes some issues with validator incentives, and steps up the punitive parameters,” according to the Ethereum Foundation Blog.

The Ethereum market capitalization, which grew to more than $250 billion U.S. in April but fell during the crypto market decline in May, is now valued at $488 billion.  It represents about 19% of the cryptocurrency market, which is the second-largest market cap next to Bitcoin’s nearly 45%, according to Trading View.

Is there an ETF in Ether’s future?

With the launch of two Bitcoin Exchange Traded Funds (ETFs) this week, speculation abounds if an Ethereum fund will follow. It’s not that the idea hasn’t been floated before. In fact, two applications were submitted to the U.S. Securities and Exchange Commission (SEC) for Ether ETFs this year.

“In August, VanEck and ProShares both dropped their applications for ether futures ETFs two days after they filed the application,” MarketWatch reports.  “Some analysts suspected that the SEC reached out to both issuers and indicated that ether-linked ETFs wouldn’t be likely to be approved, at least not before any bitcoin-linked ETFs get the nod.”

The potential has not been lost on traders.

“Bulls are also using the options market to position for a potential Ether futures exchange-traded-fund announcement, crypto liquidity provider B2C2 wrote in a recent report,” according to Bloomberg.

Value is in the eye of the beholder. For Bitcoin, traders – and the markets – see speculative opportunity and a hedge against inflation. For Ethereum, traders and developers are eying the limitless potential of its blockchain to provide a landscape for innovation.

Will Altair take Ether to the moon? Or is the coin riding on the crypto frenzy. If it’s a combination of both, traders will let us know.

Joyce Pavia Hanson