August 9, 2021 / Forecasts

Ethereum Future After London Hard Fork: Price Increases And Regulators’ Plans

ethereum
Ethereum has now truly become a deflationary asset.

London

As you know, on August 5, a hard fork of London was implemented on Ethereum network. The update took place at block # 12,965,000 as planned. Everything went smoothly, and now, during each transaction, part of the fees is burned.

Several deflationary blocks were even mined, this is when the number of burned coins is greater than the reward of the miners. This reward is the new Ethereum coins that appear during the mining process. But since at the same time some of the cryptocurrencies are being destroyed, it turns out that the total emission has become significantly lower. And in the future, less Ethereum may be mined than destroyed, and then the TOP-2 cryptocurrency will officially become a deflationary asset.

It’s even cooler than the Bitcoin issuance mechanism. Bitcoin’s offer is limited to 21 million coins, there will be no more of them, but the process of creating new bitcoins is still underway, which is constantly slowing down twice after the next halving, about once every four years. There are also coins that are kept by Satoshi Nakamoto, or those from which the private keys are lost and in fact they are destroyed. Since people will gradually lose keys anyway, bitcoin can also be called a deflationary asset. But this does not happen systemically, while for Ethereum this process can become permanent.

How will this affect the price? This is in effect here and now: Ethereum broke the tradition of previous hard forks and rose in value instead of falling.

ethusd london

The rule “buy on rumors – sell on news” did not work, and we can explain this by the euphoria that happened after the coins actually began to be destroyed.
Let’s take a look at this process again. You can see that the issue is slowing down, it is still far from its negative value, but still the process has begun and this made the market make a non-standard move.

The question is, what’s next, and will we push the price endlessly upward? Not really necessary.

A decrease in supply in the market affects the price only when there is a sufficient level of demand. And it is he who is the driving force, but now it will take conditionally less effort to add one more dollar to the exchange rate.

Because miners get fewer coins and therefore sell less. They naturally do not like such losses, but the community was able to agree, and no strikes or divisions of the chain happened, which is an extremely good sign. Also, miners do not leave the network, and there is such interesting mathematics that, on the one hand, they get less on the air, but if the price rises due to the reduced emission, then their income in dollars will increase. It is also interesting with an eye to the size of the commission fees.

One of the goals of the London renovation was to reduce fees. And in the cryptocurrency itself, they sank somewhat, it is possible that they will fall more, it all depends on the network congestion. On the other hand, if the price rises, they can increase in dollars. So fees in Ethereum may continue to be higher than in the Bitcoin network.

Will we now see Ethereum at $ 10,000 as previously predicted? In fact, one can speak of even more daring forecasts, when the price in several cycles will exceed $ 40,000. But the last word will be with demand, because even a deflationary asset can fall in price if no one wants to buy it. Today, we can only say with certainty: the market has accepted new conditions of the game, and at the moment, the burning of coins really stimulates buyers to bring new money.

In the future, the developers plan to further reduce the mining reward, as well as optimize fees. After the transition to Ethereum 2.0, emission and transaction fees will be reduced to a minimum, and only then it will be possible to quickly and cheaply poison ether and tokens in its network. At best, there is still about a year before this event, but it may happen that the developers change their minds and abandon the transition to the Proof-of-Stake protocol.

POW

United States intends to take control of the cryptocurrency market by analogy with the stock market. There is an important update regarding Biden’s $ 1 trillion infrastructure plan, under which they decided to collect $ 28 billion in taxes from cryptocurrencies.

This document contains rather vague wording, due to which miners, node operators, and developers can be equated with brokers and oblige them to comply with a certain number of rules, including collecting personal data of clients. Three senators that support Bitcoin, Ron Wyden, Cynthia Lummis, and Pat Toomey, have amended this draft to avoid similar problems.

After all, neither developers, nor miners, nor node operators control the blockchain and cannot be equated with a financial service provider. Everything was fine until an alternative version of the amendments appeared, which divided cryptocurrencies into two groups based on Proof-of-Work and Proof-of-Stake algorithms. Indeed, in the proposal prepared by Rob Portman and Mark Warner, only those groups that service the operation of POW blockchains such as Bitcoin and Ethereum are excluded from financial supervision. But for all POS-based cryptocurrencies, that is, their validators and developers will have to comply with the rules of financial control, that is, collect and transfer data about their users. This will affect both the cryptocurrencies themselves and the applications that are prohibited on them, DeFi services will be the first to suffer. And now the most important thing is that it is precisely such an amendment that the Biden administration has supported, which significantly increases its chances of adoption.

Lets imagine that Charles Hoskinson, after this law, is no longer the founder of Cardano, but a person accountable to the US authorities who, upon their request, must provide data about network users. How do you like this turnaround in the crypto industry? And Vitalik Buterin can also join this club after Ethereum 2.0 is launched. What are the consequences of such a decision?

Now you shouldn’t panic, because in Congress it is possible to vote for the first normal amendment, which protects all representatives of the crypto industry. Also, it is possible that the wording of the law will be further clarified, that is, the same effect. However, conspiracy theorists can trace one interesting point. The law removes Bitcoin from unnecessary problems, creating unique conditions for it in the cryptocurrency market and significantly complicating the life of everyone who focused on the speed and cheapness of transactions when creating their protocols, instead of decentralizing the network.

We are not bitcoin-maximalists, but we always put only Bitcoin in the first place in our personal rating. And to some extent, this is good news that the US authorities are playing along with the first cryptocurrency. We also note that the adoption of this bill will be a kind of legalization of cryptocurrencies if the rules of the game are prescribed for them and referred to the financial sector, which is also a generally good sign and allows us to again make plans for a price of $ 100,000 in the near future.

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