Why Ether Was Going Up Today

What happened

The price of Ether (CRYPTO:ETH), the tokens native to the Ethereum blockchain, was going up on Tuesday. As of 3:20 p.m. EDT today, the price had risen almost 4% over the previous 24-hour period, according to CoinDesk. While a move like this is certainly inside of what’s considered normal for volatile cryptocurrencies, we can’t discount a major update about a change coming to the network.

So what

At 10:40 this morning, a developer for Ethereum proposed a date for an update called Ethereum Improvement Proposal 1559 (EIP-1559), or the London hard fork. Assuming other developers agree, the update will be scheduled to take place on Aug. 4. The main thing that EIP-1559 should bring is a change to Ethereum’s fee structure.

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Right now, if you want to transact with Ether, you blindly bid what you’re willing to pay in transaction fees, which can lead to overpaying. EIP-1559 might not reduce fees, but it will regulate them. More importantly, a certain amount of Ether will get “burned” with transactions, disappearing from the supply completely.

To clarify, Ether was launched with an annual limit of 18 million new tokens. So it’s an inflationary cryptocurrency. The rate of inflation has gone down every year as the circulating supply has grown. But by introducing the new burn structure with EIP-1559, it’s possible for Ether to become deflationary with enough transactions to offset the new supply. The move toward the London hard fork could be what’s rallying investors to Ether today.

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Now what

There’s a lot going on with Ethereum these days besides the London hard fork. A bigger update is called Ethereum 2.0, which should make the network more scalable, handling higher volume and solving the current congestion to the blockchain. Investing in cryptocurrencies like Ether isn’t for the faint of heart because they’re volatile and the price of Ether could reverse tomorrow. But I believe the London hard fork and Ethereum 2.0 are generally good developments. By solving key problems with this technology, it could make it more practical and usable long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/07/06/why-ethereum-was-going-up-today/

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