The price of Ether (ETH) has been in a downward spiral since the presentation by Ethereum co-founder Vitalik Buterin at the StartmeupHK Festival 2021. In a fireside chat session on May 27, Vitalik stated that multiple internal team conflicts caused the proof-of-stake migration to delay the launch.
As reported by Cointelegraph, Phase One, which introduces scalability through sharding, has been postponed to 2022. Additionally, the inherently decentralized nature of DeFi may not be entirely beneficial, as sharding-style processing would have to perform transactions through a relay chain.
It’s impossible to determine the reason for ether’s sharp decline from its all-time high, but soaring gas fees have certainly influenced investor expectations. Not only did it make it clear how limited the network was, it also encouraged merchants to experiment with alternative networks like Binance Smart Chain (BSC) and Polygon’s Layer 2 solution.
The graph above shows that the average gas fee of $ 45 was incurred a full month after the Berlin upgrade started on April 15th. The consensus among the Ethereum community was that Berlin was less effective in the short term, but paved the way for the expected London EIP-1559 protocol from fork on August 4th.
This brings us to one of the 3 factors that could negatively affect the price of Ether in the short term.
London Fork delay
The hard fork of Ethereum London is part of the roadmap for the final Eth2 release in 2022. The long-awaited update is scheduled for August 4th but has already been postponed as the previous schedule was mentioned in late July.
Miners will be hardest hit by the EIP-1159 proposal, which aims to burn off some of the fees generated on the Ethereum blockchain, thereby reducing their revenues. In addition, EIP-3554 introduces an incremental difficulty adjustment that encourages migration to the new proof-of-stake blockchain.
The delivery balance of the Ethereum developers does not inspire confidence either. Should a partial upgrade take place and the more controversial changes delayed, the Ether price could slide as part of the current rally builds on the hype surrounding the hard fork.
Exodus of miners
This time the main concern is not technical, but social. Once it becomes clear to Ethereum miners that their source of income is gradually being cut off, it will be a matter of time before some competing network advantages take hold.
Although most smart contract blockchains are designed around the proof-of-stake consensus model, some lesser-known projects could change their algorithm to support Ethash mining.
Analysts shouldn’t rule out the possibility that Binance Chain or Solana could implement an extra layer of security by leveraging the extra hashing power caused by an Ethereum miner exodus. While this scenario is a long way off, these moves would undoubtedly put pressure on the price of Ether.
The longer it takes for Eth2 to be fully implemented and dApps to update their code to support parallel processing functions (Shardin), the higher the incentives for adding multi-chain support.
Curve and AAVE, the two leading DeFi protocols by total banned value, both have additional support for blockchains other than Ethereum. Meanwhile, Polygon Curve contracts worth $ 550 million and AAVE holds an additional $ 1.8 billion, according to data from DeFi Llama.
In the end, the most likely “Ethereum killer” would be the network itself, because a shift in the scaling solution would push users and dApps to alternative solutions. At the same time, the migration to PoS opens up space to strengthen competing blockchains.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.