Ethereum, the world’s second biggest cryptocurrency by value after bitcoin, has broken fresh ground today for the first time since early 2018.
The ethereum price, traded as the digital token ether, usually moves in tandem with the bitcoin price—but has surged higher over the last week as bitcoin trades sideways (though some smaller cryptocurrencies have made far larger gains).
Ethereum’s huge rally, that’s seen it climb almost 300% since bitcoin and other cryptocurrencies broke out in early October, is thought to be largely driven by the emerging decentralized finance (DeFi) market—the idea bitcoin and cryptocurrency technology can be used to recreate traditional financial instruments such as loans and insurance.
Ethereum surged to $1,439 per ether token earlier today, according to CoinDesk’s price index, surpassing its previous all-time high of $1,432.
“2020 saw the explosion of the DeFi ecosystem on ethereum—first hitting $1 billion in total value locked in February, now $20.5 billion in only 11 months,” Brian Norton, chief operations officer of MyEtherWallet, said in emailed comments. “This growth has attracted many new users seeking yields that are not available on bitcoin with centralized intermediaries.”
Last year, ethereum began a long-awaited upgrade designed to improve scalability and security and will see the ethereum network move from the proof-of-work (PoW) consensus algorithm to the proof-of-stake (PoS) algorithm.
This will essentially mean those who receive ethereum’s ether tokens as a reward for maintaining the network will be removed from the process in order to optimize the settlement of transactions—with ethereum users instead able to deposit their tokens to secure the network and earn rewards instead.
The hotly-anticipated launch of ethereum 2.0, along with the booming DeFi market that’s almost entirely built on top of ethereum’s blockchain, has caused developers to pile onto the network.
“What I am watching is developer activity on ethereum, as it serves as an indicator that new and better use cases are coming which will increase demand for the native asset,” Norton added. “Ethereum has over five-fold the number of active developers as bitcoin, and is adding developers at a faster clip every day.”
It’s hoped by many in the bitcoin and crypto community that the upgrade will help ethereum cope with growing demands on its network.
“While the explosion of projects in DeFi has caused growing pains for ethereum, layering solutions are in the works that are helping the network to scale,” Paolo Ardoino, chief technology officer of Hong Kong- headquartered British Virgin Islands-registered crypto exchange Bitfinex, said via email.
Meanwhile, ethereum’s rally doesn’t mean bitcoin, which recorded its own all-time high of over $42,000 per bitcoin earlier this month before falling back slightly, has been written off.
Bitcoin smashed through its late 2017 high of around $20,000 in December as institutional investors warmed to the cryptocurrency and payments giants such as PayPal
“Sentiment around bitcoin remains overwhelmingly bullish,” said Ardoino. “Bitcoin is providing a solid foundation for a staggering array of projects, some of which will fundamentally change the nature of money by the end of the decade. Those celebrating the rise of competing chains in a rampant bull crypto market should do well to remember that they owe everything to bitcoin.”
Looking ahead, long-suffering cryptocurrency traders, triumphant after bitcoin and crypto’s return to glory following a three year bear market, are feeling upbeat about ethereum.
“I believe it is very feasible for ethereum to hit $2,500 in 2021, as it also benefits from the extended crypto-asset bull run we are currently seeing,” Simon Peters, crypto-asset analyst at brokerage eToro said in emailed comments. “Today’s all-time high of $1,419 could just be the beginning.”
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