The price of ethereum, the second most popular digital token, increased by 14 percent in 24 hours over the weekend, reaching $600 — the highest since June 2018 — after breaking $500 three days ago.
The cryptocurrency was at $389 on Aug. 23, increasing 54 percent in the last three months.
By comparison, bitcoin’s price today reached $18,513, up by 37 percent from its price of $11,627 three months ago. Over the last week, all the top 10 cryptocurrencies have increased in price. Ripple leads the way with a 78-percent increase, Decrypt reported.
Here are three reasons ethereum went parabolic and is rising faster than bitcoin.
Bitcoin rising tide lifts all boats
Crypto enthusiast Jack Dorsey’s payments company Square announced the purchase of 4,709 bitcoins in October — a $50 million investment that represents 1 percent of the firm’s total assets. Square’s Cash App product allows customers to buy and sell bitcoin.
PayPal plans to let customers and the 26 million merchants on its network buy, sell and shop using bitcoin and other virtual coins. It plans to expand the service to Venmo in 2021.
Bitcoin’s 2020 bull run is thought to be more from institutional endorsements than its 2017 retail boom. In 2017, bitcoin rose to an all-time high price of almost $20,000. The price crashed to about $3,000 in 2018, but retail demand could be just around the corner, Forbes reported.
The cryptocurrency community is gearing up for a pre-Thanksgiving surge and may get a boost from the U.S. Federal Reserve and the European Central Bank.
Decentralized finance (DeFi) and a hedge against inflation
Bitcoin’s growing reputation as a hedge against inflation is boosting the price of other cryptocurrencies. Ethereum is still far below its all-time high of about $1,500 in January 2018, but its price has increased four-fold since March 2020, when the pandemic brought global money markets to a halt, Business Insider reported.
Ethereum has a $40.6 billion market cap compared to bitcoin’s all-time high of $336 billion last week.
During the pandemic, people are spending more time online and learning about cryptocurrencies such as ethereum, said Bernard Meyer, senior researcher at CyberNews.com.
Daily transaction fees, also known as daily gas usage, on ethereum are at an all-time high, according to on-chain data from Etherscan.
When gas usage is high, the on-chain user activity is rising, Cointelegraph reported.
Increase in daily gas usage on Ethereum likely comes from two sources, according to Cointelegraph:
Deposits to the Eth2 address
A growing number of decentralized finance users.
Decentralized finance or DeFi is the shift from traditional, centralized financial systems to peer-to-peer finance. This peer-to-peer finance is enabled by decentralized technologies built on the ethereum blockchain, according to ConsenSys, which claims to be the largest venture production studio in the blockchain ecosystem.
ConsenSys was founded by Joseph Lubin, a co-founder of Ethereum, in 2014. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments.
“Now with over $13 billion worth of value locked in ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions,” Consensys said.
Anticipation of ethereum 2.0 upgrade
Ethereum 2.0 or Eth2 is a network upgrade scheduled for Dec. 1 that’s supposed to solve the coin’s scalability issues. The network needs 524,288 ETH ($315 million) to be staked on it before it can to launch. So far, about half of this amount has been staked, Decrypt reported. It’s not looking good for the initial launch date.
When it’s active, Eth2 is expected to improve the transaction capacity of the Ethereum blockchain network.
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Tight now, the ethereum blockchain can process a maximum of 15 transactions per second, resulting in network congestion and high transaction fees, Benzinga reported. The plan is to upgrade the network to accommodate 10,000 transactions per second.
Ethereum prides itself on being “one of the most decentralized and secure blockchain systems available today. And it is hellbent on maintaining this status,” according to Benzinga.
Ethereum 2.0 will be rolled out in a sequence of updates divided with four phases projected to last until 2022.
All the upgrades will have no noticeable effect for users and are compatible with existing infrastructure. User don’t need to download special tools and there is no plan to create a new cryptocurrency. ETH will remain the native coin. Users are urged to beware of platforms, ads, and campaigns encouraging them to deposit ETH to receive Eth2.0.
Also, some believe that the upgrades will have a positive effect on the price of ETH, reduce transaction fees and increase network engagements.