Ethereum price, along with other cryptocurrencies, saw their price tumble as the month of September started. This article today will be about an important upcoming catalyst for Ethereum price: The metropolis upgrade and the upcoming Ethereum hard forks.
How will Metropolis impact Ethereum price?
To have a good understanding of the impact of Ethereum’s Metropolis upgrade on Ethereum’s price, a few technical concepts need to be covered before we provide our outlook.
According to Investopedia, a hard fork is a change in the cryptocurrency’s protocol to fix a security risk from previous versions of the software, to add new functionality, or reverse transactions.
Since the hard fork is a permanent divergence from the previous version of the blockchain, nodes running the older version will be rejected by the new version. This creates a fork or a split in the blockchain where one group of nodes follows the new upgraded blockchain, while the second path follows the old path.
Generally, shortly after the fork, the old chain realizes that their version of the blockchain is outdated and quickly upgrades to the latest version.
Proof Of Work Vs a Proof Of Stake
A Proof of work is
A piece of data which is difficult (costly, time-consuming) to produce but easy for others to verify. Producing a proof of work can be a random process with low probability so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin wiki.
A Proof of stake is
A category of consensus algorithms for public blockchains, which Ethereum’s upcoming Casper algorithm is a part of. The blockchain keeps track of a set of validators, and anyone who holds the blockchain’s base cryptocurrency (in Ethereum’s case, ether) can become a validator by sending a special type of transaction that locks up their ether into a deposit. The process of creating and agreeing to new blocks is then done through a consensus algorithm that all current validators can participate in. It has significant advantages. Ethereum wiki.
What exactly is Metropolis?
Metropolis is a hard fork to upgrade Ethereum by adding enhanced or new functionalities to Ethereum as we know it today. The upgrade will be done in 2 phases: Byzantium and Constantinople.
Metropolis will introduce the following :
- The integration of Zcash’s cryptographic engine (zk-SNARKs) into Ethereum which should enhance Ethereum’s Anonymity and allow orders execution between Zcash and Ethereum’s Blockchain directly.
- Enhancements to the security of private Keys and Improvements to the development features. This article from the Merkle has a good overview of these features.
- Postponing the planned increase in Ethereum mining difficulty and reducing Ethereum’s issuance to miners by reducing block rewards from 5 ETH to 3 ETH.
Metropolis is not the only hard fork in store for Ethereum. Following the completion of Metropolis, Ethereum’s development team will start the Serenity release to convert the Ethereum Network from a proof of work to a proof of Stake.(PoW to PoS).
The benefits of moving Ethereum to the new Proof of stake network once serenity is launched will include:
- Reduced consumption of electricity (Ethereum will be cheaper to mine)
- Less need to issue coins to motivate miners and network participants, There is also a possibility of seeing the co supply reduced over time (Less coins in circulation, Higher coin value)
- Reduced centralization risks (Because less energy therefore less cost is required to mine Ethereum)
- More expensive 51% attacks so enhanced security.
Our thoughts on how the Metropolis upgrade will impact Ethereum price
It is very surprising how this Fork is not talked about that much. As we can see, Metropolis (Scheduled for the end of September) followed by Serenity (within a year an a half, no date released yet) will have a significant positive impact on Ethereum’s value.
So short term, there will be a decrease of 2 Ethers in Ethereum issuance to miners rewarding them for the mining a Block in addition to delaying the increase in mining trouble. These two actions will reduce new coins in circulation and the speed of issuing new ones, so if the demand remains stable, Ethereum’s price should go up. We believe the demand for Ethereum is likely to keep rising especially considering the new announced adoptions. We stress the word announced because with the current prices, we still haven’t seen the demand from most of these announced adoptions kicking in.
Another factor to keep in mind especially before Ethereum’s upcoming Metropolis upgrade is how the community has a very structured voting procedure to reach consensus. A good example is the way the vote to decrease miners block reward and delaying the mining difficulty has been carried through Carbonvote. This gives investors and Enthusiast confidence in the decision making process should issues arise.
Last but not least, one obviously cannot rule out that there will be volatility along the way. This volatility will probably be related to the general performance of the Cryptocurrency sector and Bitcoin in particular as well as any unforeseen technological issues that might arise during the upgrade. Our outlook remains positive though because it looks like the community and the development team is aware of Ethereum’s current and future possible limitations and they are taking the proper steps to enhance Ethereum’s code and coders’ experience which should strengthen its intrinsic value. We all know what that means for Ethereum’s price.
For more info on initiatives that could have a positive impact on Ethereum’s price, we wrote previously about Microsoft’s new Coco plateform, Ethereum potetially reshaping the legal industry . Our research team also published the following series of articles to keep our readers informed about the upcoming Ethereum Upgrades:
- Enhanced Anonymity for Ethereum Coming, Bullish for Ethereum Price
- Ethereum Price and the Upcoming Metropolis Upgrade
- Raiden Network, Ethereum’s Powerful Version of the Lightning Network
You can also read about our take on Ethereum price’s recent sharp movement in our lastest article Ethereum price dropped below $300, bearish for Ethereum price?