Ethereum is the largest cryptocurrency by market share after Bitcoin. It has had a poor year but could be set for restoration to its former glory with a major change. In this article, we discuss what this is and why it could save Ethereum.
Ethereum has had a torrid year. With outpourings of its ETFs and a low against Bitcoin, it has seemed even its creators may have abandoned the coin. However, Ethereum could be back on the up, with news of a Pectra upgrade. In this article, we discuss why Ethereum’s price is on its way back to the top.
Dividing the Pectra Upgrade
One of Ethereum’s main woes has been the prevalence of better, more efficient blockchains. Pectra will aim to change that by attempting to increase the efficiency and scalability of the network. Its developers are considering splitting the upgrade, with the first phase coming as early as February 2025.
This was discussed by an executive layer meeting held on September 12th. Researcher Ansgar Dietrich also noted that this must be delivered quickly and that if nothing happened by June 2025 it could be deemed a failure. Splitting the upgrade is considered a sensible move by many. With smaller forks, there is a reduced risk.
What is Pectra?
Pectra is made of two separate upgrades, known as the Prague update and the Electra upgrade. The first of these is related to the execution layer. The latter will impact the consensus layer. These will work to improve the speed of the blockchain.
It has been set to go live in the first quarter of 2025, with improved features to make Ethereum more usable. This will follow an upgrade from March 2024 that was known as Dencun. The aim of this was to lower transaction fees for layer 2 solutions.
Another feature of the upgrade is the Ethereum Improvement Proposal. This will allow crypto wallets to act using smart contracts. Users will be able to bunch transactions together and then sign them off in a group.
Could Pectra Turn Around Ethereum’s Year?
Christine Kim, a researcher into the network, stated that this could possibly be the largest upgrade in Ethereum history. This sentiment has been echoed by others. When the Ethereum Improvement Proposal was announced in April 2024, this also provided hope to those invested in Ethereum.
Ethereum has had major upgrades before. One of these occurred in 2022 and was affectionately known as The Merge. This changed it from a proof of work to a proof of stake consensus mechanism. When it did happen, it provided a major boost to the value of ETH to USD.
One of the most important outcomes was that it reduced Ethereum’s energy consumption. Energy usage is one of the most critical arguments directed at all cryptocurrencies, so this needs to change. The Merge managed to cut its consumption by 99.95%, a huge amount. This has made it an eco-friendly alternative to other cryptocurrencies favoured by the public and influencers.
Before this, it was also limited to 15 transactions per second. This made it slow and expensive. The Merge rectified this by letting it reach 1000 trades per second. Once again, this is still yet to happen but could be something the next upgrade addresses.
A further result of this was high transaction fees. As the network was slow, the gas prices were extremely high. These fees dropped from between $50 to $100 per hour, down to $2 and $5 per transaction.
Ethereum’s Wild Year
The currency has had a wild year. At the time of writing it is down to 0.039 BTC. This is the lowest it has been for some time, down by 24% this year and 35% from a year-to-date high. It has also dropped against other cryptocurrencies, along with four months against the USD. It is at its lowest point against the fiat currency since February.
There have been numerous reasons for this. Cryptocurrencies as a whole have not had their greatest year, with fears of a recession in the US putting off many investors. Compounding this was a series of recent outflows in Ethereum ETFs. These exchange-traded funds were set up this year, allowing investors to buy into a company that owned the cryptocurrencies. It was assumed this would provide stability and security, inviting more buyers who liked safer assets and were more Tradfi focused. While Bitcoin ETFs have been relatively successful, Ethereum ones have not had as good a time, with outflows of over $581 million.
Finally, the Ethereum Foundation has also been selling off the currency. Vitalik Buterin has sold assets worth over $2.2 million, which has spooked many and lowered the price further.
However, this could mean now is the perfect time to start investing in Ethereum. With the price at a low point and major upgrades planned next year, it could be the turnaround Ethereum needs. Combined with a change in the US economy that sees it avoid recession and positive figures in the labor reports, Ethereum has many key indicators to show it is back on the up.
