A major problem in the Ethereum blockchain seems set to be rectified with the solving of its interoperability problems. These have really hindered the process of the network since the layer 2 roadmap began. We discuss how it will impact the price of Ether in the article below.
The L2 roadmap has been a plan to improve the operations of the Ethereum blockchain. One problem has been the network’s ability to scale up. With newer competing blockchains ready to take its place, Ethereum has needed to solve its issues and cement its position at the head of the table. Combined with other upgrades, we discuss why this could propel Ethereum’s price forward.
Scaling up the blockchain
The idea was that solutions would be created that work on top of the main blockchain, which is layer 1. This would help speed up transactions and reduce fees while keeping the core principles of the blockchain intact. These were mainly security features. The problem with layer 2 was that many of its components did not operate together. As they were isolated from one another, its rollups left users faced with issues when moving assets from one chain to another. This often put users off, despite the reduction in gas fees layer 2 had brought with it.
Ethereum has solved this issue, and these issues should be rectified by the end of the year. It will use easy cross-chain token swaps, human-readable chain-specific addresses, and even quicker transactions. For some, it seems like the Ethereum network we were always promised is coming to fruition. This could fuel a rise in the Ethereum price USD, which is currently standing at around $2763. This is a rise of over 2% in the last 24 hours alone, in a market of increased volatility.
During Ethereum’s last run, its gas prices rocketed to around $200 a transaction in some cases. Several layer 2 rollups helped mitigate this. However, the introduction of further roll-ups made the situation worse, as there was less communication and connectivity. Crosschain swaps will be the first step in reducing these entry barriers, allowing people to easily transfer assets. This will include Ether and digital commodities like NFTs. With this increased liquidity and confidence, it seems unlikely that Ether would go anywhere but upwards in price.
The Pectra upgrade
One key researcher into Ethereum is Justin Drake, who believes that these upgrades will significantly bring Ethereum back into the spotlight. However, he believes it is the Pectra upgrade that will be the most valuable. In a recent post on X, he described it as helping to regain its status as “ultrasound money.”.
The Pectra upgrade will work with Ethereum’s burn mechanism. To understand this, you need to know how Ethereum works. When a transaction takes place, tokens are permanently removed from circulation. They are sent to a specific burn address, and this was implemented with the EIP-1559 upgrade.
The purpose of this is to make Ethereum deflationary. By reducing the supply, its value should increase. A similar thing is done with Bitcoin when a halving event occurs and the reward for mining is reduced. However, ether supply went into reverse with the introduction of blobspace, which reduced the gas fees for layer 2.
The upgrade will see fees for layer 2 transactions decrease even further. This surge in the amount of blobs through the upgrade will see the total of ether burned increase alongside it. He also noted that the Ethereum Foundation has also said that the issuance system for Ether is broken and needs to be altered in some way.
Many will find this comment from the foundation refreshing, if not a little utilitarian. The foundation has recently been criticized by those in the crypto community for its lack of foresight and ambition with the Ethereum blockchain. One of these has been their focus on fixing this infrastructure of Ethereum. While necessary, there has been little in the way of excitement regarding its uses, in terms of new applications, to entice the retail community. This has to have been weighing down the price for some time now.
Competition from rival chains
Ethereum also has competition hot on its tail and needs to scale up. It is no longer the only blockchain in town. Even if its nearest rival, Solana, fails to make ground, then Monad and Berachain will. Berachain even announced that the launch of its main net will come as quickly as the second week in February. This has led many people to look at the company culture within the Ethereum Foundation as the possible reason for its poor price, as opposed to anything external such as economics or supply and demand.
Ethereum has, in the last week, performed the worst out of the top ten cryptocurrencies. ETH is having trouble finding support, as other altcoins like XRP remain stable. A further decline below $3,000 could signal a major breakdown. It has dropped by almost 30% in just a few days.
Volatility is the name of the game when it comes to crypto. XRP has risen after a similar dramatic decline in value. A bullish reversal is still possible, particularly if it stays above this psychological mark. Stability here could see it rise to $3,200. With the biggest losses come some of the biggest gains. You just have to decide if the time is right for Ethereum.
