It turns out that 2021 is a lucky year for the world’s second largest cryptocurrency, Ethereum (Ethereum), its value has increased fourfold in the past 12 months.

In doing so, the appreciation of Ether surpassed that of Bitcoin, and its share of capitalization in the entire cryptocurrency market has increased. Although the broader cryptocurrency market has enjoyed a year of relative gains, the value growth of ETH has been synchronized with the upgrade of Ethereum’s core protocol, laying the final pillar for its transition to a proof-of-stake consensus protocol in 2022.

Certain Ethereum Improvement Proposals (EIPs) have been the center of attention of the broader Ethereum community and have proven to be critical to the “merger” of the proof-of-stake beacon chain that will take place in 2022.

The London hard fork is The most anticipated upgrade This introduces some EIP. EIP-1559 proved to be controversial because the fee structure earned by miners and the fee structure paid by users have changed, both The pros and cons of the upgrade.

A key factor is the introduction of a built-in ETH destruction mechanism, which will destroy a portion of the ETH used to pay transaction fees. Although some miners are dissatisfied with the reduction in fees, the benefit of the London hard fork is the deflationary behavior of the ETH destruction mechanism. It is believed that this EIP and its deflationary mechanism will help increase the value of ETH in the coming months and years.

This Altair upgrade Immediately following London to the end of the year, this is the first update of Beacon Chain since its launch in December 2020. This allows the various teams participating in the continuous development of the Ethereum ecosystem to conduct a “merged” trial run.

Another driving force for Ethereum’s strong performance in 2021 is the booming decentralized finance (DeFi) field, which has attracted a lot of money. Ethereum’s blockchain runs many of the largest DeFi platforms, which has a direct impact on the value of ETH and the increase in activity on the blockchain.

Harvest what you sown

The popularity of Ethereum as a blockchain platform is a direct result of the smart contract function that supports the ecosystem. Smart contracts allow various applications to be created and run on the blockchain, allowing users to create their tokens, applications, and platforms.

Although ETH is the lifeblood of the well-known Ethereum ecosystem, projects and applications running on the blockchain bear great responsibility for the value derived. As the saying goes, every effort is rewarded, and the ecosystem is reaping the benefits of the blockchain system, which allows seeds to blossom into valuable and popular DApps and platforms.

Ben Caselin, head of research and strategy at the cryptocurrency exchange AAX, provided some insights on the main factors that expanded Ethereum’s strong performance this year. Caselin first emphasized the various use cases that helped the ETH business throughout the year: “We are referring to stablecoins, DeFi, GameFi, non-fungible tokens (NFT), memes, digital bonds, central bank digital currency plans, income agriculture, liquidity Sex pool and metaworld.” He further added:

“Ethereum carries each of these fields and related capital, and has a huge market share. The value of Ethereum varies according to the activities it supports, while Bitcoin has grown steadily because it is seen as the new global economy. Basic layer savings technology. Every action is somewhat consistent, but they are fundamentally driven by different forces and conditions.”

Mattias Nystrom, community manager of Ethereum’s second-tier payment platform Golem Network, shared his insights with Cointelegraph. Nystrom emphasized that the sum of activities on the Ethereum network was the catalyst for its success this year: “Although Bitcoin is primarily built for payment, Ethereum is unique because of its underlying technology, and as Web 3.0 begins its journey, this Began to become popular for mainstream adoption.”

Cryptocurrency analyst and quantum economics founder Mattie Greenspan told Cointelegraph that Bitcoin’s performance (Bitcoin) And Ether are difficult to compare because their use cases and ecosystems are very different. Nevertheless, he acknowledged that the latter’s value has shown a clear upward trend in the past 12 months:

“Bitcoin and Ethereum are as different as any two assets, except for the fact that they are both digital currencies. They have very different functions in their respective networks, and each has unique buying and selling pressures.”

Influential eco-industrial park

As Cointelegraph November exploration, Ethereum is on the final road from the energy-intensive proof-of-work (PoW) consensus algorithm to the proof-of-stake (PoS) Ethereum 2.0 chain.

The beacon chain was launched in December 2020, Initiate The creation of the PoS Eth2 chain now has more than 8,600,000 ETH pledges and slightly less than 270,000 online validators. These validators will basically take over the work of the current miners in Eth2, process transactions and maintain the operation of the blockchain. Become The full-node validator requires users to pledge 32 ETH, and a smaller amount can be pledged in the pool.

One of the most anticipated improvements to Ethereum will take effect in mid-2021. EIP-155 is the subject of a lot of controversy because it changes the fee structure that miners earn and users pay.

One pain point is the built-in ETH destruction mechanism, which destroys part of the ETH used to pay transaction fees. The miners were not impressed because the cost is part of their motivation to maintain the network.

related: The growth of Ether as an independent asset drives the flipped narrative of ETH-BTC

The benefit of the London hard fork is the deflationary effect introduced by the ETH destruction mechanism. Therefore, every transaction will see a certain percentage of ETH be destroyed, leading to more ETH being gradually removed from the ecosystem. This process aims to increase the scarcity and value of ETH as an asset.

Caselin believes that the implementation of the London upgrade has played a role in attracting positive investor sentiment, but it also highlights some key differentiating factors between Ethereum and Bitcoin:

“The London upgrade reiterated that the Ethereum project is running well and is still under construction-which is attractive to investors and speculators. It is better than some of the top-ranked projects in the chart, but in terms of activities and the provision of actual services There is little to show. The destruction mechanism tells the narrative surrounding inflation and draws on the logic that Bitcoin relies on.”

At the same time, Greenspan is more objective in his analysis, which shows that ordinary Ethereum users have almost no hint about the impact of recent EIPs. These EIPs constitute the current Ethereum blockchain and the touted beacon chain. Part of the looming merger between 2022: “Although the upgrade may have some impact on internal token economics, I don’t think it has much impact on sentiment.”

Nystrom believes that the technical improvements made by the Ethereum ecosystem in the process of moving towards Merge and various applications running on its blockchain have proven its versatility, which corresponds to the value growth of ETH throughout the year:

“The construction of ETH is very different from BTC and will show more technological progress in 2021. The crypto community is aware of the fact that Ethereum is a more versatile asset with a complete ecosystem behind it, and there are more Space to expand and create ambitious and valuable projects for longer periods of time.”

The market remains fragile

December was a tough month for the global market, which reacted strongly to the discovery of the latest COVID-19 variant discovered by South African researchers. The traditional market shuddered, and this had repercussions in the cryptocurrency market.

BTC, ETH, and a series of major cryptocurrencies suffered losses as this sentiment spread to the crypto market and more bad news appeared Inflation has been increasing In the United States. Caselin provided a cautious outlook, emphasizing the characteristic response of the market to major news and economic events, and in the medium term, this may be more beneficial to BTC than ETH:

“The market always changes with news reports and economically significant events, but long-term trends are mainly driven by fundamentals. […] We may not have entered a bear market, but there are good reasons to believe that the growth we have seen in the past two years is just the beginning. Long-term holders are still buying. ”

Greenspan emphasized that the events in the United States are a sign of the times and the cause of the recent market downturn, while acknowledging that the mid-term of the cryptocurrency market has not yet been clear:

“When the Fed was printing money, social media was full of’brrrrr’ memes. Now that liquidity is drying up, the Peanut Gallery’s noise is much smaller. Maybe by the end of this year, we will see this kind of callback actually How deep. Or not.”