Upgrade season in the crypto world — the future of BTC, ETH, and Cardano
Original Title: "The Encryption World Ushers in an Upgrade Season - The Future of Bitcoin, Ethereum and Cardano"
If anyone can summarize what happened in the crypto world in 2021, it is that the year started off well, but by the middle of the year, things went sour. The market value of Bitcoin (BTC) has fallen by more than 50% from $64,895.22 (April 14, 2021) to the $20,000 range in June. This affects other parts of the cryptocurrency market as well. While Ethereum (ETH) is trying to hold its ground, its ATH has dropped from $4362.35 (May 12, 2021) to just under $2000 (end of July). A rising star in the crypto world, Cardano (ADA) also failed to maintain its upward momentum and fell. Cardano’s ATH dropped from $2.46 (May 16, 2021) to just over $1 (late July).
Charts with many TAs either make bold predictions for upside or dire warnings for downside. Traders and analysts are watching indicators like MA and on-chain analysis, while other cryptocurrency holders are sticking to fundamentals. Perhaps looking at the chart from another angle can provide another insight based on macro indicators as to where the cryptocurrency is headed. There's another indicator that could provide some direction for what's happening with major cryptocurrencies this year...upgrades.
season
Software development follows a life cycle. This is necessary in order to maintain the performance of the system as requirements change. From cars to computers, nothing stays the same forever. Since cryptocurrency is software-based, it also requires updates to correct bugs and vulnerabilities. These updates can be as simple as fixing a bug to address more complex issues. An upgrade is an entirely new version of the software, introducing new features and improvements. In software engineering terms in the crypto world, this would be called a hard fork.
Cryptocurrencies are not based solely on a blockchain, a decentralized database. They are actual software programs that run on nodes, which are distributed computer systems distributed around the world. When performing an upgrade, node runners must install a new version of the software to signal support for the hard fork. Any nodes that do not upgrade will no longer be able to connect to the blockchain. Instead, they will be on a separate chain that is no longer part of the main network.
In the crypto space or the cryptocurrency market as a whole, the three top cryptocurrencies will be upgraded in 2021. Getting the most attention in many circles is the Ethereum London hard fork, scheduled for August 4, 2021. Then there is Cardano’s ongoing Alonzo hard fork, which will be phased in from late May 2021. Bitcoin will also undergo an upgrade later in 2021, when a new feature called Taproot will be activated.
London Hard Fork Brings Deflationary System to Ethereum
Ethereum is about to solve the problem of transaction fees and unlimited supply of ETH through EIP-1559 (London hard fork). This solves the transaction fee problem by introducing a base fee for the network. This makes fees more stable rather than fluctuating to ridiculous levels. The fee charged by the network exceeds the amount of ETH sent. For this reason, it makes more sense to use the Ethereum blockchain for large transfers. This is good for miners who get a cut of the high transaction fees, but not so fair for everyone else.
Retail investors will benefit from base fees. Maybe a user just wants to mint an NFT that costs nothing. Other times, users just want to send a small amount of ETH to fund another wallet or make a simple payment. Higher transaction fees are due to demand on the Ethereum network. DeFi has been one of the catalysts leading to more usage of the Ethereum network, but it is driving up prices.
Back on March 7, 2021, the average cost per transaction was $15.53. A few months ago, on January 17, 2021, the transaction fee was only $5.41. This is a sudden increase of 187%, showing that as demand increases, so do transaction fees. If this continues, transaction fees could even reach levels close to $100 per transaction. This is why ethereum developers have to solve this problem, otherwise, fewer people will use the ethereum blockchain, which could drive down the price.
Another benefit of the proposed changes is the combustion process. During a transaction, a small portion of ETH is "burned" from fees. This is a token burning mechanism that controls the circulating supply of ETH. In the long run, this will lead to greater deflation in the money supply. Burned tokens will be permanently removed from circulation, while new tokens will still be created. This could be a means of controlling inflationary pressures in the circulating supply of ETH, but how it affects the value of ETH overall remains to be seen.
Alonzo paves the way for Cardano smart contracts
Alonzo’s hard fork marks the next stage in Cardano’s roadmap. This is part of the Goguen phase, paving the way for smart contracts on the Cardano blockchain. This happens in multiple stages, indicated by color. The current stage is called Alonzo Blue, followed by Alonzo White and Alonzo Purple. The significance of this upgrade is that developers can finally build DApps on Cardano's secure and mathematically verifiable network.
The Alonzo Blue phase will be launched on the testnet at the end of May 2021. It will be open to selected partners and developers to test the network. Alonzo White has been successfully implemented on July 15, 2021, and more participants will be introduced for testing. The last hard fork is Alonzo Purple, which will open the testnet to the public. Once these tests are complete, the smart contracts will finally be available on Cardano's network.
These upgrades are highly anticipated, as they aim to deliver. Cardano does not yet have a fully functional mainnet or commercial applications for production purposes. With a few exceptions (such as the Cardano wallet), many are still in the experimental or pilot stages. Critics have pointed out that it is overrated, but these upgrades could ultimately prove that Cardano's blockchain is useful. Charles Hoskinson (Cardano's founder) likes to point out that Cardano is based on peer review and strong developments from engineering and scientific foundations. We'll see if Cardano's smart contract platform is a real viable competitor to Ethereum and other blockchains. If it does prove its point, the value of its native token, ADA, will rise.
Taproot Brings More Privacy to Bitcoin
Bitcoin, while seemingly a good P2P (peer-to-peer) payment system, lacks privacy. While many people think that Bitcoin makes users anonymous, the opposite is true. The transactions they record can be traced back to an identity through a public address. Bitcoin is designed to be transparent, which means it does not hide transactions, but exposes them to the public. This is good for transparency, but bad for confidential transactions by large institutions for regulatory purposes, and individuals who want more privacy and security.
The question here is that it might be appropriate for the public to see a transaction like buying a cup of coffee. It's even more problematic if everyone can see your account balance, which could invite malicious intent from the bad guys. This is true for high net worth individuals and corporations. Public addresses can also expose anyone's real identity, as they can be traced to digital exchanges, where the public address is attached to the account holder's real identity (based on KYC/AML regulations).
To solve this problem, the Bitcoin Core development community proposed Taproot as a solution. Taproot is a privacy upgrade that will keep certain details of transactions private. It uses an algorithm called Schnorr signature, which combines the public key and its signature into a new signature. This is addressed in BIP-340 and 341. The functionality will be extended to other protocols such as the Lightning Network (the Bitcoin network’s second-layer payment solution). Another benefit is that it combines user details, reducing space and thus lowering transaction costs.
Summarize
Summarize
Many people are now watching the smart contract wars sparked by platforms like Ethereum and Cardano. They also face competition from the Binance Smart Chain and Polkadot ecosystems. Which smart contract is the best among investors is becoming a question. Ethereum has a good track record as most smart contract transactions are successfully processed on the Ethereum blockchain. It's just a matter of size and cost. The best smart contract must be able to process the maximum number of transactions faster and at the lowest cost.
Some miners are also opposed to the Ethereum upgrade proposal for obvious reasons. Their income will be reduced due to the transaction fee adjustment. This doesn't really matter because Ethereum is moving from mining to PoS (Proof of Stake) for ETH 2.0. A difficulty bomb will be activated, making it harder to mine, thus forcing nodes to adopt mining methods for staking. Despite protests from miners, it will go ahead as planned. Forking from the main network is possible, but this requires supporters. Miners could even launch a 51% attack, but that would really make them look bad to the rest of the community, and it wouldn't do them any good, since the network could fork from their attack. So far, the Ethereum community has shown tremendous support for staking and the implementation of EIP-1559.
Bitcoin's current upgrade may be necessary if it has any means of improving scale and privacy. For the typical Bitcoin user, this probably doesn't matter. HODLers see Bitcoin more as a store of value than as a privacy coin. After all, that's what Monroe is for. The privacy features are ideal, especially for those who want to cover their tracks from any scrutiny. However, this is exactly why regulators dislike cryptocurrencies. They want to be able to track the movement of cryptocurrencies to track money launderers. At the same time, you could argue that people have a right to privacy when it comes to the movement of money, so yes to the privacy feature. Regardless, it remains a topic for discussion as regulations around cryptocurrencies continue to emerge.
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