Could Ethereum’s Pectra Upgrade Fuel a New Ether Rally?

“There aren’t any significant specific alterations in Pectra that would affect ether’s value; however, this demonstrates the continuous dedication of the Ethereum community toward enhancing the core blockchain technology,” stated Tim Lowe, a strategic advisor at Bitwise Onchain Solutions, during an interview.

Although Ethereum (Ether) ranks as the second-biggest cryptocurrency based on market cap, it hasn’t kept pace with many of its counterparts. Year-to-date, Ether has dropped by 45.5%, whereas Bitcoin has increased by 3.6%, as reported by Dow Jones Market Data. In contrast, Solana, frequently considered an immediate rival to Ethereum, has experienced a decline of 24% over the same timeframe.

The underwhelming performance of ether can be attributed to several factors; however, one possible rationale cited by industry insiders is that Ethereum operates at a slower pace and incurs higher costs relative to certain rivals like the Solana blockchain.

Ethereum supporters previously claimed that Ethereum outperforms the Bitcoin blockchain due to its greater capability for supporting decentralized apps and smart contracts. These smart contracts are essentially self-executing codes that carry out the agreed-upon terms automatically when predetermined criteria are satisfied.

Nevertheless, this confidence has not been mirrored in Ethereum’s price recently.

The Pectra upgrade

The Pectra update comprised 11 Ethereum Improvement Proposals—documents suggesting modifications for the blockchain network. These proposals are typically authored by individuals within the Ethereum community, often including application or protocol developers. They undergo an extensive evaluation involving reviews and feedback from both proposal editors and the broader community before gaining acceptance. Interested parties who wish to serve as proposal editors may submit their applications; however, these requests will be reviewed and ultimately approved by current editors.

The Pectra update launched on Wednesday included the highest number of proposals ever enacted in Ethereum’s history, stated Sam McIngvale, who leads product development at OP Labs. This organization backs Optimism, a blockchain system constructed upon Ethereum.

Furthermore, the Pectra update marked the most substantial transformation Ethereum has experienced since The Merge in 2022, which saw the network shift from proof-of-work to proof-of-stake consensus protocols, as highlighted by Mallesh Pai, who serves as the senior director of research at blockchain firm ConsenSys. These two methods—proof of work and proof of stake—are distinct approaches used by blockchains for transaction verification. In proof-of-work systems, miners resolve complex mathematical problems to authenticate transactions, whereas, within proof-of-stake frameworks, validators secure their cryptocurrency holdings to confirm these operations.

While the Pectra upgrade was only one step in Ethereum’s effort to become speedier and more affordable while handling a growing amount of transactions, it opens the pathway for future upgrades, said Pai.

Most notably, the Pectra upgrade is supposed to improve the experience of using crypto wallets on Ethereum, as it reduces the number of clicks required to complete certain transactions, McIngvale said.

The Pectra upgrade is also seen enabling more flexible staking strategies. Ether holders could choose to stake their crypto to secure the blockchain and earn a reward. Validators currently earn an annualized staking yield of roughly 3%, according to the CESR Composite Ether Staking Rate, a index developed by CoinDesk.

Through the Pectra upgrade, the staking cap was raised from 32 ether to 2,048 ether per validator, meaning that the maximum amount of ether one validator can stake has increased significantly, according to McIngvale.

Earlier, certain big validators were required to operate several nodes or computers just to stake over 32 Ether, which led to significant delays for newer nodes trying to enter the network. Now though, it’s feasible to stake an amount ranging from 32 to 2,048 ETH with just one node.

Ether’s underperformance

One of the possible reasons for its lackluster performance could be that ether has not garnered as much attention from institutional investors compared to bitcoin, according to Lowe.

Proponents of cryptocurrencies maintain that Bitcoin and Ether serve distinct purposes; Bitcoin could potentially function similarly to digital gold, serving as a store of value, whereas Ether acts as the primary currency for Ethereum’s platform, enabling smart contracts and various decentralized apps.

Nevertheless, when they began investing in the digital asset realm, many institutional investors’ top preference remained Bitcoin, as Lowe pointed out.

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Moreover, certain direct rivals of Ethereum have seen increasing adoption recently, as these platforms assert they are quicker and less expensive.

Although certain secondary systems developed above Ethereum, known as “layer two” blockchains, made transactions more efficient and less expensive, they haven’t contributed to raising ether’s value because of Ethereum’s present economic framework, according to Lowe.

Nevertheless, Lowe contended that Ethereum holds considerable promise due to its high level of decentralization compared to other platforms that support smart contracts. Currently, more than fifty percent of all smart contract actions across various blockchains occur on Ethereum, with the total value locked within this network amounting to $51.9 billion, as reported by CoinGecko data.

Ethereum climbed 2.7% early Wednesday to approximately $1,822 based on data from Dow Jones Market Data. This price represents roughly a 56% drop from its peak of $4,105.9 recorded in November 2021.