In the past twelve months, Ethereum has seen its price increase by 980%, while Bitcoin has risen by 340%. The practicality of smart contracts has led to an increase in demand for ETH, and the coin’s deflationary mechanism burns more than what miners can produce.
One of Ethereum’s price drivers has been the NFT market, which has gone from a cumulative value of $17 million at the beginning of the year to $1.8 billion at present. Almost every world-known brand, from NASA to the Hermitage, now has a digital collection. The only thing impeding this more rapid growth for this sector is the high fees on the Ethereum network, which currently stand at over $50.
The increased costs prevent a larger audience from using NFTs, where most artworks cost less than $100. Nonetheless, user activity on the biggest platform for exchanging digital art, OpenSea, puts the platform at the top in terms of the volume of ETH burnt.
ETH started to be burnt when the EIP-1559 update came into force, which now envisages the base transaction fee being destroyed and miners collecting ‘tips’ whose size is set by the sender. Currently, over $2.5 billion worth of ETH has been burnt; the burnt amount typically exceeds what miners produce daily. This tendency became more apparent at the end of October, when demand for meme cryptocurrencies increased.
Most dog-related meme cryptocurrencies are based on ERC-20 tokens, meaning one first needs to get ETH first to buy them. In October, the fastest performers were ELON (4,000%), SHIB (800%), BABYDOGE (560%) and SMI (540%). The surge in interest towards hyped-up instruments has caused a rise in network activity on Ethereum.
Increased demand for meme cryptocurrencies has a wavy pattern. In contrast, NFTs create more consistent demand for Ethereum, which provides for long-term growth against Bitcoin. Vitalik Buterin’s coin can benefit even more from the transition to the proof-of-stake algorithm, but that is a different story.
The StormGain Analytical Group
(a platform for trading, exchanging and safeguarding cryptocurrencies)
