Ethereum is the most famous of blockchains. Yet its currency, Ether, is experiencing high levels of volatility. We discuss how changes to its gas can buoy long-term sentiment.
The last 12 months have not been exceptional for Ethereum. It has been spurred on by the wave of crypto positivity but has never quite reached the heights people expect of it. For many, this is down to its blockchain. Slightly outdated in the wake of competition from adversaries like Solana, recent changes could turn it around and propel a bullish reversal.
Changes to gas limits
One major change that will revolutionize the network was introduced on Monday, 6th of February. Validators all voted on a gas limit increase, the first since 2021 when capacity increased from 15 million gas units to 30 million. This was also the first time it has been done in the Merge era of the blockchain, without the need for a hard fork. The new increase saw the capacity move to 32 million gas units by the next morning, with 36 million units expected to be the maximum capacity. More than half of the validators voted on the change.
The price of Ethereum at the time of writing has seen it around $2709. This has been a dip of around 2.7% in the last 24 hours. However, many investors have used this lull to buy the drop, effectively buying when prices are low. This is because there are a huge number of factors that signal a promising 2025, for Ethereum, mainly related to its infrastructure and changes to gas.
When the gas limit is raised, then the Ethereum network can conduct more transactions. It can also do more in-depth computations. This allows for advanced applications and a quicker time in which they can be achieved. All of this reduces the bottlenecks that can occur at peak usage times. As a result, these slow bottlenecks turn people away to other blockchains, such as Solana, which are seen as quicker and cheaper. Being able to process more transactions is seen as essential to the future of Ethereum, and its growth, and helps it remain competitive.
Gas is a major component in how the Ethereum blockchain functions. Fees are the costs that people pay to use and create on the blockchain. The level of complexity dictates how much gas is used and the fee charged. On the smaller scale of tasks, it could be sending Ether to a wallet. On the higher end, it could be creating complex smart contracts and decentralized apps. When gas fees are collected, they are paid to validators. These are the people who keep the network running by verifying and processing transactions.
This is paid to them in Ether, the currency of the Ethereum network. Gas fees are calculated using two components. These are the gas prices and gas limits. The latter is the price charged for each piece of work completed. The limit is the amount a user believes validators will work for to complete a transaction. Together, they form a gas fee. Like any service, if pay is higher, and jobs will be done quicker. This can take the form of a gas tip. When jobs are offered with lower gas fees, they have less priority and fall to the back of the line.
BlackRock continues to buy the Ether dip
It has not been all doom and gloom this week for altcoins. BlackRock, the largest asset manager in the world, has shown its commitment to Ethereum by buying into the current dip. Blackrock has bought primarily to raise funds for its Ethereum-based ETF products. The purchases amounted to around 100,535 ETH worth $276.2 million. This brings its total stock of Ether to around 1,352,934 ETH with a market value of $11.5 trillion.
An exchange-traded fund (ETF) is a company that buys a basket of commodities. When people invest in it, they don’t own the actual commodity itself. Instead, they own shares in the organizations that do. This means the value of the company tends to rise and fall with the commodity, be it oil, gold, or other assets. In this case, Ethereum is the commodity held by Blackrock.
In January 2024, the US Securities and Exchanges Commission approved Bitcoin exchange-traded funds. Due to their success, a proposed Ether fund pushed the value of the currencies upwards. Initially, there was some trepidation from the SEC to allow these. In May 2024, in a shock move, they allowed the stock exchange to list Ethereum spot ETFs. They began trading in July of the same year.
Some saw this as a win for those in the crypto community and traditional finance. The joy of ETFs is that they allow people to invest without the inherent risk of holding the asset directly. This was seen as a way for more traditional investors to become involved in cryptocurrency, effectively hedging their bets. However, they were also not without their detractors. This was mainly down to the consistent volatility of the asset, along with worries about security on its blockchain.
There are also those still on the fence about Ether ETFs. Their concerns mainly fall on the shoulders of market manipulations, which can be done by whales who hold large amounts of the currency. Regulatory uncertainty was also cited by others, as many countries still have very vague criteria about what can and cannot be done with cryptocurrency.
However, it is worth noting that BlackRock is not the only major company accumulating the asset. World Liberty Financial has also begun stockpiling Ethereum. They have purchased $307 million worth of Ether and wrapped Bitcoin. All of this bodes well for the future of the cryptocurrency.