Yuriko Nakao
Major upgrades to the ethereum network could help ether gain a reputation as a store of value, in a potential challenge to bitcoin, Danish investment bank Saxo has said.
Developers on the ethereum network have launched an update that will change the way transaction fees work.
After each transaction, part of the fee will be “burned”, destroying ether and limiting its supply. The changes, which are known as the “London update”, will likely be fully complete by late July or early August.
“Not only is the burning mechanism good for [ether] holders as the inflation rate will be reduced, but it also reduces the impact miners have on the market by compensating them [with] less ether, thus limiting potential sell pressure from them,” Saxo Bank’s cryptocurrency analyst Mads Eberhardt said in a note on Monday.
“The London update also puts pressure on the store-of-value narrative in regards to bitcoin, as the ethereum inflation will likely fall to the level of bitcoin, while the ethereum network is having a higher demand for transactions.”
Crypto advocates have long argued that bitcoin can act as a “store of value” that will not depreciate over time and can shield investors against inflation. This is because the number of coins that can ever be produced is limited to 21 million, with around 18.7 million already in existence.
However, the supply of ether is potentially unlimited, making the token a more problematic store of value. The ethereum network upgrades in part aim to tackle this problem by reducing the supply.
Yet critics argue that cryptocurrencies’ volatility means they are unsuitable as investments. They also say that the lack of use cases for cryptocurrencies – unlike traditional inflation hedges such as gold – mean they are less reliable as stores of value.