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Explaining new updates to the Ethereum network

CoinDesk's Learn Editor Ollie Leech explains why Ethereum has paced above Bitcoin recently.

Video Transcript

- What goes down goes up again. Take a look at what's happening with Bitcoin. It's trading almost at $40,000. It's $39,000 roughly $600 in change. And a lot of people are wondering when they might be able to get a bit of action in crypto, whether it be Bitcoin or the other cryptocurrencies, especially after what Gary Gensler was saying yesterday. Let's bring in Ollie Leech. He's the learn editor at CoinDesk. And what's the takeaway that you think is the most important thing we should pay attention to with his talking about the need for the SEC to have regulatory authority over this, but perhaps opening the door to ETFs on cryptocurrency?

OLLIE LEECH: Yeah, absolutely. The ETF stuff is really really exciting. But let's dial back a second. When he had the interview with Bloomberg on Tuesday, it's kind of dampened a bit of the optimism about Gary Gensler stepping into the role as the head of the SEC. He considers himself a pro crypto person. He's taught blockchain courses in the past. But he said he's not going to be a soft touch. And I think that's what some crypto people were hoping for. He said that the SEC are looking into several areas, including D Fi lending, namely interest rate returns received from lending which could fall in the SEC's oversight, stablecoins.

He also said that regulating exchanges would be an easy option for gaining more control over digital asset fraud and things like money laundering. And he also said that he believes many crypto tokens in the market today could be unregistered securities, kind of repeating what Jay Clayton said before him about ICOs, which could be a real concern for altcoin holders. When you consider the Howey test and a lot of speculative traders right now are purchasing tokens with the expectation that the rise in value based on the efforts of the projects that are selling them.

So that's something that's really something to be sort of wary of going forward. Also Gary Gensler really didn't make any comment about the potential approval of an exchange traded fund, even though there is a growing stack of them on his desk right now. I think there's over a dozen now. Global X digital assets is the latest firm to submit an application for an ETF.

So all of this kind of seems to be kind of dampening the mood a little bit as there's not a great deal of certainty around what's going to happen in the United States in the regulatory space at the moment. So I think that's what's keeping the price of Bitcoin down at the moment.

SEANA SMITH: Ollie, do you expect all of those concerns, do you expect that to keep the Bitcoin buyers on the sidelines, at least in the short term?

OLLIE LEECH: I think so. There's a few other factors at play. But I think the regulatory side of it is a real cause for concern. And I mean, if you look at the chart, there was a strong resistance around that sort of $42,000, $43,000 mark. It was a key level around May and February. We've come back underneath that 40K mark, which is a key psychological level to overcome. And there's other things as well. Ethereum is doing really, really well right now. They've got the London hard fork coming up some time tomorrow. And I think there could be investors pulling out of Bitcoin right now and putting that into Ethereum.

- Can you help us understand what's about to happen to Ethereum?

OLLIE LEECH: Yes. Sure. So it's a really promising upgrade, unless you're an Ethereum minor. So basically, it's going to initiate a London hard fork. It's a non backwards compatible upgrade that will bring into effect five Ethereum improvement proposals, EIPs. There's only two that you really need to be aware of. And that's the EIP 1559. And what it's going to do, so right now, when Ethereum is heavily congested, which is a lot at the moment, NFTs and D Fis booming, there's no telling what fees are going to be.

And sometimes people can easily overpay fees. And it just makes the network very undesirable. And it's just one of those kind of things that are really holding Ethereum back. So what tomorrow hopefully is going to bring is a base fee. And that's just going to make fees more predictable. But the big thing, right, and that's what people need to understand, is Ethereum's supply is unbounded. And so there is no cap on its supply where you have something like Bitcoin and it has 21 million coins. Ethereum coins which just keep creating.

And so what this EIP is also going to do is when people send an Ethereum transaction, they have to send a small amount of Ethe to power that transaction. Normally that goes to miners right to incentivize them to process your transaction. But what's actually going to happen with this new upgrade is that it's actually going to take a piece of that Ethereum and burn it. They're going to completely destroy it. And what that's going to do is actually help to sort of keep the supply in check, which I think will kind of improve Ethereum's sort of longer term investment sort of benefits, the way it looks. It's a little bit more attractive.

And yeah, and it's basically-- it's just going to sort of make the whole system, the transaction wait times, a little bit better and kind of remove that fee markets of uncertainty. The problem is though is obviously there are a lot of people that make a living mining Ethereum. And this proposal is going to stop really eating into their revenues. And so this is what's caused a lot of the upset. And this is sort of something that's going on in Ethereum right now as it migrates from a mining system over to a staking mechanism.

There's also another one called EIP 3554. And that's basically going to delay the difficulty bomb to December. And what that means is the difficulty bomb when that goes off, that's just going to make mining even harder. And the idea of it is to basically force miners to sort of leave the network. And it's kind of promoting staking. It's kind of helping that migration across transition a bit faster. And that's been delayed because still Ethereum just hasn't quite got it together yet with this proof of staking mechanism at the moment.