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Ethereum’s biggest upgrade in years

Ethereum’s biggest upgrade in years

A collection of CryptoPunks make their real-world debut at a Sotheby’s auction. Image from Larva Labs via Sotheby’s.

Today we’re taking a look at what's changing with EIP-1559, the biggest upgrade to Ethereum’s core protocol in years. Also, apes wearing hats had a very, very good weekend — but how are CryptoPunks’ 10,000 pixelated avatars pushing NFTs forward? And finally, Tesla reports its BTC holdings and Americans report their crypto habits. All that and more in this week’s Bytes.

A peek into Ethereum’s largest update in years

The rising popularity of a 4-year-old NFT collection 

Hot takes from all corners of the cryptoverse

London Calling

Understanding Ethereum’s biggest upgrade in years

This week, Ethereum is rolling out the “London” mainnet upgrade, the largest update to Ethereum’s core protocol in years. One change — Ethereum Improvement Proposal 1559 (EIP-1559) — has generated the lion’s share of attention. Why? Because it constitutes a major shift in the economics of Ether (ETH), the network’s native cryptocurrency. Here’s how the upgrade works:

  • When you make a transaction on the Ethereum network, you pay a “gas” fee to the miner that validates the transaction. As activity on the network has surged due to a growing world of DeFi applications and NFT markets, fees have often spiked to the point that smaller or more frequent transactions are unfeasible. 

  • EIP-1559 changes this system with two main aims: making fees more predictable and reducing the circulating supply of ETH over time. You’ll now pay a simplified “base fee” that’s typically set automatically by your wallet (you can also add a “tip” to speed up transactions). 

  • But instead of going to miners, the base fee is “burned” by the network — which means it’s permanently removed from circulation. In theory, reducing supply could potentially cause prices to go up, assuming demand remains constant. 

  • The London mainnet upgrade is happening via a “hard fork” — which requires the approval of a majority of the community (users, miners, developers, and investors). It’s scheduled to go live sometime between today and tomorrow at Ethereum block 12,965,000.

  • Not everyone is on board, though. Some miners are concerned that their income will drop as a result of EIP-1559, raising the possibility of a contentious fork and reduced miner activity — or even two competing Ethereum chains (similar to what happened in 2016 when Ethereum Classic was created).

Why it matters… Burning some ETH with every transaction could eventually make the cryptocurrency a more deflationary asset and help it evolve into a “store of wealth”-style investment similar to Bitcoin — perhaps leading to more institutional adoption. AndHowever, And the London mainnet upgrade is just one of many planned changes to Ethereum. An even bigger shift, to Ethereum 2.0 (ETH2), will move Ethereum away from mining entirely.

Punky Business

CryptoPunk prices soar as NFT sales break records

The NFT art project CryptoPunks has been around since 2017 — but prices really caught fire earlier this year around the time of Beeple-mania. You likely recognize the low-fi pixel art from avatars across Twitter (including Jay-Z’s). In the last week, Punk prices exploded again. By Monday, the average price of a CryptoPunk skyrocketed 53% and NFT trading volumes reached all-time highs. How’d we get here?

  • Last Friday, entrepreneur/influencer Gary Vaynerchuk spent $3.7 million on CryptoPunk #2140 — a monkey wearing sunglasses and a knit beanie. Vaynerchuk’s investment was quickly followed by a series of escalating sales, sparking a frenzy of interest in the Ethereum-based NFTs.

  • Each Punk is algorithmically generated and unique — there are 10,000 in all. The algorithm combines attributes (clown hair, cigarettes, 3D glasses) to create thousands of different Punks. Some are rarer than others: There are only nine blue-skinned “aliens,” for example. 

  • Rare Punks, like mint-condition Mickey Mantle rookie cards, tend to garner the biggest sales. In June, a masked “alien” (dubbed Covid Alien) broke a record when it captured the pandemic zeitgeist and sold for $11.75 million at a Sotheby’s auction. And this pipe-smoking alien is currently (perhaps opportunistically) on sale for 125,000 ETH (over $300 million).

  • CryptoPunks were free when they first launched in 2017. Now? The cheapest Punk will cost you around 33 ETH (more than $80,000). 

  • Other NFT projects are experiencing record activity as well. The number of active wallets connected to Art Blocks, a market for generative art on the Ethereum blockchain, reached all-time highs last week. The project also seems to have piqued the interest of Snoop Dogg.

  • The NFT-based game Axie Infinity is also approaching record high volume. Last week, total NFTs traded in the game reached $169 million (just shy of its record $176 million weekly volume earlier in the month) according to The Block data. High-profile crypto fan Mark Cuban is among its investors.

Why it matters… Despite seeming to lose steam earlier this summer, NFTs had a record-breaking month. After four years and more than $680 million in sales, CryptoPunks — and the universe of projects they inspired — could really represent the future of digital art. As Vaynerchuk told Decrypt: “I have a lot of empathy for people’s curiosity or cynicism or debate, but I have incredible confidence in this asset. And I’m sure people said the same about a Jackson Pollock painting at some point.”

Takes

Tesla holds $1.3 billion in BTC, 13% of Americans traded crypto in last year

  • HODL on to what we’ve got... In its Q2 earnings presentation, Tesla reported $1.3 billion in Bitcoin holdings. Despite CEO Elon Musk’s concerns around crypto’s energy use, the company appears to have held on to the majority of its Bitcoin position. As Musk promised last week, “I pump, but I don’t dump.”

  • Earning points… Payments giant Mastercard launched a new program to support crypto and blockchain startups. “Part of our role is to forge the future of cryptocurrency,” said Jess Turner, executive vice president of New Digital Infrastructure and Fintech. 

  • Bulls-ish… E-commerce giant Shopify is enabling NFT sales — starting with an NFT marketplace for the Chicago Bulls. “Once again we are putting the power back into the hands of merchants and meeting customers how and where they want to buy,” tweeted Shopify’s president..

  • Service announcement… Banking giant State Street is offering crypto services to wealthy clients. State Street currently holds $3.5 trillion in assets under its management. As the head of their crypto division explained, “The growth in popularity of digital assets is showing no signs of a slowdown…”

  • Survey says… Thirteen percent of Americans bought or traded crypto in the past 12 months, according to a survey published by a research group at the University of Chicago. “Our hunch is that [crypto] will continue to lag behind more traditional investment opportunities for the foreseeable future,” said a researcher.

  • Going ape… The co-founders of online collective Bored Ape Yacht Club shared the inspiration behind their popular NFT collection of digital artworks that … double as a membership to a swamp club for apes? “What do you do now that you’re wealthy beyond your wildest dreams? You’re going to hang out in a swamp club with a bunch of apes and get weird. We also just like apes.” 

TOKEN TRIVIA

What’s the name of Bitcoin’s latest protocol upgrade?

A

Zero Cool

B

Taproot

C

Litecoin

D

SegWit

Find the answer below.

Trivia Answer

B

Taproot