By Yasin Ebrahim
Investing.com – Ether jumped more than 20% this week to record highs and is fast emerging from bitcoin's shadow as the crypto some hail as "digital oil" – the fuel that will power the blockchain economy.
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ETH/USD fell 0.86% to $3,488.55, but hit a record high of $3,601.59 on May 6.
Ether, the crypto used as a form of payment on the Ethereum network, is riding a wave of optimism that the promise of the future blockchain economy is starting to ring true.
The proponents of this new economy believe that applications -- be it financial such as insurance, or cultural such as digital art – should not be controlled by a single person or company, but by a decentralized network of computers around the world.
The idea is that users can be certain that the network won't be taken down by some outside force, and that their data will remain not only private, but secure.
Ethereum, which some have likened to a "supercomputer," is helping to make this new economy a reality. A platform where developers can build and deploy decentralized applications that form part of the new blockchain economy.
The increasing number of decentralized applications, particularly financial or (DeFi) apps, on the platform is pushing up demand for ether, paving the way for the crypto to become a great store of value.
"The rapid growth of decentralized finance (DeFi) is the driver behind the appreciation in Ether price. The utility of programmable money is driving the realization that ETH represents a great long-term store of value," said Manuel Rensink, Director of Innovation Strategy, Securrency.
Others, however, believe that while the potential of decentralized applications will eventually be fulfilled, it is too early to attribute the current rally in ether to the promise of this new tech.
The fees (or "gas" in ETH parlance) for transacting in ether are too high and are proving a hindrance for activity on the Ethereum network.
"I can draw a parallel to Bitcoin in 2017, when the transaction fees were so high that if you wanted to send BTC it would take about an hour to complete the transaction," Nicholas Pelecanos, the Head Of Trading at NEM Group said in an interview with Investing.com on Friday.
"The utility of what Bitcoin was intended for wasn't working, meaning the money being deployed into it was for something that didn't exist, because the network just couldn't handle it," he added. "You look at ETH now and it’s a similar story: the gas fees are so high."
But the plumbing of the network is currently undergoing an upgrade to Ethereum 2.0 that seeks to address the bottlenecks and high fees. And users are piling into ether to help support the upgrade by staking, or depositing their ETH for a reward, fueling a supply squeeze.
"Users staking ETH on the network get paid a yield, but they can't pull it for a fixed term, [creating] a supply squeeze. There's just not enough ETH to go around, supply is locked up [at a time of increasing demand] and you get a big move in ETH," Pelecanos said.
Still, the current crypto bull market has also played its role in helping ether to record highs this week.
"We're in a bull market … fundamentals mean less and we can see that from the [rally] in Doge," Pelecanos added. "The rising tide lifts all ships is very much true in a bull market and that's also what's happening."
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