Ethereum's latest on-chain data, technical progress, and 2024 highlights

ETH/BTCExchange Rate & on-chain data comparison

Since October, as of December 15, BTC is up 57.5%, while ETH is up 48.34%. Although the difference is not huge, the ETH price has not performed as BTC for nearly a year.

The strong performance of BTC is mainly due to the expectation of BTCSpot ETFs, the approaching production Halving cycle, and the recent rise of the BTC ecosystem. Although ETH does not have similar favourable information expectations in the short term, the on-chain data still shows a relatively positive signal.

First of all, from the most intuitive selling pressure, the balance of BTC on the trading platform has continued to decline since June, but there are clear signs of rebound from December 5 to December 12. After this peak, the BTC price fell from $41,000 at one point.

Compared with BTC, ETH’s balance on the trading platform has less fluctuation. Since February 2023, the balance of ETH on exchanges has been on a downward trend. ETH’s balance on exchanges also rebounded slightly between December 11 and 13, but the rebound occurred during and after the market price drop. This indicates that some investors choose to transfer ETH to the trading platform to cash out after a brief decline in the market.

In addition, according to data from the Santiment website, the overall trend of the two is similar in terms of social popularity, but BTC is significantly more popular than ETH. In terms of MVRV (the ratio of liquid Market Cap to realized Market Cap, often used to assess buying and selling pressure), the overall trend is similar, but the magnitude is quite different. As of December 15, BTC was at 41.17%, while ETH was at 26.45%, both at six-month highs.

Although Ethereum has not risen as much as Bitcoin recently, the trend change in the Ethereum market in terms of institutional interest is still noteworthy, and this phenomenon has become more pronounced after November 2023.

According to the chart of the on-chain data website Cryptoquant, some time ago, when the price of Ethereum stabilized at $1800-1900, the ETH held by institutions rebounded significantly. Cryptoquant believes that the recent surge in institutional ETH holdings indicates the growing interest from institutional investors and the recognition of Ethereum’s long-term value and market growth potential. The reason behind this phenomenon is not only the price stability of the ETH and the potential expectations of the ETHSpot ETF, but also the solidity of the Ethereum fundamentals and the upgrading of technology.

JP Morgan took a stand on the Crypto Assets industry in his recently released 2024 Financial Outlook report. The report notes that although BTC is approaching a production reduction cycle, ETH is expected to outperform BTC next year. JP Morgan sees the upcoming EIP-4844 upgrade (Proto-dank sharding) as a potential catalyst for its performance, which will improve Ethereum’s network efficiency and scalability to gain an edge in the market.

On the other hand, the favourable information of BTC’s production cut has been realized in advance into the current price. BTCBlock RewardHalving is expected to increase production costs and potentially lead to a 20% drop in Hash Rate. According to JP Morgan, this could lead to higher operating costs for Miners and pull less efficient Miners out of the market.

Key steps before the Ethereum Dencun upgrade launched

According to the report of the core developer Consensus call, at the end of 2023, Ethereum developers finally enabled the key steps before the Dencun upgrade. Ethereum developers say they will launch the Goerli shadow fork with all clients in the next one to two weeks to test the Cancun/Deneb upgrade.

Cancun/Deneb upgrade testing on Devnet 12 is underway. Currently, all Execution Layer (EL) and Consensus Layer (CL) client combinations, including the PRYSM client, have been loaded into Devnet 12. The MEV-BOOST software has been activated for most client combinations (except the PRYSM client portfolio).

The Ethereum Dencun upgrade will bring changes to Ethereum’s two Mainnet layers, the execution layer and the Consensus layer. An upgrade to the execution layer is called a Cancun upgrade, while an upgrade to the Consensus layer is called a Deneb upgrade, so collectively referred to as a Dencun upgrade.

The Dencun upgrade will further scale ETH and L2 by implementing an improvement proposed called EIP-4844. The Dencun upgrade represents an important milestone in Ethereum’s roadmap, and once the upgrade is complete, L2 fees will be more competitive.

Return the L2 function to L1 by encapsulating zkEVM

Because the L2 network can package transactions together for off-chain processing before bringing them back to the main chain, it’s a way to improve Ethereum’s scalability and a focus that Vitalik Buterin put forward at the 2020 conference (when fees on the Ethereum network skyrocketed).

Recently, Ethereum co-founder Vitalik Buterin believes that as the “light client” becomes more powerful, returning the functionality of L2 to L1 by encapsulating zkEVM will be Ethereum’s next move. Vitalik Buterin’s proposal to return some of the functionality of the L2 network or rollup to the Ethereum main chain is contrary to his idea of moving the Ethereum computational load from the Ethereum main chain to the L2 network a few years ago.

In a recent blog post, Vitalik Buterin pointed out the importance of light clients, i.e., light nodes that strip client software. These light clients only request data as needed, rather than independently verifying changes to Blockchain data by keeping a copy of their data. Typically, light clients or light nodes primarily handle block headers and only occasionally download the actual block content.

Vitalik Buterin believes that as their features and data increase, these light clients will become more powerful and can even fully validate L1 transactions like L2 networks. At that point, the Ethereum network will effectively have a built-in ZK-EVM.

ZK Zero-Knowledge Proof is a cryptographic protocol that allows one party to prove the correctness of a transaction to another without providing any specific transaction details. EVM, on the other hand, is Ethereum’s virtual machine, and like a computer uses to execute programs, the EVM is actually responsible for executing smart contracts.

Currently, L2 networks (such as Polygon, Scroll, Matter Labs) are using Zero-Knowledge Proof, and these platforms are major stakeholders in Decentralized Finance. As a result, Vitalik Buterin’s approach to encapsulating zkEVM may take some of the momentum off these platforms. So, how will the functionality of L2 change if zkEVM is encapsulated and becomes part of Ethereum’s original protocol?

According to Vitalik Buterin, these L2 projects will still be responsible for a number of important functions. Some of these features include rapid pre-confirmation, MEV mitigation strategies, and scaling of EVMs. In addition, the method of encapsulating ZKEVM will also handle user and developer-facing convenience. According to him, “The L2 team has done a lot of work to attract users and projects to its ecosystem and make them feel welcome, and by capturing MEV and trading congestion charges in the network, the L2s can be compensated with some profits.” This relationship will continue. ”

Key Highlights of ETH in 2024

The Dencun upgrade will be deployed in March or April 2024, and with EIP-4844, the gas cost of Ethereum L2 will be greatly drop, and the scalability of the Ethereum will be improved.

Ethereum L2 activity continues to grow and is now at an all-time high. According to recent data from L2Beat, the total value of the entire ecosystem is $16 billion.

The current L2 is mainly EVM-compatible, such as Arb, OP, Metis, etc. In addition, non-EVM L2s such as Eclipse and Flyent are being launched, which will bring new types of applications and developers. Crypto games will be primarily based on the L2 ecosystem, and the Wallet user experience will continue to improve, allowing the Ethereum ecosystem to absorb more new users.

Finally, the Token of assets in the real world has been gaining momentum to bring more “old world” financial products to the EthereumBlockchain.